APICS:CPIM-MODULE 5

STRATEGIC MANAGEMENT OF RESOURCES

Presented By Vipin Kumar-108 NITIE PGDIE-41

Session 1

ALIGNING RESOURCES WITH STRATEGIC PLANS

Principle of Competitive Exclusion

No two species can coexists that make their living in identical way Professor G.F. Gause (Father of Mathematical Biology) Given two species competing for same resources with out constraints, one species will, in time, displace the other

Without creation of a wellthought- out set of strategies company will never survive

For the business this means Some company will extinct, while other will adept and survive 3

Strategy
The word strategy is derived from the Greek military term Strategos meaning the art of general. It can be define as the plan for how to marshal and determine actions to support the mission , goals and objective of an organization. APICS Dictionary

Organizations Strategy components

Development of time horizons Identification and evaluation of key events Development of a plan to create, hasten or compound a distinctive competence Creation of competitive advantage Flexibility of decision patterns Transformation of inputs into value-added outputs. Commitment of necessary resources
5

Type of strategies
Financial strategy

Operations strategy

[Link] Strategy [Link] strategy

Marketing strategy

Product development strategy

Vision

Mission

Organizational objectives

Corporate strategy
Environmental scanning Internal strength and weakness analysis
7

Business strategy
Price leader ship
Low cost operations Effective supply chain management Standardized off the self product Standardized process

Product differentiation

High quality product Easily adaptable process

Focus towards a particular customer

Customized for targeted market segment Responsive delivery and process flow

Operations strategy
Corporate strategy Focus : Survival Focus : Distinctive competency in the field

Business strategy

cost Flexibility

Operations strategy

Focus : competitive strategies

Quality
Delivery

Elements of Operations Strategy

Low-cost product Product-line breadth Technical superiority Product characteristics/differentiation

Continuing product innovation

Low-price/high-value offerings Efficient, flexible operations adaptable to consumers Engineering research development Location Scheduling
10

Preconditions
One must understand:
Strengths and weaknesses of competitors and possible new entrants into the market Integration of OM strategy with companys strategy and with other functional areas

The product life cycle

Current and prospective environmental, technological, legal, and economic issues

Resources available within the firm and within the OM function

11

high

Global Strategy Standardized product Economies of scale Cross-cultural learning Examples Instruments Caterpillar Otis Elevator

Transnational Strategy Move material, people, ideas across national boundaries Economies of scale Cross-cultural learning Examples Coca-Cola Nestl

Cost Reduction Considerations

Four International Operations Strategies

International Strategy Import/export or license existing product
Examples U.S. Steel Harley Davidson Multidomestic Strategy Use existing domestic model globally Franchise, joint ventures, subsidiaries Examples Heinz TheBody Shop McDonalds Hard Rock Cafe

12 low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)

high

Competitive advantage categories

Order winner Characteristics that make your customer prefer you over competitor

Qualifiers
Characteristics you need to get in to the game

Nonissues Characteristics that do not enter into the competitive picture for that market niche
13

A firm can compete on

Quality Quality

Time

Price Price

Service

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Delivery

Product Design Product Design

Flexibility Flexibility

Quality
In many markets today . the quality is increasingly considered an order qualifier or necessary condition. In some market a perceived higher level of quality may be a competitive advantage. In other words quality is required to be in the game Some common definitions are
Quality is customer satisfaction Quality is Fitness for Use. Quality is The totality of features and characteristics of a product or service that bears on its ability to satisfy given needs.
The American National Standards Institute (ANSI) the American Society for Quality (ASQ) 15

Approaches to Quality
Transcendent quality is an ideal , a condition of excellence . Product based quality based on a product attributes User based quality is fitness for use Manufacturing based quality is conformance to requirement Value based quality is the degree o excellence at an acceptable price

16

Methodology: Quality function deployments

Quality function deployment (QFD) can be define as A methodology designed to ensure that all the major requirements of the customer are identified and subsequently met or exceeded through the resulting product design process and the design and operation of the supporting production management system
More details In further slides

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Quality cost
Internal Failure Cost: cost associated with defects , such as error or nonconformance . that are found before delivery of the product to the customer External Failure Costs : Cost associated with defects that are found after the product is shipped to the customer Appraisal Costs : Cost incurred in determining the degree of conformance to quality requirements (non value added costs). Prevention Costs : Costs incurred in keeping failure and appraisal cost minimum (Value added Cost).

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JIT/Lean system- Another Way To Achieve Competitive Advantage

19

 Lean is a highly coordinated processing system in which goods move through the system, and services are performed, just as they are needed,

Important Concept Of JIT/Lean

It is an approach to achieving manufacturing excellence based upon the continued elimination of waste.

20

Waste and its type

Waste is defined as activities that do not add value to the product.

Waste in Operations:
Walking Searching Standby Rework Changeover

Waste in Layout:
Distances traveled Backtracking Crowded Conditions Redundant handling

Waste in Flow of Goods:

Overproduction W.I.P. Failure to Meet Standard Output/ Hour/ Person
21

Waste and its type cont.

Waste in Equipment
Line stops Broken Down / Antiquated, Poor Production Yields
Other Waste Poor Housekeeping Practices Damaged Materials Improper Tools Not Having the Right Information
22

Big vs. Little JIT

Big JIT broad focus Vendor relations Human relations Technology management Materials and inventory management Little JIT narrow focus Scheduling materials Scheduling services of production

23

Summary JIT Goals and Building Blocks

Ultimate Goal A balanced rapid flow

Supporting Goals

Eliminate disruptions Eliminate waste

Make the system flexible

Product Design

Process Design

Personnel Elements

Manufacturing Planning

Building Blocks

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JIT Building Blocks

Product design Process design

Personnel/organizational elements
Manufacturing planning and control

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Product Design
Standard parts

Modular design
Highly capable production systems Concurrent engineering

26

Process Design
Small lot sizes Setup time reduction Manufacturing cells Limited work in process Quality improvement Production flexibility

Little inventory storage

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Personnel/Organizational Elements
Workers as assets Cross-trained workers

Continuous improvement
Cost accounting Leadership/project management

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Manufacturing Planning and Control

Level loading Pull systems Visual systems

Close vendor relationships

Reduced transaction processing Preventive maintenance

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Pull/Push Systems
Pull system: System for moving work where a workstation pulls output from the preceding station as needed. (e.g. Kanban) schedule work releases based on demand. inherently due-date driven control release rate, observe WIP level Push system: System for moving work where output is pushed to the next station as it is completed authorize work releases based on system status. inherently rate driven control WIP level, observe throughput

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Kanban Production Control System

Kanban: Card or other device that communicates demand for work or materials from the preceding station Kanban is the Japanese word meaning signal or visible record Paperless production control system Authority to pull, or produce comes from a downstream process.

31

Comparison of JIT and Traditional

Factor Traditional JIT

Inventory
Deliveries Lot sizes

Much to offset forecast errors, late deliveries

Few, large Large

Minimal necessary to operate

Many, small Small

Setup; runs

Few, long runs

Many, short runs

Vendors Workers

Long-term relationships are unusual Necessary to do the work

Partners Assets

Transitioning to a JIT System

Get top management commitment Decide which parts need most effort Obtain support of workers Start by trying to reduce setup times Gradually convert operations Convert suppliers to JIT Prepare for obstacles

33

Obstacles to Conversion
Management may not be committed Workers/management may not be cooperative

Suppliers may resist

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Benefits of JIT Systems

Reduced inventory levels

High quality
Flexibility Reduced lead times

Increased productivity
Increased equipment utilization Reduced scrap and rework Reduced space requirements Pressure for good vendor relationships Reduced need for indirect labor
35

Elements of JIT
Smooth flow of work (the ultimate goal) Elimination of waste Continuous improvement Eliminating anything that does not add value Simple systems that are easy to manage Use of product layouts to minimize moving materials and parts Quality at the source Poka-yoke fail safe tools and methods Preventative maintenance Good housekeeping Set-up time reduction
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Cross-trained employees A pull system

Session 2

CHOICES AFFECTING OPERATIONS STRUCTURE

37

Focus of session 2
Manufacturing operations strategy Focus: competitive priorities Cost Flexibility Quality delivery
Decision focus Infrastructure [Link] nal infrastructure design 2. Work force involvement [Link] systems configuration s

Management Level of function operation [Link] [Link] management building [Link] [Link] staff [Link] [Link] [Link] activities Operationstion strategy [Link] [Link]

Critical resources [Link] [Link] [Link] Knowledge

Decision focus Structure [Link] nal structure design [Link] design [Link] design [Link]

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Critical Operation Decisions

[Link] decision Process-focused strategy Product-focused strategy Customer-focused strategy [Link] factor Decision Product volume , variety , profile and range Type of process Product life cycle Product/service matrix Market entry and exit timing
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Strategy Choice
[Link] decision Organizational structure design Capacity strategy Facilities strategy Technology [Link] decision Organizational infrastructure design Work force involvement Operation system configuration
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Product Decision
Primary choice for firms when formulating a manufacturing operations strategy is to either adopt Process-focused strategy or Product-focused strategy or Customer-focused strategy Process-Focused Strategy: Adopted by facilities with a wide range of customized products or Service at low volume Production system Often referred to as a job shop Best suited for complex and capital sensitive manufacturing process.
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Product Decision cont.

Product or Service Focused Strategy: Adopted by facilities with narrow range of standardized products or service at high volume Production process is often called as flow-shop Factories use similar routing through the production process Product are manufactured more efficiently due to similar routings. Customer focus strategy: Focus on the customer is an essential driving force behind quality , productivity, and successful marketing . company needs to understand the customer wants , needs , no needs as well future requirements that may impact the manufacturing of products.

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Product Characteristics
After the firm choose a Process-focused strategy or Product/service -focused strategy it need to consider several other product issues Product volume and variety Product range Product grouping Product profiling Product and service technology life cycle

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Volume And Variety

Product volume
Refers to the overall quantities of a particular product or product family in a market niche

Product variety
Refers to the number of end items that are possible for a product or product family

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Volume And Variety Matrix

High

Variety

Job shop Batch manufacturer

Line manufac.

Low

4
volume

continuous High
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Product range
Niche 1
Same Product or Product Families

Niche 2

Niche 3
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Different volumes and varieties of product will result

Product Grouping Questions

What are the overall firm strategy and marketing strategy? What market niches are being served? What products are being sold in those niches? What are the order winner and qualifiers for product in each niche? What are the current and expected volumes and varieties for product in each niche? How should we create a product grouping What are the manufacturing strategies for each grouping?
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Order Winners And Qualifiers

Niche 1

Order winners, qualifiers determine the formulation of the planning and control system

Niche 2

Niche 3
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Product Profiling
Product profiling seeks to determine the degree of fit between the deployment choice of the firm and the current and expected volume and varieties of products in each market niche.

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Template For Product Profiling 1

Volume and variety Issues Products and market Type of product Product variety Product volume Amount of change required Need of flexibility Order winners Special High Low High High Cost /price Flexibility Quality Delivery Standard Low High Low Low Price 50 1 Job shop 2 Batch 3 Line 4 continuous

Template For Product Profiling 2

Volume and variety Issues Products and market Type of product Product variety Product volume Amount of change required Need of flexibility Order winners Special High Low High High Cost /price Flexibility Quality Delivery Standard Low High Low Low Price 51 1 Job shop 2 Batch 3 Line 4 continuous

Template For Product Profiling 3

Volume and variety Issues Products and market Type of product Product variety Product volume Amount of change required Need of flexibility Order winners Special High Low High High Cost /price Flexibility Quality Delivery Standard Low High Low Low Price 52 1 Job shop 2 Batch 3 Line 4 continuous

Product And Service Technology Life Cycle

Stages of a product services Birth of the delivery system Design and process technology selection Design of the delivery system Startup of delivery system Growth of volume Stable state Decline and renewal of the system

53

Low High

Market share

High

Market Growth

Question Mark

Star Performer

Low

Dogs

Cash Cows
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Product And Service Portfolio Matrix

Product And Service Portfolio Matrix Explained

Product or services are in startup and early growth stages. Growth of volume

Stable state
Decline and renewable stage
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Exit Timing
Stable state Decline and renewable

Enter Timing

Growth of volume

Blunder

Standardized High Volume Flexible Than Sift Towards Standardization And High Volume
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startup

Innovative

Market Enter And Exit Timing

Product Life Cycle

Product sales
More stable design with fewer models Low volumes Higher volumes
High volumes Very few models Rapidly changing variety Lots of new features and options, leading to lower volumes per product type Decline 57

Introduction

Growth

Maturity

QUESTION AT INTRODUCTION PHASE

What product and service will be offered? What is the design of product and service? What is the expected market for product and service? What volume and process capacities are required? What level of process technology is appropriate? What type of equipment and labor force should be selected? How should the production or service delivery system be organized? What information system should be chosen ?

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QUESTION AT GROWTH PHASE

What facilities and process upgrades are required How will production or service delivery be scheduled How will performance be evaluated How will distribution system be organized 59

QUESTION AT MATURITY PHASE

What process efficiency are necessary? What product and service features are required? What market repositioning is appropriate? What follow-on product or service should be considered? 60

3/31/2012

QUESTION IN THE DECLINE PHASE

What is the salvage value of facilities ? How much repair part stock should be produced ? How can the effects on employees be minimized? What are the long range responsibilities for the product or service, process technology and production system residue? 61

3/31/2012

LIFE CYCLE AND MANUFACTURING DEPLOYMENT

Start-up Of Operations Growth Of Volume Stable State Declining And Renewal

Product Service

Volume
Variety

Low

Increasing

High

Declining

Unique Product Increasing Or Services Standardization

Emergence Of A High Dominant Standardization Design

Process Technology Organization Innovation Integration Structure Fixed Project Small Batch Job Shop High Low Small Competitor Medium Medium Consolidation And Fallout Quality And Flexibility Line Flow Assembly Line Flow Assembly Process Process Medium Medium Few Large Company Price/Cost And Delivery Low High Survivors 62 Price/Cost

Industry Factors

Competitive Flexibility Priority

Focus of session 2
Manufacturing operations strategy Focus: competitive priorities Cost Flexibility Quality delivery
Decision focus Infrastructure [Link] nal infrastructure design 2. Work force involvement [Link] systems configuration s

Management Level of function operation [Link] [Link] management building [Link] [Link] staff [Link] [Link] [Link] activities Operationstion strategy [Link] [Link]

Critical Decision resources focus Structure [Link] [Link] [Link] nal structure [Link] design Knowledge [Link] design [Link] design [Link]

Decision focus Structure [Link] nal structure design [Link] design [Link] design [Link]

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ORGANIZATIONAL STRUCTURE DESIGN

Organizational design focuses on the decision by operations Management about the features and linkages of the organization. It has two aspects: Mechanisms that define the features

Mechanism that link parts

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Types of Organizational Structures

Simple Structure Functional Structure Divisional Structure Conglomerate Structure Hybrid Structure Matrix Structure Team-Based Structure Network Structure
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Simple Structure
Owner
Administrative Assistant

There is only one hierarchical level of management beneath the owner

66

Characteristics of Simple Design

Small in size Less than four levels Little formalization Low complexity Centralized authority

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Functional Structure

President

Vice President, Marketing

Vice President, Finance

Vice President, Production

Vice President, Human Resources

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Characteristics of Functional Design

Used in large organizations Define staff function and one organization Requires functional specialties Less centralization Higher formality of functional design

69

Divisional Structure
Function Product Divisions group activities are arranged around similar products or services Customer Divisions group activities around common customers or clients

Geographic Divisions group activities around defined regional locations

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Product Divisional Structure

President

Motion Pictures & TV Division

Music Division

Magazine & Book Division

Internet Products Division

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Customer Divisional Structure

President

Consumer Loans

Mortgage Loans

Business Loans

Agriculture Loans

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Geographic Divisional Structure

President

Western Region

Northern Region

Southern Region

Eastern Region

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Characteristics of Divisional Design

Great horizontal differentiation Made up of self-contained business unit Different product and services Differing level of process Different locations Decentralized authority Possibly redundant technical and administrative functions

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Conglomerate Structures

President

Lighting Products

Appliances

Aircraft Engines

Plastics

Financial Services

Broadcasting

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Characteristics of Conglomerate Design

Little task or output dependency Receives resources from conglomerate Return revenue to conglomerate independently functioning groups Distribution of risk over several business units High complexity

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Hybrid Structures
Product Divisional Structure President

President Cadillac

President Buick

President Pontiac

President Chevrolet

VicePresident, Production

VicePresident, Marketing

VicePresident, Finance

VicePresident, Human Resources

Functional divisional structure

Manager Region I

Manager Region II

Manager Region III

Manager Region IV

Geographical divisional structure

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Characteristics of Hybrid Design

Integrated functional design Duality of responsibility Decentralization Very low level of formality Highly complex

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Matrix Structure
Project structure
Vice President, Engineering Project Manager, Taurus Project Manager, Mustang Project Manager, Explorer Project Manager, Expedition President

Functional Structure
Vice President. Marketing Subordin ate reports to both Vice President of marketing & to project Manager

Vice President, Finance

Vice President, Production

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Characterstics of Matrix Organization

Efficient use or resources Flexibility in conditions of change and uncertainty Technical excellence Freeing top management for long-run planning Improving motivation and commitment Providing opportunities for personal development

80

Team-Based Structures
Functional structure
Vice President, Research & Development Vice President, Design President Vice President, Engineering Vice President, Marketing

Project teams

Product Team Manager, Manufacturing Light Trucks

Product Team Manager, Manufacturing Sedans

Product Team Manager, Manufacturing Sport Cars

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Project team members

Network Structure
Design Studio
Sweden

Components Assembly
Mexico, Asia

Core of personal computer company USA

Engineering Company
Japan

Distribution Company
Canada

Accounting & Finance

USA

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Capacity strategy
Capacity strategy is the process of identifying , measuring, and adjusting the limits of the transformation process to support competitive priorities such as
Cost Quality Delivery Flexibility

There are three type of capacity strategies Lead strategy Lag strategy Tracking strategy
83

Lead strategy
Lead strategy: firms tries to add capacity in anticipation of increased demand. This ensure that There will be almost always be excess capacity Advantages
Excess capacity used to handle emergency orders or recover from unexpected interruption in production Excess capacity can also be used to seize market share in an expending market

Disadvantages
Larger cost than the firms operating with capacity close to needs If market demand not expend firm need to downsize more quickly then the other firms Constant pressure to manage extra capacity to reduce financial burden

84

Lag strategy
Lag strategy : it advocates the adding capacity only when demand patterns are obvious this means using every bit of capacity until the firm is running 100% capacity regularly Advantages
This strategy minimize the cost Minimize the possibility to be caught with excess capacity in downturn or in the market that does not expend as expected

Disadvantages
As firm is operating at full capacity there is no room for error In case of any unexpected shut down or break down recovery to meet schedule is almost impossible No capacity to cushion the shock to the internal environment

85

Tracking strategy
Tracking strategy : in the tracking strategy the firm tries to add capacity in small increments to follow demand pattern closely. Small increment imply decision such as adding overtime or subcontracting work. Advantages
in short run it provides the best of above mention two strategies the firm can often add sufficient capacity to accomplish the market expansion and still minimize costs

Disadvantages
It is not effective in long turn The need to add the bigger chunk as market grows make this strategy ineffective

86

Facilities decision
Size The four major decision associated with facilities are

Location

Focus

Layout

87

Facility size
The optimum size of facility depends on the tradeoffs among three dimensions of volume Scope: the no. of items Scale: the total annual volume Vertical integration: the average no. of processing steps carried out in the facility Facility size is motivated primarily by vertical integration economics rather than by economies of scale or scope

88

Facility Location
Competitive Imperatives Impacting Location

The need to produce close to the customer due to timebased competition, trade agreements, and shipping costs.
The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills

89

Issues in Facility Location

Cost factors
Facility cost Taxes Local labor rates Utility cost Transportation coast

90

Issues in Facility Location cont.

Qualitative factors
Free Trade Zones Proximity to Customers Business Climate Political Risk Government Barriers Trading Blocs Environmental Regulation Host Community Competitive Advantage Infrastructure Quality of Labor Suppliers

91

Characteristics of Location Decisions

Long-term decisions Very difficult to reverse Affect fixed & variable costs Transportation cost :As much as 25% of product price Other costs: Taxes, wages, rent etc. Objective: Maximize benefit of location to firm

92

Location Decision Sequence

1. Country

2. Region/Community

3. Site

93

Factors Affecting Country Decision

Government Culture & economy Market location & size Labor Productivity Cost Skills Infrastructure Exchange rate Incentives

Factors Affecting Region/Community Decision

Corporate desires Attractiveness Labor Utility costs Local government incentives Proximity to customers & suppliers Land/construction

Factors Affecting Site Decision

Site size Site cost Transportation in/out Proximity of services Environmental impact

Plant focus
The concentration of work in a plant on a limited concise manageable set of products, technologies, volume and markets precisely define by the company's competitive strategy its technology and economics

Plant focus on

Product

Process

Customer

97

Functional Plant Layout

Common

for a large variety of products in batch volumes. Similar processes are grouped together. Inefficient: Long material transport routes from dept. to dept. Work in progress is high. Tracking of orders can be difficult. Advantages: Specialist labour and supervision. Flexibility as material can be rerouted in any sequence.
Material 1

L L

L L

M M

M M

Material 2 ASSEMBLY 1 Product 1

D
D

D
D

Product 2
ASSEMBLY 2

G G

G G

98

Product Plant Layout

Mass

production where variety is small and production volumes are very high. AKA flow or line layout. More efficient, but less flexible than functional layout.

Work in progress is minimised, and jobs are easily tracked.

Investment in specialised capital equipment is high, so a reliable and steady demand is required. Very sensitive to machine breakdown or disruption to material supply.

A S S E M B LY

99

Cellular Plant Layout

AKA Group Technology

L
D

M
G

Each cell manufactures products belonging to a single family.

Cells are autonomous manufacturing units which can produce finished parts.

ASSEMBLY CELL 1

Commonly applied to machined parts.

Often single operators supervising CNC machines in a cell, with robots for materials handling. Productivity and quality maximised. Throughput times and work in progress kept to a minimum. Flexible. Suited to products in batches and where design changes often occur.
L
L M D M G
ASSEMBLY CELL 2

L
G

ASSEMBLY CELL 3

100

Fixed Position Layout

COMPONENTS Fixed

Position Layout Single large, high cost components or products. Product is static. Labour, tools and equipment come to the work rather than vice versa.

MATERIAL

LABOUR

PRODUCT

LABOUR COMPONENTS

MATERIAL

101

Session 3

CHOICE AFFECTING OPERATION INFRASTRUCTURE

102

Manufacturing operations strategy

Focus: competitive priorities Cost Flexibility Quality delivery

Management Level of function operation [Link] [Link] management building [Link] [Link] staff [Link] [Link] [Link] activities Operationstion strategy [Link] [Link]

Decision Critical Decision focus resources focus InfrastructureStructure [Link] [Link] [Link] nal nal structure [Link] infrastructuredesign design Knowledge [Link] 2. Work forcedesign involvement [Link] [Link] design systems [Link] s

Decision focus Infrastructure [Link] nal infrastructure design 2. Work force involvement [Link] systems configuration s

103

Productivity
Productivity is generally defined as way to measure the effectiveness of resources utilization for individuals, facilities companies and [Link] is the amount of value added in the transformation process between the input and the output of the corporation

Input

Value added

Input

104

Infrastructure Decision Categories

Workforce involvement-------- Number of people type of people degree of skill degree of empowerment

Organizational design--------- Vertical or horizontal Centralized or decentralized Matrix Number of levels

105

Infrastructure decision categories cont.

Operation systems configuration
Quality
Inspection: degree, type and frequency Process capabilities Type of control interaction with design Employee participation Top management support

Manufacturing resource planning

MRP II JIT order point Purchasing systems Forecasting Demand management Distribution system
106

Information systems
Type of information Degree of access Degree of technology Types of reports

Staffing Decision
Coordinate with Choice of process Other structural decision Technical requirement Statistical process control technique Process improvement tools Managerial improvement

107

Changes in work force management

Characteristics Strategic resources Location of power Decision logic Decisions based on Distribution of power Operations Strategy Organizational design Traditional Materials based organization Capital or labor Management and as delegate staff Judgmental Experience opinion To a few Sequential segmented Peripheral showpiece Tall Emerging information based organization Information Technical specialists Computational Diagnosis To many Synchronous , integrated Integrating overview Flat

Knowledge location

Support staff

Line operations

108

Empowerment
Empowerment is a natural extension of the long-understood and practiced idea of delegating authority commensurate with responsibility

109

Job content and worker task

Technical skill required Competitive advantage desired

Job content worker task

Level of empowerment desired

110 Functional skill needed

Appraisal and reward system

Team related peer assessment Team appraisals by management Key indicators connected to preferred behavior Employee stock ownership plans Shares of cost reductions given to worker Profit-sharing bonus Piece-work-based compensation

111

Suggestion programs
Reward all good suggestions Encourage participation Implement suggestions quickly Allow anonymous as well named submissions Thank individual who contribute

112

Cross functional work team

Involve work from different department Assembled to solve major company wide problems Uses standard problem-solving and project management techniques

113

Self Directed Work Teams

A self-Directed work team I generally a small, independent, self organized, and self controlling group in which members flexibly plan organize, determine and manage their duties and actions, as well as perform many other supportive [Link] can have the authority to select hire, promote or discharge its member.

114

Job design
A job design defined and integrates the activities of activities of an individual worker with those of other team members and with the rest of the organization. It includes jobenhancing possibilities, such as Job rotation Job enrichment Job enlargement

115

Job design process

In a multi step process 1. Assess the work environment and the job 2. Infer the type of employee required 3. Define the responsibilities, duties and working condition of the job 4. Identify the individual job specifications 5. Hire the right organizational and personal fit

116

Education And Training

Education is a process that provides the knowledge , skills and attitudes necessary to produce cause and effect understanding and support long term behavioral changes Training is a transfer of mechanical expertise in response and reaction to the given situation Objectives
Transfer of facts Understanding of the message Change in behavior Implementation of new technique Line accountability Peer confirmation continuing reinforcement Credibility enthusiasm

117

Type Of Skills And Knowledge

Hard skills Soft skills

Skills and knowledge directly related to business activity Technical or system related Examples
Concept of MPS Cycle counting Bar coding

Skills and knowledge used to facilitate and support the execution of business activities People or organization related Examples
Conduct effective meetings Use decision making skills Use problem solving skills

118

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Session 4

SUPPLY CHAIN MANAGEMENT

120

The Supply Chain

Supplier 1

My organization

Customer 1 Customer 2

Supplier 1

Product service flow Information flow Funds flow

Customer n Supplie rs Transformation process Custo mers 121

Supplier 1

What Is the Supply Chain?

Referred to as the logistics network containing facilities
Suppliers, manufacturers, warehouses, distribution centers retail outlets

And Inventories
Raw materials Work-in-process (WIP) inventory Finished products

That flow between the facilities

122

The Supply Chain

Suppliers Manufacturers Warehouses & Distribution Centers Customers

Transportation Costs Material Costs

Transportation Costs

123
Transportation Costs Inventory Costs

Manufacturing Costs

SCM
Supply chain management(SCM) focus on managing resources to complete the following tasks
Meet customer requirements Provide competitive advantages Meet business objectives

SCM Enable Strategy

Shortens product development cycle time Extract every possible savings Use of IT to link supply chain network Quick response to final demand
124

Value Chain
Raw Material Technol ogy Manufa cturing Logistic s Marketi ng Sales Custom er

A value chain is a process consisting of a number of related steps , with each step adding a certain value to the total outcome
125

Primary activity/support activity

Firm infrastructure Human resource management Technology development Procurement

inbound Operat Outbou logistics ions nd logistic s Primary activity

Mark Service eting and sales

Margin

126

Supply chain management includes

Management information system Sourcing and procurement Production scheduling Demand fulfillment Cash flow Inventory management Warehousing Customer service After market disposition of packaging and materials
127

Look for suppliers who are the best

Fit to meet required need and benefits Technology Practices Processes Cost structures Time to market

128

Brief History of SCM

60s-70s Detailed marketing strategy that focused on creating and capturing customer loyalty Strong engineering, design and operation function to support the market requirements Engineering translating customer need into product and service specification 80s Manufacturing organizations increasingly more flexible and responsive to modify existing products and process New products and process developed in order to meet ever changing customer needs

129

Brief History of SCM Contd.

90s Impact of material and service inputs from supplies on companies ability to meet the customer needs Increasing focus on supply base and sourcing strategy New challenges: getting the products to the customer when where and how Logistics renaissance: development of time reducing information technologies and logistics networks Sharing of information between alliance members of supply chain Organizations involved in management of both upstream and down stream firms

130

Why Is SCM Difficult?

Plan

Source

Make

Deliver

Buy

Uncertainty is inherent to every supply chain Travel times Breakdowns of machines and vehicles Weather, natural catastrophe, war Local politics, labor conditions, border issues The complexity of the problem to globally optimize a supply chain is significant Minimize internal costs Minimize uncertainty Deal with remaining uncertainty

131

The Importance of Supply Chain Management

Dealing with uncertain environments matching supply and demand Boeing announced a $2.6 billion write-off in 1997 due to raw materials shortages, internal and supplier parts shortages and productivity inefficiencies U.S Surgical Corporation announced a $22 million loss in 1993 due to larger than anticipated inventories on the shelves of hospitals IBM sold out its supply of its new Aptiva PC in 1994 costing it millions in potential revenue Hewlett-Packard and Dell found it difficult to obtain important components for its PCs from Taiwanese suppliers in 1999 due to a massive earthquake U.S. firms spent $898 billion (10% of GDP) on supply-chain related activities in 1998

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The Importance of Supply Chain Management

Shorter product life cycles of high-technology products Less opportunity to accumulate historical data on customer demand Wide choice of competing products makes it difficult to predict demand The growth of technologies such as the Internet enable greater collaboration between supply chain trading partners If you dont do it, your competitor will Major buyers such as Wal-Mart demand a level of supply chain maturity of its suppliers Availability of SCM technologies on the market Firms have access to multiple products (e.g., SAP, Baan, Oracle, JD Edwards) with which to integrate internal processes
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Supply Chain Management and Uncertainty

Inventory and back-order levels fluctuate considerably across the supply chain even when customer demand doesnt vary The variability worsens as we travel up the supply chain Forecasting doesnt help!
Multitier Supplie rs
Sales

Manufactur er

Wholesale Distributo rs

Retailer s

Consume rs

Sales

Time

Sales

Time

Time

Sales Time

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Bullwhip Effect

Factors Contributing to the Bullwhip

Demand forecasting practices Min-max inventory management (reorder points to bring inventory up to predicted levels) Lead time Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs Batch ordering Peaks and valleys in orders Fixed ordering costs Impact of transportation costs (e.g., fuel costs) Sales quotas Price fluctuations Promotion and discount policies Lack of centralized information

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Todays Marketplace Requires:

Personalized content and services for their customers
Collaborative planning with design partners, distributors, and suppliers

Real-time commitments for design, production, inventory, and transportation capacity

Flexible logistics options to ensure timely fulfillment

Order tracking & reporting across multiple vendors and carriers

Shared visibility for trading partners
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Supply Chain Management Key Issues

Forecasts are never right Very unlikely that actual demand will exactly equal forecast demand The longer the forecast horizon, the worse the forecast A forecast for a year from now will never be as accurate as a forecast for 3 months from now Aggregate forecasts are more accurate A demand forecast for all CV therapeutics will be more accurate than a forecast for a specific CV-related product Nevertheless, forecasts (or plans, if you prefer) are important management tools when some methods are applied to reduce uncertainty

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Supply Chain Management Key Issues

Overcoming functional silos with conflicting goals
Purchasing Manufacturing Distribution Customer Service/ Sales High inventories High service levels Regional stocks 138 SOURCE MAKE DELIVER SELL

Low purchase price Multiple vendors

Few changeovers
Stable schedules Long run lengths

Low inventories Low transportatio n

Supply Chain Management Key Issues

Issue Network Planning Warehouse locations and capacities Plant locations and production levels Transportation flows between facilities to minimize cost and time How should inventory be managed? Why does inventory fluctuate and what strategies minimize this? Impact of volume discount and revenue sharing Pricing strategies to reduce order-shipment variability Selection of distribution strategies (e.g., direct ship vs. cross-docking) How many cross-dock points are needed? Cost/Benefits of different strategies

Inventory Control

Supply Contracts

Distribution Strategies

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Supply Chain Management Key Issues contd.

Issue Integration and Strategic Partnering How can integration with partners be achieved? What level of integration is best? What information and processes can be shared? What partnerships should be implemented and in which situations What are our core supply chain capabilities and which are not? Does our product design mandate different outsourcing approaches? Risk management How are inventory holding and transportation costs affected by product design? How does product design enable mass customization?

Outsourcing & Procurement Strategies

Product Design

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Supply Chain Management Operations Strategies

STRATEGY Make to Stock WHEN TO CHOOSE standardized products, relatively predictable demand customized products, many variations many variations on finished product; infrequent demand complex products, unique customer specifications BENEFITS Low manufacturing costs; meet customer demands quickly Customization; reduced inventory; improved service levels Low inventory levels; wide range of product offerings; simplified planning Enables response to specific customer requirements
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Make to Order

Configure to Order

Engineer to Order

Supply Chain Imperatives for Success

View the supply chain as a strategic asset and a differentiator Wal-Marts partnership with Proctor & Gamble to automatically replenish inventory Dells innovative direct-to-consumer sales and build-to-order manufacturing Create unique supply chain configurations that align with your companys strategic objectives Operations strategy Outsourcing strategy Channel strategy Customer service strategy Supply chain configuration components Asset network Reduce uncertainty Forecasting Collaboration Integration

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Information In The Supply Chain

Plan
Suppliers Manufacturers Warehouses & Distribution Centers Retailer

Source

Make

Deliver

Sell

Order Lead Time Delivery Lead Time

Production Lead Time

Each facility further away from actual customer demand must make forecasts of demand Lacking actual customer buying data, each facility bases its forecasts on downstream orders, which are more variable than actual demand To accommodate variability, inventory levels are overstocked thus increasing inventory carrying costs

Its estimated that the typical pharmaceutical company supply chain carries over 100 days of product to accommodate uncertainty

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Taming the Bullwhip

Four critical methods for reducing the Bullwhip effect:
Reduce uncertainty in the supply chain Centralize demand information Keep each stage of the supply chain provided with up-to-date customer demand information More frequent planning (continuous real-time planning the goal) Reduce variability in the supply chain Every-day-low-price strategies for stable demand patterns Reduce lead times Use cross-docking to reduce order lead times Use EDI techniques to reduce information lead times Eliminate the bullwhip through strategic partnerships Vendor-managed inventory (VMI) Collaborative planning, forecasting and replenishment (CPFR)

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Methods for Improving Forecasts Judgment Methods

Market Research Analysis

Panels of Experts Internal experts External experts Domain experts Delphi technique Time-Series Methods

Accurate Forecasts

Market testing Market surveys Focus groups Causal Analysis

Moving average Exponential smoothing Trend analysis Seasonality analysis

Relies on data other than that being predicted Economic data, commodity data, etc.

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Supply Chain Integration Push Strategies

Classical manufacturing supply chain strategy Manufacturing forecasts are long-range Orders from retailers warehouses Longer response time to react to marketplace changes Unable to meet changing demand patterns Supply chain inventory becomes obsolete as demand for certain products disappears Increased variability (Bullwhip effect) leading to: Large inventory safety stocks Larger and more variably sized production batches Unacceptable service levels Inventory obsolescence Inefficient use of production facilities (factories) How is demand determined? Peak? Average? How is transportation capacity determined? Examples: Auto industry, large appliances, others?

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Supply Chain Integration Pull Strategies

Production and distribution are demand-driven Coordinated with true customer demand None or little inventory held Only in response to specific orders Fast information flow mechanisms POS data Decreased lead times Decreased retailer inventory Decreased variability in the supply chain and especially at manufacturers Decreased manufacturer inventory More efficient use of resources More difficult to take advantage of scale opportunities Examples: Dell, Amazon

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Supply Chain Integration Push/Pull Strategies

Hybrid of push and pull strategies to overcome disadvantages of each Early stages of product assembly are done in a push manner
Partial assembly of product based on aggregate demand forecasts (which are more accurate than individual product demand forecasts) Uncertainty is reduced so safety stock inventory is lower

Final product assembly is done based on customer demand for specific product configurations Supply chain timeline determines push-pull boundary
PushPull Boundary

Generic Product

Customized Product

Push Strategy
Raw Materials

Pull Strategy
End Consumer

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Supply Chain Timeline

Choosing Between Push/Pull Strategies

Pull High Industries where:
Customization is High Demand is uncertain Scale economies are Low

Industries where:
Demand is uncertain Scale economies are High Low economies of scale

Where do the following industries fit in this model: Automobile? Aircraft? Fashion? Petroleum refining? Pharmaceuticals? Biotechnology? Medical Devices?

Demand Uncertainty

Computer equipment Industries where:

Uncertainty is low Low economies of scale Push-pull supply chain

Furniture

Industries where:
Standard processes are the norm Demand is stable Scale economies are High

Books, CDs Push Low Low Pull

Grocery, Beverages
High Push

Economies of Scale

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Characteristics of Push, Pull and Push/Pull Strategies

PUSH PULL

Objective

Minimize Cost

Maximize Service Level

Complexity

High

Low

Focus

Resource Allocation

Responsiveness

Lead Time

Long

Short

Processes

Supply Chain Planning

Order Fulfillment

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Supply Chain Collaboration What Is It?

Many different definitions depending on perspective The means by which companies within the supply chain work together towards mutual goals by sharing Ideas Information Processes Knowledge Information Risks Rewards Why collaborate? Accelerate entry into new markets Changes the relationship between cost/value/profit equation

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Supply Chain Collaboration

Cornerstone of effective SCM The focus of many of todays SCM initiatives The only method that has the potential to eliminate or minimize the Bullwhip effect
Suppliers Synchronized Production Scheduling
Collaborative Product Development Collaborative Logistics Planning Transportation services Distribution center services Manufacturer

Retailers

Collaborative Demand Planning

Distributors/ Wholesalers

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Logistics Providers

Benefits of Supply Chain Collaboration

CUSTOMERS MATERIAL SUPPLIERS SERVICE SUPPLIERS

Reduced inventory Increased revenue Lower order management costs Higher Gross Margin Better forecast accuracy Better allocation of promotional budgets

Reduced inventory Lower warehousing costs Lower material acquisition costs Fewer stock out conditions

Lower freight costs Faster and more reliable delivery Lower capital costs Reduced depreciation Lower fixed costs

Improved customer service More efficient use of human resources

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Supply Chain Collaboration Spectrum

The green arrow describes increasing complexity and sophistication of: Information systems Systems infrastructure Decision support systems Planning mechanisms Information sharing Process understanding Higher levels of collaboration imply the need for both trading partners to have equivalent (or close) levels of supply chain maturity Synchronized collaboration demands joint planning, R&D and sharing of information and processing models Movement to real-time customer demand information throughout the supply chain

Extensive Not Viable

Synchronized Collaboration

Extent of Collaboration

Coordinated Collaboration

Cooperative Collaboration

Limited

Transactional Collaboration

Low Return

Few Many Number of Relationships

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Successful Supply Chain Collaboration

Try to collaborate internally before you try external collaboration Help your partners to work with you Share the savings Start small (A limited number of selected partners) and stay focused on what you want to achieve in the collaboration Advance your IT capabilities only to the level that you expect your partners to manage Put a comprehensive metrics program in place that allows you to monitor your partners performance Make sure people are kept part of the equation Systems do not replace people Make sure your organization is populated with competent professionals whove done this before
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