Operations and Supply Chain

University Lectures

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Lecture: (13)

13- Operations

and

Supply Chain

Mr. / Girgis

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Operations

and

Supply Chain

What is Operations and Supply Chain

Management?

Supply Chain Operations or Operations and Supply

Chain Management (OSCM) refers to the design,

operation, and continuous improvement of the supply

chain systems to efficiently deliver the organization’s

products and services to its’ customers. OSCM is

now becoming an essential factor for organizations

to stay competitive.

The optimization of supply chain management

operations has a huge impact on an organization’s

success, as good supply chain operations planning

eventually positively impacts its growth and credibility.

Managing Variations in Supply Chain Operations

Optimization Supply Chain Operations

In real world scenario, demand for many products

changes frequently from period to period, often

because of a predictable influence. These influences

include seasonal factors that affect products

(e.g., lawn mowers and ski jackets), as well as non-

seasonal factors (e.g. promotions or product adoption

rates) that may cause large, predictable increases or

declines in sales.

Predictable variability is a change in demand that

can be foretasted. Products that undergo this type

of change in demand create numerous problems in

the supply chain operations, ranging from high levels

of stockouts during peak demand periods to high

levels of excess inventory during periods of low

demand.

These problems increase the costs and decrease

the responsiveness of the supply chain.

Supply Chain Operations can be improved

significantly when strategies are applied to

predictably variable products. Faced with

predictable variability, a company’s goal is to

respond in a manner that balances supply with

demand to maximize profitability.

Enhancing Profitability through

Effective Supply Chain Operations

The goal of sales planning and the Operations and

Supply Chain Management is to appropriately

combine two broad options to handle predictable

variability:

Manage supply using capacity, inventory, subcontracting, and backlogs.

Manage demand using short-term price discounts and promotions.

The use of these tools enables the supply chain to

increase profitability, because supply and demand

are matched in a more coordinated fashion.

One way requires a manufacturer to carry enough

manufacturing capacity to meet demand from

production in any period.

The advantage of this approach is that the

manufacturer incurs low inventory costs because

no inventory is carried from period to period. The

disadvantage, however, is that much of the

expensive capacity is unused during most months

when demand is lower.

Strategic Inventory Management to

Improve Supply Chain Operations

Another approach to meeting demand is to build up

inventory during the off-season to keep production

stable year-round. The advantage of this approach

lies in the fact that Red Tomato can get by with a

lower capacity, less expensive factory. High inventory

carrying costs, however, make this alternative

expensive. A third approach is for the manufacturer

to work with its retail partners as per the supply chain

strategy to offer a price promotion before the spring

months, during periods of low demand.

This promotion shifts some of the spring demand

into a slow period, spreading demand more evenly

throughout the year and reducing the seasonal surge.

Such a demand pattern is less expensive to supply.

The manufacturer must decide which alternative

maximizes its profitability through its supply chain

operations process.

Steps for Supply Chain Operations

Planning

The basic steps to control the Operations and Supply

Chain Management can be summarized as follows.

Demand history data are gathered and cleansed. A statistical forecast is run and analyzed for events or outliers that are not expected to repeat in the future.

The statistical forecast with associated errors is reviewed with the product and brand management, marketing, and sales teams. The teams add information to the demand plan that will improve forecast accuracy.

The demand plan is finalized with the demand-side teams and passed on to supply.

The supply team reviews the demand plan and constrains it based on capacity availability.

Both supply and demand review the constrained plan with the finance team and executive management.

When the executive meeting is held, the result is

the communication of a single plan: sales sell to

the plan, and supply produces to the plan.

The output of supply chain operations planning is the production plan, which provides the rate of production at the family level.

Resource requirements are evaluated with the resource plan.

The production plan is the input to master scheduling and its output, the master production schedule. The MPS is typically a weekly plan at the item level with an evaluation of capacity through rough-cut capacity planning.

Then materials requirement planning uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials, resulting in planned production and purchase orders.

Production activity control receives the output of MRP and detail planning, and final assembly scheduling is done.

The strategic activities of business

planning, resource planning, and

S&OP are discussed in more detail

next.

1. Business Planning for Supply Chain Operations Making a Business Plan to Improve Supply Chain Operations

The business plan is a thorough and disciplined

preview of what the firm hopes to accomplish with

its products and services over the long term, with

emphasis on the plan year. The business plan is

typically stated in dollars and grouped by product

family.

There may be overly optimistic projections from

marketing at some points, but the numbers are

there for later review as well as to specify projected

revenues, costs, profits, and objectives for the

product families all to support the long-range

strategy proposed for entering the marketplace.

Key inputs to the business plan include the demand

plan and its long-term forecasts. Budgets and

projected financial statements are key outputs.

A business plan should do the following things:

Clarify strategy by stating an explicit vision for the business – a reason for being.

Provide a point of reference for developing the sales and operations plan.

Describe long-term strategies that will be used to guide shorter-term tactical plans for producing and selling the product.

Strategic Implementation Following

the Business Plan

The next steps after the business plan are

development of a long-term resource plan and a

near-medium-term sales and planning the supply

chain operations, based on the longer term views

of the business plan.

It’s time to start investing in capacity and then using

that capacity to make money and provide the

lenders and investors with the return on investment

(ROI) they anticipated when they signed on as

financial partners in the enterprise.

2. Resource Planning for Improved

Supply Chain Operations

Long-Term Resource Planning

Strategies

Resource planning, sometimes called resource

requirements planning, takes the longest view of the

system’s capacity, typically going out 15 to 18 months

but sometimes requiring much longer planning

horizons for capital investments. Resource planning

is defined as:

Capacity planning conducted at the business and

production plan levels. The process of establishing,

measuring, and adjusting limits or levels of long-range

capacity. Normally based on the production plan but

may be driven by higher-level plans beyond the time

horizon for the production plan, e.g., the business plan.

It addresses those resources that take long periods

of time to acquire.

Relationship Between Resource

Availabilityand Production Planning

The duration of the planning horizon depends on the

lead time of the needed resources, which may be a

machine to produce the planned product. The total

lead time needed would include not only installation

time but also the lead time needed to conduct

Operations and Supply Chain Management.

Equipment or facility construction with long

development lead times may be driven primarily by

the business plan, while realigning existing facilities

and the workforce to change capacity is more likely

to be based on the production plan generated during

the OSCM process.

Note that capital expenditures in facilities or

expensive equipment is an executive-level

decision, while the resource planning that is

based on the production plan is more likely to

be a role of supply chain management decision.

3. Sales and Operations Planning

(S&OP)

Sales and operations planning, which we first looked

at in Section A regarding using its meetings to

synchronize supply and demand, is discussed

further in this section, with an emphasis on the

overall S&OP functions and process.

Sales and planning of Operations and Supply

Chain Management rests on the assumption that

firms wishing to compete in the expanding global

marketplace can and must break down the silo

walls between functions and break through the

barriers separating supply chain partners. In fact,

S&OP is intended to be a planning and controlling

tool not just for manufacturing but also for the entire

enterprise. Breaking down those barriers, however,

doesn’t always happen quickly and easily.

The most important consideration is the

understanding that the plan to generate enough

capacity to match supply with aggregate demand

must be created, executed, and monitored in

collaboration with sales and other functional areas,

not in isolation.

7 Steps in Supply Chain Operations

Management

Supply chain operations management requires

strategic planning, efficient execution, and continuous

monitoring. By following these steps, you can manage

operations across the supply chain:

Step 1: Define Clear Objectives.

Step 2: Understand the Supply Chain.

Step 3: Implement an Effective Planning System.

Step 4: Establish Strong Supplier Relationship Management.

Step 5: Optimize Inventory Management.

Step 6: Do a Supply Chain Analysis and Utilize Technology such as blockchain in supply chain.

Step 7: Continuously Monitor the Supply Chain Operations and Make Improvements.

Challenges in Supply Chain

Operations Management

In the realm of operations and supply chain

management, several challenges require strategic

supply chain management solutions. Some of them are

listed below:

Demand Forecasting.

Supply Chain Visibility.

Risk Management in Supply chains.

Cost Control in logistics and supply chains.

Supply chains Innovation and sustainability.

Technological Integration.

Talent Management for skilled supply chain, transport, logistics, warehouse and procurement manager.

Outsourcing the Supply Chain

Operations

Outsourcing supply chain operations can be a

strategic move for businesses focusing on their

core competencies. The following steps are helpful

for organizations considering outsourcing their

supply chain operations management:

Step 1: Identify your business needs and design a supply chain network accordingly.

Step 2: Search for Potential service providers.

Step 3: Request a proposal for their operations and supply chain management.

Step 4: Evaluate different proposals.

Step 5: Initiate a pilot project.

Step 6: Review the performance after the pilot project and refine processes accordingly.