Operations MAnagement for MBAs

How did Palm increase their profit margin by 30% and reduce overall cost by 27%.
Developed deeper relationships with suppliers. Were able to get better consistency of products at lower prices. Went from 150 to 50 suppliers
Liz Claiburne is eliminating 40% of clothing labor cost by…
creating a “supply chain city” in Dongguan, Southern China
Best Buy’s reduced orders did what further down the chain
Suppliers all across the chain reduced production over reacting to the original reduction adding at each level until at the bottom of the chain until Best Buy had shortages of stocks despite decline in demand
What does RFID stand for
Radio frequency identification. Computer chips or smart tages attached to items as they are transported through the chain. Use wireless technology to track inventory. Walmart was early adopter. Can save money on labor and help to manage inventory more effectively . WalMart spending at 4.6 B in 2007.
Why was WalMart interested in the investment of RFID technology
They couldn’t see into their backroom storage areas. Better information from better visibility translated into better information whith which to base replenishment orders which in turn would provide a better overall customer experience by helping it get inventory onto the store shelves in a tiely manner
What is draw back of RFID
Cost. Has a payback of 2 years. Would like to get cost down to .05. Started at .75 for smaller quantities.
What is a VMI
Vendor Managed Inventory – supplier manges inventory , customers still own. Suppliers use point of sale data to determine the timing and quantity of inventory replenishment orders.
Who has partnership with IBM to provide VMI services to the grocery industry?
Rich Products a @2 billion fmaily owned food company from Buffalo. . Groceries provide information to IBM daily about inventory withdrawals and inventory balances
What is the term for “activities involved in supplying an end user with a product or service”?
Supply Chain
How is downstream determined in a supply chain?
Supply chain going toward the final product and the ultimate customer.
The ultimate consumer may be a supplier in another chain.
Can have multiple upand down stream customers and suppliers
How is upstream determined in a supply chain?
Supply chain going toward the raw materials. Through the various suppliers.
What flows along the supply chain
Goods plus information, funds, papaer, people and other items flowing in both directions.
Should think of as a process rather than chain.
Involves functional areas and activities such as product/service design, finance, accounting, marketing, human resources and engineering.
What is SCM
Supply Chain Management. Involves process of managment of entire chain from order at ultimate consumer back to raw materials (upstream)
Who is best known for their perfection of Supply Chain Management and Lean manufacturing?
Toyota – teach their suppliers their methods, then give incentives for their suppliers to teach their suppliers so that efficiencies are carried over the chain upstream to raw materials. This gives overall saving to ultimate consumer downstream.
Give reasons why SCM has exploded grown in interest
New information technologies such as intranets, email, EDI and Internet.
Greater global competition has increased our interest and ability to improve processes along the entire chain.
SCM also includes what mangerial thrusts
Quality management.
Inventory management,
enterprise resource planning and lean production (JIT)Also includes marketing, engineering, product/service design, financial aspect in terms of payments and float, purchasing elements such as sole sources and tehcnological inintiatives .
Can all be attributed to the advent of the internet.
What is the focus of the value chain
Customer values of timeliness
Supply chain focuses on efficiency
How do the value chain and the supply chain differ
Supply chain focuses one efficiency
value chain focuses on timeliness, quality and function which are customer values
Pull systems consist of what?
Just-in-time deliveries
lean manufacturing
Dictate a different view of the value chain called a demand chain.
Order coming from customers generate a pull of products through the supply chain.
By using the pull system suppliers can order just what they need for the order.
Demand Chain
Customer orders pull the product through the chain, improving cost and benefits. Related to Lean manufacturing
Manufacturing oriented supply chains goods tend to flow
in one direction downstream.
Service supply chains and dual customer supplier role
services flow in both directions with the customer both upstream and downstream from the service provider.
What cost can be eliminated through the use of better information sharing and managerial oversight
Costs of multiple shipments, costs of inappropriate functionsality, costs of low quality, costs of late delivery.
What percentage of total operating cost does the supply chain represent?
50% or more of total operating costs
What savings have firms seen who have implemented supply chain management
45% supply chain cost advantage
50% lower inventory
17% faster delivery of final product
Larger market shares and higher customer loyalty
What should be the focus of a supply chain for fashion goods
Timeliness because fashions change quickly
What should be the focus of a supply chain for basic commodities with standard benefits such as food, home supplies
Cost reduction will be the focus
How much did Palm Inc save through their strategic emphasis on supply chain management
20-30% reduction in materials costs
27% reduction in overall costs
Increase in inventory turns from 3 to 22
30% increase in profit margins
What is the focus of the supply chain management crusade
Focus on entire value chain
Lean production
Product/service design
Define Supply Chain Management
Coordination and integration of all supply chain activities into seamless process
Enables organizations to plan and collaborate across supply chain
Goal is to deliver right product to right place at right time in order to maximize profit
Another definition for Supply Chain Managements
Supply, storage, and movement of materials information, personnel, quipment, and finished goods within the organization and between its environment
What is the goal of supply chain management
To integrate the entire process of satisfying the customers’s needs all along the supply chain.
What is a 3PL
3rd Party Logistics company.
What can a 3PL do
Handle the distribution of the organizations products, receiving incoming materials, managing the organization’s warehouses, managing the purchasing function, and handling product returns.
Balance of activities as to what is done inhouse to those outsourced varies by business
Why would a company outsource to a 3PL
Allows the company to focus on its core competencies
Reduces the capital investments in the infrastruct needed to support these activites
Converts a significant portion of what was a fixed cost into a variable cost
Gains access to the best practices and technologies that it might not be able to afford or develop if the function was kept in house.
What is one requirement of a Supply chain strategy?
Strategy needs to be tailored to meet the needs of its customers, not always lowest cost
With basic commodities then cost reduction is focus
With fashion goods, timieliness
What part of total operating expenses do supply chain costs represent
More than 50% and in some cases 75%
What is included in the broad concept of supply chain
Supply storage
Movement of materials
Finished goods within the org. and between it and its environment
AS efficiency improves in production techniques what has what is taking a greater and greater fraction of the total cost and time
Procurring the requisite inputs and distributing the resulting goods and services
What are some measures of supply chain performance
Lower inventories – means less Working Capital needed and higher ROA ratio
Lower cost to carry inventories will be seen in a reduced cost of goods sold (COGS) and so a higher contribution margin, return on sales and operating income.
Where is a lower inventory cost reflected
In Working capitals being lowered and Return on asset ratio being higher
Lower cost to carry inventory will be seen in:
reduced cogs and higher contribution margin, return on sales and operating income.
Cash Conversion Cycle
Helps assess how well a company is managing its capital
Amount of time the organizations cash is tied up in working capital before being retuned by customers as they pay for delivered products or services
How is the Cash Conversion Cycle calculated
Inventory (I) =( Inventory/Annual COGS) X 365
Accounts Receivable (AR) = (AR/Annual Net sales) X 365
Accounts Payable (AP) =(Accounts Payable/Annual COGS) X 365
Inputs must be standadized into days
If CCC is positive then?
# days capital is tied up waiting for payment
If CCC is negative then?
# days organization can receive cash from sales before paying suppliers. The smaller the better
Where should a company locate if they process natural resources
Near the resource if there is a loss in size or weight during the process
High economies of scale exist for the product
The raw material is perishable
What is the bullwhip effect
Each segment further down the whip goes faster than the one above it
Same effect often observed in supply chains.
What are the transportation modes
Air – small or expensive easy to lose items
Water – large or heavy items
Rail –
Truck – perishable items, seasonal,
Aggregate Average Inventory Value – tells us what
A measure related to inventory reduction. Firms assets represented by inventory
What are two reasons outsourcing has grown according to Paul Craig Roberts on Lou Dobbs
The fall of communism and the economic insulation it had maintained
The advent of telcommunications and computer technology that physically allowed work that previously had to be done locally or regionally
What is hollowing out
When a company has outsources it core competency for so long that it can no longer produce the product it orginally manufactures. The new outsourced producers can then produce the items under their own brand
Example: television and electronic manufactueres
What is a contract manufacturere
outsource entire process to 3rd parties. Core competency is in system innovation or design. is a major element of SCM strategy for firms like Cisco, Dell , IBM. Considered manufacture service providers
What can be outsources with less consequences
Things that are not core competencies,
Things like accounting, human resources, R&D even product design and IT
Why is supply chain in important
Because it represents 50% or more of total operating cost
Can save a lot of money through better management of the supply chain
How is procurement different from purchasing
purchasing implies a monetary transaction
procurement is the responsibility for acquiring the goods and services the organization needs by any means. – includes scrap and recycles as well as purchased materials. Procurement can make consideration of environmental aspects
What is reversed logistics
Where packaging must reverse the logistics chain and flow bact to the producer who originated it for disposal or reuse.
Why is a supply chain so important
It represents 50% or more of total operating costs
Supply chain managment can give a 45% cost advantage and lower inventory by 50% with products that are delived 17% faster
Gives a larger market share and higher customer loyalty
What are the key elements of effective purchasing
Leverage their buying power
Commit to a small number of dependable suppliers
Work with and help suppliers reduce total costs
AAIV – aggregate average inventory value
Raw materials + Work-in-process + finished goods
% Assets in Inventories
AAIV/total assets
Turn over of Inventory
Days of supply
AAIV/Daily COGS to do weekly divide by weekly COGS or multiply daily amount by 7 and then use to divide.