I use the textbook by Heizer & Render. Many of the slides come from them.

1. Operations Management
PBSB 813 Contact 5
Johan Jordaan
jordaan.johan@nwu.ac.za

2. Note on the use of these slides
• These slides provide the basic theory that I would like you to know.
There are many more techniques on the slides that came with the
textbook, which are also available on eFundi. As I talk you through
this slide show, please stop where you don't understand, go to either
the textbook (Heizer and Render) or the Heizer & Render slides and
make sure you understand them. If you still do not understand, on
the first page that you have to submit is space for you to tell me what
you do not understand so that I can cover it in class.
• Once you have gone through the slides, go to the template on eFundi
and prepare your submissions for the next contact session.

3. Operations &
productivity (1)
Topics covered: Contact 5
Global envi-
ronment &
strategy (2)
Managing
projects (3)
Forecasting
demand (4)
Product
design (5)
Quality
management
(6)
Process
design (7)
Location
decisions (8)
Layout
decisions(9)
Job design &
work mea-
surement (10)
Supply chain
management
(11)
Inventory
management
(12)
Scheduling
(13 & 15)
MRP & ERP
(14)
JIT & Lean
operations
(16)
Maintenance
& reliability
(17)
Study school
Contact 1
Contact 2
Contact 3
Contact 4
Contact 5
Contact 6
Contact 7

4. Outcomes for today's contact
OUTCOMES OF THEME K
• Demonstrate a thorough understanding of supply chains by plotting the supply chain of
a real-life organisation
• Investigate and critically analyse the strategic benefits of strategic supply chain design.
• Effectively distinguish between the different methods of determining the optimal facility
positions.
• Critically discuss the concept of mass customisation
• Demonstrate a thorough understanding of the concepts by applying the theory to a real-
life organisation.
OUTCOMES OF THEME L
• Understand service levels and be able to the theory to real-life organisations
• Demonstrate a thorough understanding of inventory management concepts by applying
the theory to a real-life organisation

5. Chapter 11 Theory
Supply chain management

6. What is a Supply Chain?

7. Bullwhip Effect
Time
Retailer’s Orders
Time
Wholesaler’s
Orders
Time
Manufacturer’s
Orders
The magnification of variability in orders in the supply-chain
A lot of retailers
each with little
variability in their
orders….
…can lead to greater
variability for a fewer
number of
wholesalers, and…
…can lead to even
greater variability
for a single
manufacturer.

8. The Bullwhip Effect
Consumer
sales are
predictable and
steady.
Retailer orders start to show
variability as lot sizes and
other factors have an impact.
Farther up the supply
chain variability
increases.

9. Supply Chain Management
1. Transportation vendors
2. Credit and cash transfers
3. Suppliers
4. Distributors
5. Accounts payable and receivable
6. Warehousing and inventory
7. Order fulfillment
8. Sharing customer, forecasting, and production
information
Important activities include determining

10. A Supply Chain for Beer
Figure 11.1

11. Global Supply Chain Issues
 React to sudden changes in parts availability,
distribution, or shipping channels, import duties,
and currency rates
 Use the latest computer and transmission
technologies to schedule and manage the
shipment of parts in and finished products out
 Staff with local specialists who handle duties,
freight, customs and political issues
Supply chains in a global environment
must be able to

12. How Supply Chain Decisions
Impact Strategy
Low-Cost
Strategy
Response
Strategy
Differentiation
Strategy
Supplier’s
goal
Supply demand
at lowest
possible cost
(e.g., Emerson
Electric, Taco
Bell)
Respond quickly
to changing
requirements
and demand to
minimize
stockouts (e.g.,
Dell Computers)
Share market
research;
jointly develop
products and
options (e.g.,
Benetton)
Primary
selection
criteria
Select primarily
for cost
Select primarily
for capacity,
speed, and
flexibility
Select primarily
for product
development
skills
Table 11.1

13. Make-or-Buy Decisions
1. Maintain core competence
2. Lower production cost
3. Unsuitable suppliers
4. Assure adequate supply (quantity or delivery)
5. Utilize surplus labor or facilities
6. Obtain desired quality
7. Remove supplier collusion
8. Obtain unique item that would entail a prohibitive
commitment for a supplier
9. Protect personnel from a layoff
10. Protect proprietary design or quality
11. Increase or maintain size of company
Reasons for Making
Table 11.4

14. Outsourcing
 Transfers traditional internal activities
and resources of a firm to outside
vendors
 Utilizes the efficiency that comes with
specialization
 Firms outsource information
technology, accounting, legal, logistics,
and production

15. Ethics in the Supply Chain
 Opportunities for unethical behavior are
enormous and temptations are high
 Many companies have strict rules and
codes of conduct that define acceptable
behavior
 Institute for Supply Management has
developed a detailed set of principles and
standards for ethical behavior

16. Supply Chain Strategies
 Negotiating with many suppliers
 Long-term partnering with few
suppliers
 Vertical integration
 Keiretsu
 Virtual companies that use
suppliers on an as needed basis

17. Managing the Supply Chain
 Mutual agreement on goals
 Trust
 Compatible organizational cultures
 Integrating supply chains
There are significant management issues in
controlling a supply chain involving many
independent organizations

18. Technology in supply chain management
• RFID
• E-procurement
• Google
• E-Bay, Amazon, Kalahari, Bid-or-buy,

19. Different distribution systems
• Rail
• Road
• Water
• Air
• Pipeline
• Third-party logistics
• Outsourcing

20. Chapter 12 Theory
Inventory management

21. The trade-off
Risk of
being out-
of-stock
Cost to
carry
inventory

22. Inventory
 One of the most expensive assets of
many companies representing as
much as 50% of total invested capital
 Operations managers must balance
inventory investment and customer
service

23. Functions of Inventory
1. To decouple or separate various
parts of the production process
2. To decouple the firm from fluctuations
in demand and provide a stock of
goods that will provide a selection for
customers
3. To take advantage of quantity
discounts
4. To hedge against inflation

24. Types of Inventory
 Raw material
 Purchased but not processed
 Work-in-process
 Undergone some change but not completed
 A function of cycle time for a product
 Maintenance/repair/operating (MRO)
 Necessary to keep machinery and processes productive
 Finished goods
 Completed product awaiting shipment

25. The Material Flow Cycle
Figure 12.1
Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
Cycle time
95% 5%

26. Inventory Management
 How inventory items can be classified
 How accurate inventory records can
be maintained

27. ABC Analysis
 Divides inventory into three classes
based on annual dollar volume
 Class A - high annual dollar volume
 Class B - medium annual dollar volume
 Class C - low annual dollar volume
 Used to establish policies that focus on
the few critical parts and not the many
trivial ones

28. ABC Analysis
A Items
B Items
C Items
Percentofannualdollarusage
80 –
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 – | | | | | | | | | |
10 20 30 40 50 60 70 80 90 100
Percent of inventory items Figure 12.2

29. ABC Analysis
 Policies employed may include
 More emphasis on supplier development
for A items
 Tighter physical inventory control for A
items
 More care in forecasting A items

30. Cycle Counting
 Items are counted and records updated on
a periodic basis
 Often used with ABC analysis
to determine cycle
 Has several advantages
 Eliminates shutdowns and interruptions
 Eliminates annual inventory adjustment
 Trained personnel audit inventory accuracy
 Allows causes of errors to be identified and corrected
 Maintains accurate inventory records

31. Control of Service Inventories
 Can be a critical component
of profitability
 Losses may come from
shrinkage or pilferage
 Applicable techniques include
1. Good personnel selection, training, and discipline
2. Tight control on incoming shipments
3. Effective control on all goods leaving facility

32. Reordering points
R = Reorder point
Q = Economic ordering quantity
L = Lead time
L L
Q QQ
R
Time
#Unitsin
stock
0

33. Minimizing Costs
Objective is to minimize total costs
Table 11.5
Annualcost
Order quantity
Curve for total
cost of holding
and setup
Holding cost
curve
Setup (or order)
cost curve
Minimum
total cost
Optimal order
quantity (Q*)

34. Production Order Quantity Model
Inventorylevel
Time
Demand part of cycle
with no production
Part of inventory cycle during
which production (and usage) is
taking place
t
Maximum
inventory
Figure 12.6

35. Your assignment
• Step 1: Make sure you understand the concepts that are covered in this slide show. If
necessary, go through it again or study the textbook. The slides by Heizer & Render
(available on eFundi) also give valuable extra information.
• Step 2: Prepare a one-page summary of the theory. Make sure it fits into the template in
the study guide. Remember to make a note of those issues that you want explained in
class.
• Step 3: Find out how your organisation manages its supply chain and inventory. Give a
one-page summary on the template.
• Step 4: Critique the way supply chain and inventory management take place in your
organisation. Where necessary, suggest improvements. Give a one-page summary on the
template. (If there are diagrams, you are allowed a fourth page for them).
• Step 5: Submit your three-page report on efundi before Thursday night 23:59. This
counts towards your individual assignment and your final pass mark!
• Step 6: For your group assignment, prepare a three-slide PowerPoint show: Slide 1:
Briefly present the essence of supply chain and inventory management to your
community organisation. (Decide in conjunction with them to what extent the two topics
are important to them). Slide 2: Explain whether/how they presently do supply chain and
inventory management. Slide 3: Give them advice on how to improve their supply chain
and inventory management. Use the template that is on eFundi. One group member
must submit on efundi before Thursday night 23:59 as well!
• Names of both documents must be as indicated in your study guide.