Operations Management and Supply
Production is the creation of goods and services using the factors of production: land, labour,
capital, entrepreneurship and knowledge.
Operations Management = OM
Running the process that takes inputs and creates output (example is a factory)
Supply Chain management = SCM
Supply Chain Fundamentals
Is mostly about MOVING STUFF (Example: Train)
Information systems’ role in the supply chain
SCM Success factors
Future supply chain trends
The best SCM is run by IS
Businesses and Types
Production management describes all the activities managers do to help companies create
Operation Management (OM) is the management of systems or processes that convert or
transform resources (including human resources) into goods and services
A transformation process is often referred to as the technical core, especially in manufacturing
organizations, and is the actual conversion of inputs into outputs.
Example: Restaurant inputs include hungry customers, food, wait staff. The transformation is well
prepared food, well served and an agreeable environment. The outputs are satisfied customers
Value-Added is the term used to describe the difference between the cost of inputs and the
price value of outputs
Automobile inputs include sheet steel, engine parts, and tires. The transformation is the fabrication and
assembly of cars. The output is high-quality cars.
Hospital inputs include patients, medical supplies, doctors, nurses. The transformation is health care.
The output is healthy individuals OM In Business
The scope of OM ranges across the organization and includes many interrelated activities. In the
examples below a hypothetical airline company is used. Typical activities include:
Forecasting: Estimating seat demand for flights, weather and landing conditions, growth or
reduction in air travel
Capacity Planning: Essential metric to maintain cash flow, underestimating or overestimating
flights will hurt profits
Scheduling: Tight schedule must be maintained including flights, pilots, attendants, ground
crew, maintenance, etc.
Managing Inventory: Food, beverages, in-flight items, etc is essential for the airline
Assuring Quality: Today’s travellers expect high-quality customer service during ticketing, check-
in, curb service, and other issues where emphasis is on efficiency and courtesy
Motivating and Training Employees: Self explanatory
Locating Facilities: Key questions include in which cities to offer services, where to host
maintenance facilities, where to locate major and minor hubs, etc.
Information Systems’ Role in OM
Concerned with developing a long-term plan for how best to use the company’s resources to
ensure compatibility between resources and the long-term corporate strategy.
IS support for operations strategy depends on:
o Level of available technology
o Skill level of workers
o Degree to vertical integration, or to what degree the suppliers are owned (or partnered)
with the company
o Extent to which outside suppliers are used
SBU Strategic Business Unit – is a stand-alone business under a corporate umbrella
o Example, Sport Check and the company who owns it is an SBU, because the company is
owned by Canadian tire but is still operating separately.
They have their own SYSTEMS (Supply chain, ERP system) standalone from
o It is best to think of these really large companies as being made up of these smaller
companies. At the SBU level, strategic planning is used and some other forms:
Strategic Planning – Focuses on long-range planning such as plant size, location
and type of process to be used.
Material Requirements Planning (MRP) Systems – use sales forecast to make
sure parts and materials are available at the right time and place in a specific
Tactical Planning – focuses on producing goods and services as efficiently as
possible within the strategic plan Global Inventory Management Systems (GIMS) – locate, track and predict
materials and components by installing GPS in transportation vehicles
Operational Planning and Control (OP&C) – deals with day-to-day procedures
for performing work, including scheduling, inventory and process management.
Consist of a number of systems such as:
Inventory Management and control systems provide control and
visibility to the status of individual items maintained in inventory.
Provides information from a variety of sources including: Current
inventory and order status, cost accounting, sales forecasts and
customer orders, manufacturing capacity, new-product introductions.
Transportation Planning Systems track and analyze the movement of
materials and products to ensure the delivery of materials and finished
goods at the right time, to the right place, and at the lowest cost
Distribution Management Systems coordinate the process of
transporting materials from a manufacturer to distribution centres to
the final customer. Helps decide if the company wants to use an
effectiveness route and ship directly to customer, or an efficiency route
and ship its products to a distributor who ships to the customer.
Competitive OM Strategy
Five key competitive priorities that can add value for customers:
2. Quality – Product quality and process quality. This includes the research and development put
into the product (product quality) as well as making sure that the final product has no defects
(process quality). There are many quality control standards such as:
a. Six Sigma Quality – No more than 3.4 defects per million opportunities
b. ISO 9000 standard
c. CMMI – Capability Maturity Model Integration is a framework of best practices. It
describes the best practices in managing, measuring, and monitoring software
3. Delivery – how do we get things out from the supply chain to the customers? Speed is critical
4. Flexibility – The ability of a company to offer a wide variety of products to its customers.
Flexibility is also a measure of how fast a company can convert processes from making an old
line of products to making a new line of products.
5. Service – With shortened product life cycles products tend to be very similar or follow the same
standard. For this reason many companies place emphasis on high-quality customer service as a
primary differentiator. OM and the Supply Chain
Supply Chain consists of all parties involved, directly or indirectly, in the procurement of a
product or raw material
Supply Chain Management (SCM) involves the management of information flows between and
among stages in a supply chain to maximize the total effectiveness and profitability
The four basic components of SCM are:
Supply chain strategy – the strategy for managing all the resources required to meet
customer demand for all pr