operations module

Operations Management: - This document is authorized for use only in PGP-Mumbai

Operations & Supply Chain Management

Compiled By

RAKESH KUMAR DASH ASHISH GUPTA

Placement-Coordinator PGP-Participant

IIM Indore (PGP-Mumbai) IIM Indore (PGP-Mumbai)

[email protected] [email protected]

mailto:[email protected]

mailto:[email protected]


Supply chain management (SCM)

It is the management of the flow of goods. It includes the movement and storage of raw

materials, work-in-process inventory, and finished goods from point of origin to point of

consumption.

Why Supply chain management

As organizations strive to focus on core competencies and becoming more flexible, they reduce

their ownership of raw materials sources and distribution channels. These functions are

increasingly being outsourced to other firms that can perform the activities better or more cost

effectively. The effect is to increase the number of organizations involved in satisfying customer

demand, while reducing managerial control of daily logistics operations. Less control and more

supply chain partners led to the creation of the concept of supply chain management. The

purpose of supply chain management is to improve trust and collaboration among supply chain

partners, thus improving inventory visibility and the velocity of inventory movement.

Supply chain

As opposed to supply chain management, it is a set of organizations directly linked by one or

more upstream and downstream flows of products, services, finances, or information from a

source to a customer. Supply chain management is the management of such a chain.

Supply chain management software

It includes tools or modules used to execute supply chain transactions, manage supplier

relationships, and control associated business processes.

Supply chain event management (SCEM)

It considers all possible events and factors that can disrupt a supply chain. With SCEM, possible

scenarios can be created and solutions devised.

Main functions of Supply Chain Management are as follows:

Inventory Management

Distribution Management

Channel Management

Payment Management

Financial Management

Supplier Management

Transportation Management

Customer Service Management


Flow Time

It is the average time that a unit requires to flow through the process from the entry point to the

exit point. The flow time is the length of the longest path through the process. It includes both

the processing time and anytime the unit spends between steps.

Cycle Time

It is the time between successive units as they are output from the process. It is equal to the

inverse of the throughput rate. Cycle time can be thought of as the time required for a task to

repeat itself. Each series task in a process must have a cycle time less than or equal to the cycle

time for the process. Put another way, the cycle time of the process is equal to the longest task

cycle time. The process is said to be in balance if the cycle times are equal for each activity in the

process. Such balance is rarely achieved.

Throughput Rate

It is the average rate at which units flow past a specific point in the process. The maximum

throughput rate is the process capacity, maximum number of units produced per unit of time.

Aggregate Production Planning (APP)

Aggregate production planning is concerned with the determination of production, inventory,

and work force levels to meet fluctuating demand requirements over a planning horizon that

ranges from six months to one year. Typically the planning horizon incorporates the next

seasonal peak in demand.

Master Production Schedule

A master production schedule (MPS) is a plan for individual commodities to produce in each

time period such as production, staffing, inventory, etc. It is usually linked to manufacturing

where the plan indicates when and how much of each product will be demanded. This plan

quantifies significant processes, parts, and other resources in order to optimize production, to

identify bottlenecks, and to anticipate needs and completed goods. Since an MPS drives much

factory activity, its accuracy and viability dramatically affect profitability.

Set-up Time

It is the time required to prepare the equipment to perform an activity on a batch of units. Set-up

time usually does not depend strongly on the batch size and therefore can be reduced on a per

unit basis by increasing the batch size.

Idle Time

It is the time when no activity is being performed, for example, when an activity is waiting for

work to arrive from the previous activity. The term can be used to describe both machine idle

time and worker idle time.


Changeover Time

It is the time required to prepare a device, machine, process or system for it to change from

producing the last good piece of the last batch to producing the first good piece of the new

batch.

Line Balancing

It is the optimization of the assignment of operations to workstations in an assembly line to

minimize idle time and the number of workstations required.

Flow Shop

It is a fabrication facility that uses fast and customized production machinery to manufacture one

or more similar goods. A flow shop, such as an automobile assembly line, that is operated by a

manufacturing business is typically optimized for the highest possible production speed

and quality.

Job Shop

Job shops are typically small manufacturing businesses that handle job production, that is,

custom or semi-custom manufacturing processes such as small to medium-size customer orders

or batch jobs. Job shops typically move on to different jobs when each job is completed. By the

nature of this type of manufacturing operation, job shops are usually specialized in skill and

processes.

Johnson’s Rule

Johnson's rule is a method of scheduling jobs in two work centers. Its primary objective is to find

an optimal sequence of jobs to reduce the total amount of time it takes to complete all jobs. It

also reduces the number of idle time between the two work centres. Results are not always

optimal, especially for a small group of jobs.

Economic Order Schedule

Economic order quantity is the order quantity that minimizes total inventory holding costs and

ordering costs. It is one of the oldest classical production scheduling models. EOQ applies only

when demand for a product is constant over the year and each new order is delivered in full

when inventory reaches zero. There is a fixed cost for each order placed, regardless of the

number of units ordered. There is also a cost for each unit held in storage, sometimes expressed

as a percentage of the purchase cost of the item.

Continuous Inventory Review System

Continuous inventory review, also known as perpetual review, involves a system that tracks each

item and updates inventory counts each time an item is removed from inventory. For example, a

retailer may use bar code scanners to record customer purchases and update inventory counts


every time a cashier scans a product code. The reorder point for replenishment of stock occurs

when the level of inventory drops down to zero. In view of instantaneous replenishment of stock

the level of inventory jumps to the original level from zero level.

Periodic Review System

Periodic inventory review involves counting and documenting inventory at specified times. For

example, a retail store operating under a periodic review policy might count inventory at the end

of each month.

Reorder Point

The reorder point ("ROP") is the level of inventory when an order should be made with

suppliers to bring the inventory up by the Economic order quantity ("EOQ"). The importance of

Reorder Level arises from the need to have sufficient stocks to service customer orders and, at

the same time, not to unnecessarily accumulate stock. Therefore, the points to be considered

while deciding the reorder levels are as follows.

The lead-time for suppliers to deliver the stock.

The delivery time specified by the customer.

The stock-in-hand to satisfy orders in the meantime.

Risk Pooling

Risk pooling suggests that demand variability is reduced if one aggregates demand across

locations because as demand is aggregated across different locations, it becomes more likely that

high demand from one customer will be offset by low demand from another. This reduction in

variability allows a decrease in safety stock and therefore reduces average inventory.

Postponement Strategy

Within supply chain management (SCM), postponement is a deliberate action to delay final

manufacturing or distribution of a product until receipt of a customer order. This reduces the

incidence of wrong manufacturing or incorrect inventory deployment. Postponement strategies

and practices serve to reduce the anticipatory risk in a supply chain. It can be fine-tuned or

staged so that only the generic parts shared by a firm’s various end products are warehoused,

used only once orders come in for whichever products are selling, and will reduce inventory

pressures throughout the firm.

Mass Customization

It is the process of delivering wide-market goods and services that are modified to satisfy a

specific customer need. Mass customization is a marketing and manufacturing technique that

combines the flexibility and personalization of "custom-made" with the low unit costs associated

with mass production.


Where is the need of Revenue Management (eg. airline industry)

1. Perishable Products (vacant seats in a flight)

2. Large fixed costs while low variable costs

3. Fixed capacity

Bullwhip Effect

The bullwhip effect (or whiplash effect) is an observed phenomenon in forecast-

driven distribution channels. It refers to a trend of larger and larger swings in inventory in

response to changes in demand, as one looks at firms further back in the supply chain for a

product.

Lead Time

It is the time from the moment the customer places an order to the moment it is received by the

customer. In the absence of finished goods or intermediate (work in progress) inventory, it is the

time it takes to actually manufacture the order without any inventory other than raw materials.

Objectives of Inventory planning

Generally the operations objectives of managing the company’s inventories include the following.

Quality – products need to be maintained in as good a condition as possible while they are

being stored. For perishable products this means not storing them for very long.

Speed – inventories must be in the right place to ensure fast response to customer requests.

Dependability – the right stock must be in the right place at the right time to satisfy customer

demand. There is no point having the wrong products in stock.

Flexibility – stock should be managed to allow the operation to be flexible. For example, that

may mean keeping sufficient stock to allow the operations processes to switch to producing

something else and yet being able to satisfy customers during that period from existing stock

levels.

Cost – if possible the total cost of managing stock levels should be minimised.


Six sigma

It is a set of techniques and tools for process improvement. Six Sigma seeks to improve the

quality of process outputs by identifying and removing the causes of defects (errors) and

minimizing variability in manufacturing and business processes. It uses a set of quality

management methods, including statistical methods, and creates a special infrastructure of people

within the organization ("Champions", "Black Belts", "Green Belts", "Yellow Belts", etc.) who

are experts in these methods.

Six Sigma project sequence steps or Total Quality Management (TQM)

Reduce process cycle time

Reduce pollution

Reduce costs

Increase customer satisfaction

Increase profits

Six Sigma identifies several key roles for its successful implementation

Executive Leadership includes the CEO and other members of top management. They

are responsible for setting up a vision for Six Sigma implementation. They also empower the

other role holders with the freedom and resources to explore new ideas for breakthrough

improvements.

Champions take responsibility for Six Sigma implementation across the organization in an

integrated manner. The Executive Leadership draws them from upper management.

Champions also act as mentors to Black Belts.

Master Black Belts, identified by champions, act as in-house coaches on Six Sigma. They

devote 100% of their time to Six Sigma. They assist champions and guide Black Belts and

Green Belts. Apart from statistical tasks, they spend their time on ensuring consistent

application of Six Sigma across various functions and departments.

Black Belts operate under Master Black Belts to apply Six Sigma methodology to specific

projects. They devote 100% of their valued time to Six Sigma. They primarily focus on Six

Sigma project execution and special leadership with special tasks, whereas Champions and

Master Black Belts focus on identifying projects/functions for Six Sigma.

Green Belts are the employees who take up Six Sigma implementation along with their

other job responsibilities, operating under the guidance of Black Belts.

Some organizations use additional belt colours, such as Yellow Belts, for employees that have basic

training in Six Sigma tools and generally participate in projects and "White belts" for those locally

trained in the concepts but do not participate in the project team. "Orange belts" are also

mentioned to be used for special cases.


Two Six Sigma sub-methodologies

1. DMAIC

The Six Sigma DMAIC process (defines, measure, analyze, improve, control) is an improvement

system for existing processes falling below specification and looking for incremental

improvement.

2. DMADV

The Six Sigma DMADV process (define, measure, analyze, design, verify) is an improvement

system used to develop new processes or products at Six Sigma quality levels. It can also be

employed if a current process requires more than just incremental improvement.

MRP

Material requirements planning (MRP) is a production planning and inventory control system

used to manage manufacturing processes. Most MRP systems are software-based, while it is

possible to conduct MRP by hand as well.

MRP Objectives:

Ensure materials are available for production and products are available for delivery to

customers.

Maintain the lowest possible material and product levels in store

Plan manufacturing activities, delivery schedules and purchasing activities.

CPM techniques-why are they employed

Critical path is the sequential activities from start to the end of a project with zero slack time.

Although many projects have only one critical path, some projects may have more than one

critical paths depending on the flow logic used in the project. If there is a delay in any of the

activities under the critical path, there will be a delay of the project deliverables. Critical path

method is based on mathematical calculations and it is used for scheduling project activities. The

initial critical path method was used for managing plant maintenance projects. Although the

original method was developed for construction work, this method can be used for any project

where there are interdependent activities. In the critical path method, the critical activities of a

program or a project are identified. These are the activities that have a direct impact on the

completion date of the project.


The two most sought after techniques are as follows:

1. PERT: The program (or project) evaluation and review technique, commonly

abbreviated PERT, is a statistical tool, used in project management, which was designed to

analyze and represent the tasks involved in completing a given project.

Fast tracking: Performing more activities in parallel

Crashing the critical path: Shortening of the durations of critical path activities by adding

resources.

2. Gantt-Chart: is a type of bar chart that illustrates a project schedule. Gantt charts illustrate

the start and finish dates of the terminal elements and summary elements of a project.

Terminal elements and summary elements comprise the work breakdown structure of the

project.

BOM

A bill of materials or Product structure (BOM) is a list of the raw materials, sub-assemblies,

intermediate assemblies, sub-components, parts and the quantities of each needed to

manufacture a product. A BOM may be used for communication between manufacturing

partners, or confined to a single manufacturing plant.

Lean Manufacturing

Also sometimes known as Lean Enterprise, or lean production, or simply, "lean", is

a production philosophy that considers the expenditure of resources in any aspect other than

the direct creation of value for the end customer to be wasteful, and thus a target for elimination.

Essentially, lean is centered on preserving value with less work. Lean manufacturing is a

management philosophy derived mostly from the Toyota Production System and identified as

"Lean" only in the 1990s.

Just-in-time (JIT)

It is an inventory strategy companies employ to increase efficiency and decrease waste by

receiving goods only as they are needed in the production process, thereby reducing inventory

costs. This method requires that producers are able to accurately forecast demand.

http://en.wikipedia.org/wiki/Just-in-time_(business)


Value chain system-Design for any industry

A value chain is the full range of activities — such as design, production, marketing and

distribution — businesses go through to bring a product or service from conception to their

customers. For companies that produce goods, the value chain starts with the raw materials used

to make their products and consists of everything that is added to it before it ends up being sold

to consumers.

The process of actually organizing all of these activities so they can be properly analyzed is called

value chain management. The goal of value chain management is to ensure that those in charge

of each stage of the value chain are communicating with each other to help make sure the

product is getting in the hands of customers as seamlessly and quickly as possible.

In his book, Porter said a business's activities could be split into two categories: primary activities

and support activities. Primary activities include:

Inbound logistics: This refers to everything involved in receiving, storing and distributing

the raw materials used in the production process

Operations: This is the stage where raw products are turned into the final product.

Outbound logistics: This is the distribution of the final product to consumers.

Marketing and sales: This stage involves activities like advertising, promotions, sales force

organization, selecting distribution channels, pricing, and managing customer relationships of

the final product to ensure it is targeted to the correct consumer groups.

Service: This refers to the activities that are needed to maintain the product's performance

after it has been produced. This stage includes things such as installation, training,

maintenance, repair, warranty and after sales services.


The support activities help the primary functions and comprise:

Procurement: This is how the raw materials for the product are obtained.

Technology development: Technology can be used across the board in the development of

a product, including in the research and development stage, in how new products are

developed and designed and process automation.

Human resource management: These are the activities involved in hiring and retaining the

proper employees to help design, build and market the product.

Firm infrastructure: This refers to an organization's structure and its management, planning,

accounting, finance and quality control mechanisms.


Flipkart Business Analysis

Different Verticals of Flipkart

Initially the retailer (in this case Flipkart) holded the inventory owned by the supplier, and buyed

it from the supplier only when it is sold to the end consumer this model was Consignment

model. Since the channel was new and unproven, this was the most risk-free way to operate.

Later this was discontinued and inventory was purchased to ensure superior delivery times and

customer satisfaction. But with foreign direct investment (FDI) favouring the marketplace model

in April 2013, Flipkart changed its business model to marketplace model. With a marketplace

model, Flipkart no longer has an inventory of its own, rather buyers can deal with sellers directly

and the delivery will be done by Flipkart. The model is similar to eBay India and Amazon.in

With respect to determining what items to store in the warehouse and what items to be procured

from vendors, Flipkart uses Long Tail Concept, which is nothing but selling a large number of

unique items with relatively small quantities. Flipkart orders such items on adhoc basis


and usually don’t keep inventory of such items since the demand for such items is very less and

thereby minimizing overall distribution and inventory costs.

For additional information on flipkart please visit:

https://www.scribd.com/doc/216780467/Flipkart-Supply-Chain-Management

Some Additional Questions that requires applications of above concepts:

What are the various systems/elements involved in E-commerce business?

Value chain system-Design the same for E-commerce business?

How can Flipkart reduce its working capital?

Decide cycle-time for a book delivery to customer

What could be the possible bottlenecks involved? Identify to eliminate them?

One transportation problem regarding customer delivery time- If I were to start a fast-food

delivery chain in a metro and promise a 30-min-or-less delivery time, how would I go about

it?

https://www.scribd.com/doc/216780467/Flipkart-Supply-Chain-Management

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