Operations Management / Supply Chain Management

Module 01.02 Key Concept: The Role of Management in Optimizing Productivity and Sustainability

Operations Management processes are very important to any company because they aid in the implementation of the company’s strategies.  In a small local company, these end-to-end processes may be relatively easy to understand, implement, execute and improve.  However, when a business enters the global market place with a vast number of suppliers and customers, things become quite complex.  Global companies face strong global competition, varying customer desires and requirements, and a multitude of legal, cultural and demographic challenges.   Firms are always faced with the challenge of balancing two basic things: Demand and Supply.

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In order to meet all their sales objectives, global businesses must develop and effectively market new products to meet localized demand.  This means that companies must understand the basic needs of their customers and be able to translate those needs into products and services that meet them.  Product development cannot occur in a vacuum or isolated development laboratory.  The customer must be engaged at the very beginning of the process.  We will explore some potential techniques (such as Quality Function Deployment and concurrent engineering) in follow-on Modules that will provide methodologies for translating customer requirement into finished products and services.

There are three common categories used to evaluate customer requirements:  order qualifier, order winner and non-issue.  These may seem to be quite simple but are not when trying to apply to real market scenarios.

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An order qualifier is a characteristic that is required for consideration as a supplier.  Take an example of a telephone purchase.  For some folks there is a requirement of a little “apple” logo on the case.  An industrial example might be very detailed product specifications.  If a product or service can’t meet these specifications then the supplier will not even be considered.

A non-issue is a feature that a supplier adds that the customer does not really value.  In the telephone example – maybe a customer does not have access to Internet, or even resists the notion of Internet access, (yes, there are some folks out there like that).  In this case, all the fancy applications, extra memory and such are wasted or do not influence the customer’s product/service selection considerations.

Order winners are features that enable your customers to prefer and choose your product / service over the competition!  This can be a specific characteristic, value added service, special package or whatever.  It is the thing that “makes the sale.”  Let’s take the phone example above.  For the non-technical savvy customer it might be ease of use or clarity of sound or reliability as opposed to system memory.

How does this relate to our extended supply chain?  Well, to meet their financial objectives, companies must develop effective, demand driven, cost effective infrastructure / supply networks to support the products and services they provide.  At the same time, they must develop appropriate sustainability and risk management strategies to sustain their long-range growth and survival.  Supply chain strategies, processes and operations must be considered in the early development phase to ensure that customer demands can be met in an effective and financially beneficial manner.  It is commonly understood that businesses compete on different dimensions.  It is impossible to be “all things to all” customers so businesses must chose what market segments they will compete in, what customer segments they will focus on and how they will address the needs of the various segments.  These decisions are typically considered during the Strategic Planning Process using a Strengths, Weaknesses / Opportunities / Threats (SWOT) analysis.  Some key competitive strategies are highlighted below.

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The selected strategy dramatically impacts all aspects of the Supply Chain.  For example, WalMart competes mainly on price.  This means that product line diversity must be reduced and costs of purchase, storage, shipment, etc. must be minimized dramatically.  On the other hand, Lexus competes on quality and driving experience.  Excellence in product development, process engineering and control and marketing are all critical to making this possible.  You can think of products or services that you have or will purchase and consider what buying dimensions you are seeking and what suppliers will you likely consider

In later text chapter we will consider some major options available for Operations Management to meet the needs of the market and selected competitive strategy.

The key is to be able to meet customer expectations with products and services that meet their requirements at the lowest cost.  Supply Chain professionals are challenged with finding the best approach and implementing it.

Productivity is often used as a key metric to evaluate an organization’s effectiveness.  It is generally defined as the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital).   The overall objective of any organization is to improve productivity!

Productivity can be determined for a single factor such as labor hrs. vs. units produced or multiple factors such as utility expenses vs. total services ($) delivered.  Total Measure Productivity looks at total output of a firm vs. total input.  Examples are presented below.

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Try It:  Given

Given:

Company’s total output for Work-in-Process and Finished Goods = $10,000

Total Input from Utilities (Electricity, Gas, Communication) = $1,000

Asked For:

Partial Measure Productivity for Total Output per $ spent on Utilities

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What would happen to this productivity measure if the cost of utilities increase 25% with no respective change in output?

Productivity can be improved based on improvements in labor performance, investment in capital improvements and changes in management effectiveness.  Believe it or not Management contributes about 50% of total annual improvement.  Management is responsible for ensuring that labor and capital are effectively used to increase productivity.  Often this represents a significant challenge.

In addition to increases in productivity, company leaders must ensure the long term sustainability of the firm.  This includes financial sustainability but extends beyond the company “walls” to the external environment.  Thus, factors such as ethics and social responsibility are of primary concern and focus.  Company leaders must:

  • Develop and produce safe, high-quality “green” products
  • Train, retrain and motivate employees in a safe workplace
  • Honor stakeholder commitments

Shareholder value is created when a business can project sustainable growth into it’s profit stream.  Here we also must have balance.  The requirements for sustainability must be balanced in the end vs. the requirements of the business.

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