Operations Management / Supply Chain Management

Module 01.01 Key Concept: Supply Chain Management is all about “Stuff”

Our Global Marketplace is comprised of many types of businesses both small and large.

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In most cases Operations professionals are drawn to manufacturing firms, and also, educational programs typically focus on the manufacturing side of demand and supply planning.  Our text authors try to ensure that we understand the relevance of processes to both manufacturing and service firms.   It is extremely important to understand that the concepts and processes studied in this course relate just as much to service business as they do to manufacturing businesses and for-profit firms to not-for-profit firms.  This is quite important to consider based on the continuously changing landscape of the global marketplace.

Traditional manufacturing companies are now outsourcing components and finished products as well as raw materials from both local and international suppliers.  The same is true with service businesses.  For example, the City of NY outsources the processing of parking tickets to Ghana. So, supply chain processes need to be relevant across the supply chain regardless of the supply strategy.  Supply chain processes must be developed and implemented to provide the most value to customers and owners / shareholders / other stakeholders alike.

There are many excellent examples described By Gartner in their Top 25 benchmarking publication each year http://www.gartner.com

The following slide shows some company names that have appeared in recent years.  These companies reflect the diversity of excellent organizations that are available for identifying excellence in supply chain management process innovation and execution.

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The old traditional business model followed the adage “If we build it, they will come”.  This means that companies developed products and inventoried them in the expectation that customers would order in line with a Sales / Marketing forecast.  In today’s world, such thinking creates operations that are wasteful in resources and ineffective in meeting dynamic marketplace demands.  Supply plans are plagued by the bullwhip effect in which moderate demand fluctuations at the end customer create huge supply fluctuations further and further downstream on the supply side.

Demand driven supply networks follow the adage “when they take it, we will immediately replenish / build it”.  Demand driven companies create the capability to respond to immediate demands of their customers through efficient supply chain networks, flexible manufacturing or service delivery operations, point-of-sale information collection and elimination of waste in all of their business processes.  They also have “scalable” capacities that can meet changing market demands.

The global economy has created an expanded requirement for communication, collaboration and partnerships.  This represents a special challenge because companies are now dealing with partners across different languages, cultures and time zones.  Complex networks of internationally linked suppliers and customers have replaced simple, local interactions between a few suppliers and customers.  Supply chain professionals have to somehow manage these complex relationships to meet the financial goals key requirements of all their stakeholders.

Companies sited in the Gartner Top 25 represent current leaders in supply chain management.  However, we all know that what is true today, will not be true tomorrow.  There are many examples of this as well – once successful companies being bought / merged with other companies or suffering through bankruptcy or demise.  At a human level, this results in lost jobs and all that comes with that.  It is up to you as current or future supply chain leaders to implement the things you learn here in order to provide long-term success for your companies and your families.

The text presents various Operations Management processes which provide information and support which enables managers to efficiently direct the flow of equipment, and respond to customer requirements by utilizing the capacity of suppliers, internal facilities, and, in some cases customers.  The text also provides insight into the link between these operational business process and and Enterprise Resources Planning (ERP).    In fact, if you extend the reach of these operational planning concepts you can see that they touch all aspects of what is most often referred to as Supply Chain Management.

As you can see from the following slide: Supply Chain Management is all about “Stuff”.

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Supply chain management processes touch all aspects of the product life cycle from “Cradle ” to “grave”.  In this class we will primarily focus on the typically thought of processes: materials purchasing & manufacturing planning and execution, inventory management and distribution planning and execution.  However, these processes touch all the others and a good understanding of the “touch points” is critical.

The Supply Chain is not just about the flow of products and services between linked firms.  It is actually a combination of three different elements: information, money and products that flow between linked functions in linked firms.  This is presented conceptually in the following simplified slide with a few of the key functional processes.

Flow of Information, Product and Money

Products normally flow from suppliers to manufacturing plants to customers often with a few excursions through warehouses.  Money usually flows from customers to the manufacturing firm and back to suppliers so that every company gets paid for it’s products / services delivered.  We are not going to go into all the different derivations or conflicting flows possible with different scenarios.  You can draw them out on your own.  For example, when reverse logistics is involved (returns, claims, recycling, etc.), the flow of product and money may actually reverse.  This is not depicted in the slide above.  Information must freely flow back and forth between linked functions.  Information is used for planning, confirmation, status checking, product and service development, continuous improvement, etc., etc., etc.

In this day and age with the complexities of our global marketplace, information flow is critical to excellence in collaboration.  Collaboration is a major component of such processes as Supplier Relationship Management, Customer Relationship Management, Collaborative Planning and Forecasting, and Enterprise Resources Planning.  This communication reaches beyond systems and is rooted in human relationships and interpersonal interaction.  Excellent, benchmark organizations do this communication “stuff” better than anyone else.

Supply Chain Management surely requires plants, warehouses, trucks, planes, ships and other “hard” assets.  However, most importantly of all, Supply Chain Management requires motivated, well-educated and well-trained people, using robust and effective business processes.  The text points out the key roles of Marketing, Production / Operations and Finance in achieving long-term sustainability of any firm.  Every company leadership must assess their own organization, business processes and people talents to determine how to individually “frame” these responsibilities to the benefit of their business.

 Each one of the supply chain functions has its own goals and objectives that taken together should be in sync with the overall strategic objectives of the company.  However, often there are conflicts that arise because of “silo” mentality – “Our function is the most important one.”  In these cases it is important to come to a common understanding across functions.  We will review a common business process for assuring such understanding and collaboration later – Sales and Operations Planning.  However, for now I would like to challenge you to gather some colleagues or fellow students together to do a group exercise.  You will need some sticky notes, writing utensils of some sort and some poster board or flip chart sheets.  Alternatively you can do it online with a Blog or through Discussion Board Posts.

Let’s call the exercise:  Take a Walk in Someone Else’s Shoes.

Here are the steps:

Think about each of the key business processes as if you are the person responsible for that process *Create Stuff, Plan Stuff, Buy Stuff, etc.).  Review the responsibilities given in the previous slides to refresh your memory of the purpose of existing for each function.

  • On Sticky Notes, list things that you value (one value per Sticky Note as many as you can think of).
  • On Sticky Notes, list things that drive you crazy (one crazy thing per Sticky Note as many as you can think of).
  • Place the Stick Notes on each flip chart sheet under the proper heading in no particular order.
  • Work together to consolidate, remove duplication of ideas and group the Sticky Notes by some logical Categories.  Put a heading on each grouping that describes it in some way.
  • Summarize your Function / Process for the others if you are working in sub-teams.

You may find that this is quite and enlightening process and it may open up some good communications channels.