MBUS 306 Final Exam Study Guide

Operations Management
MBUS 306
Lecture 12 – Business Systems –
ERP/APS/SCM/CRM
Al Baharmast, Ph.D.
Enterprise Resource Planning (ERP) Fundamentals
•ERP Fundamentals:
Not just another business software system…, ERPs are •Packaged business solutions comprised of multiple
components, that, when implemented in tandem,
automate, integrate and optimize extended business
processes across organizational value chains
•They enable sharing of common data and business
practices both within the enterprise and across supply
chains
•Also referred to as “Packaged Software,” “Standard
Software,” and “Best Practices Software”
ERP Solution Drivers
What Compels the Adoption of Best Practices Software Solutions?
▪ ERP Standards Software (COTS) applications ▪ Deliver a lower Total Cost of Ownership (TCO)* over an extended lifecycle:
▪ Development, Implementation, Integration and Support/Maintenance Costs
▪ Longer Life Cycles than custom applications
▪ Provide proven methodologies (Embedded resources) for implementation, testing,
training, documentation
▪ Limit financial risks (vendor/systems knowledge dissolution)
▪ Provide scalability
▪ Allow businesses to focus on their core competencies (unless you are a software
development firm …)
▪ Ultimately, ERP implementations are driven by the desire to ▪ Obtain better information on process performance
▪ Improve operational efficiency & implement system-enforced controls
▪ Support process transformation, product innovation and partner integration
* TCO reductions rarely realized in isolation; benefits accrue from
operational improvements &
process innovations
ERP Evolution
ERP’s Manufacturing Roots
Material Requirements Planning (MRP)
Material Resource Planning (MRP II)
Enterprise Integration
ERP (Back-office – Human Resources, Financials, Supply Chain)
Industry Vertical Solutions
Expanding Enterprise Integration
ERP (Services Offerings), Supply Chain Management (SCM), Supplier Relationship
Management (SRM) and Customer Relationship Management (CRM)
The Newest Wave
ERP II (Lehman, 2001) – “C-commerce and collaborative business models are
beginning to replace standard strategies focused on operational efficiency
and value chain management.”
▪ Collaborative Commerce – Sharing business processes across the enterprise bounds within
“communities of interest” – automating process interactions with customers/clients and
third parties.
ERP Vendors
Big market players – SAP and Oracle
The Financial Picture (from FY 2018) –
SAP
▪ Revenues – $24.7 Billion
▪ R&D Expenditures – $3.6 Billion
▪ Net Income – $5.3 Billion
Oracle*
▪ Revenues – $39.8 Billion
▪ R&D Expenditures – $6.1 Billion
▪ Net Income – $13.7 Billion
* Includes Oracle Database and other non-ERP product/service lines
ERP Concepts
Best Practices Software
Embedded Business Processes
ERP Concepts
Best Practices Software
ERP as “Best Practices Software” – All ERP applications
execute extended business processes either as explicitly
represented or implicitly understood (increasingly
becoming explicit)
▪ Embedded business processes are those developed from years of
research and synthesis into “best practices”
▪ Allows you to map your business processes to those executed in
the system (solution reference models)
▪ Thousands of ways to configure the embedded business
processes to better suit your needs
▪ May require modification of business processes
▪ If neither configuration nor adaptation is possible, other
alternatives may be sought (i.e., bolt-ons and extensions;
customization is seldom recommended)
▪ If all else fails, only then seek alternative solutions that customize
and/or integrate with external system (bolt-on/extension)
Generally
Rule –
Configuration – Good
Customization – Bad
Not All Customizations are Made the Same
Key to Customization Reduction –
Business Process Reengineering & Governance
Having just said customizations are bad, now you have to know you
will need them Though ERPs are generally enabled via industry best practice configuration, customers
often need to enhance standard functionality to address product gaps or customer-specific
requirements (e.g., printing, reporting, systems interfaces, etc.). We categorize
customizations by the following groupings – Reports, Interfaces, Conversion, Extensions,
Forms, Workflow, Authorizations (RICE-FWA) and other Business Intelligence (BI)-unique
custom content (Data-Stores, Multi-Providers, Info-Cubes, Reports, etc.). This custom code
introduces complexity, but there are methods of retaining these customizations with
through baseline software releases from the vendor.
– Customization of core code is a separate distinct category. It will often require a
vendor key to make this type of change, and there is much greater risk these
customizations!!
Customizations are not equally complex; some are more challenging and
time-consuming to develop/maintain. Generally…
More Complex – Interfaces, Conversions, Extensions (Vary Greatly)
Less Complex – Reports, Workflow
Least Complex & Often Most Numerous – BI-Unique Custom Content
SAP Supply Chain Collaboration
Process Model (High Level)
With hundreds of best
practices incorporated into
the SAP system,
organizations have a
ready-made facility for
adopting proven processes
without the burdens of trialand-error operational
design and of
benchmarking themselves
against another
organization [Curran, 1997]
Source: SAP
Business Process Management
The Antithesis of “Clean-Slate” Business Process Reengineering
Reengineering, as some have conceptualized it, calls for “clean slate”
process redesign prior to searching for technology solutions.
A standard software solution is implemented in an opposite fashion:
– A set of “reference” process, data, and function models are purchased.
– Internal processes are aligned with the standard software solution
reference processes.
– Through configuration analysis, many options exist for finding the
most suitable variant of a reference process.
Standard software-based Business Process Management (BPM)
– Anticipates alignment to reference business processes and the systems
configuration that will build a process variant that is most suitable for
the adopting organization.
ERP Concepts
Process Orientation
Functionally-Oriented Operations Management
Domain “A”
Acquisition
(Purchasing)
Domain “B”
Logistics
(Receiving)
Domain “C”
Finance
(Payables)
Input
A
Vertical
Processes
B
2
β
C
3
γ
D
4
δ
E
Vertical,
Non-Integrated
Systems
“Stovepipes”
α
1
ε
5
Output
Acq.
IS
Log.
IS
Fin.
IS
Process-Oriented Operations Management –
Driven by ERP
Domain “A”
Acquisition
(Purchasing)
Input
Process
Variant 1
Domain “B”
Logistics
(Receiving)
Domain “C”
Finance
(Payables)
Functions
A
Output
α
1
Process
Variant 2
B
C
β
2
γ
3
D
δ
4
Process
Variant 3
Process
Variant 4
E
5
ε
Solution
Spotlight
Oracle – Maintenance, Plan to Schedule Process
Asset to Maintenance Plan
Signal to Replenishment
Assess to Progress
Strategic Staffing to Hire
Payroll to Payment
Plan to Project Budget
Schedule to Maintain
AM7513
AM7527
AM7515
AM7516
Determine
Asset
Availability
Manage
Work Request
Process
Schedule
and Resource
Asset
Create
Maintenance
Schedule
• Perform constraint
based scheduling,
what-if analysis,
and adjustment of
variables
(overtime, contract
labour, deferrals,
etc.)
• Schedule work
orders, identify
dependencies,
and identify
resources (People/
Equipment/ Parts)
• Review production
orders, property
usage/hours,
shutdown/holidays
etc. in order to
determine asset
availability.
• Create a work
request, approve
the work request,
and associate the
work request to a
work order.
Schedule to Maintain
Signal to Replenishment
Assess to Progress
Strategic Staffing to Hire
Payroll to Payment
Plan to Project Budget
Source: Oracle
Enterprise
Roles
Maintenance Planner
Maintenance Supervisor
ERP Concepts
Enterprise-Level Standards
Enterprise-Level Standards
Business Process Standardization
– Results in significant reduction in or elimination of the
different ways of doing the same job.
Configuration Standardization & Management
– Embeds process standardization in the ERP system.
– Requires a pre-defined configuration control process to avoid
constant change and/or the development of process variances.
User Roles Standardization
– Identifies logical groups of users based on common activities
and organizations. System functions and data visibility are
constrained (or enabled) by user role.
User Training Standardization
– Provides the discrete information to user groups necessary to
enable process standardization.
ERP Concepts
Single Source of Data
Single Source of Data
One of the central tenets of ERP is the
consolidated and centralized management of
all the instances of identical data (both
Master Data and Transactional Data)
… based on the foundational efficiency
principle of data reutilization
Process 1
Requisition
Process 2
P.O. Issuance
Process 3
Receiving
Process 4
A.P.
SAP – Quality
Inspection
Example
Define Product Quality Characteristics
and Leverage One Set of Master Data
that to Manage Inspections
Vendor A
Data
ERP Database
Master data – relatively static referential data against which
variable transactions will be posted (e.g., Vendors, Customers,
Materials).
Transactional data – variable data that define the parameters of
a business event and make reference to master data (units
ordered, lots held in inventory)
Source: SAP
ERP Concepts
Broad Scope of
Integrated Solutions
SAP Modules
SAP Business Suite and Industry Solutions
Defense Forces & Public Security
Public Sector
Oracle E-Business Suite
ERP and Functional Activites
Managing Business Functions
with ERP
Select Examples
Functional Business Activities
Of utility in defining scope and organizational support requirements
Examples – Financial Management
– Procurement
– Project Management
– Quality Management
– Supply Chain Management
Financial Management
Procurement
Project Management
Quality Management
Business Functions as Part of
Extended ERP Business Processes
•Business functions are interwoven throughout each
extended business process enabled by an ERP. ERP
functional component capabilities enable
organizations to execute their part of a
comprehensive end to end process.
•Examples of business functions as part of extended
ERP business processes:
– Creating an obligation to reflect a financial liability at the time
of Purchase Order Issuance (Financial Management)
– Enabling Goods Receiving and Invoice Receiving with
Reference to a Previous Procurement Action/Document
(Procurement)
– Enabling Goods Quality Inspection Upon Receipt and Based on
Pre-specified Contractual Terms and Conditions (Quality
Management)
– Recognizing Goods Receiving to Project Stock and Updating
Task Completion or Percent Completion (Project Management)
Managing Business Processes with ERP
Select Examples of Quality Management Functions
Interwoven into Varied End to End Business Processes
Supported by ERP
•
•
•
•
•
Procure to Pay
Order to Cash
Concept to Product/PLM
Prospect to Order
Service Request to Resolution
QM and Procure-to-Pay (PTP) Master Data
•Material Master
– Material Masters exist for all materials that are purchased, produced or
stocked
• Services, Raw Materials, Semi-Finished Goods, Finished Goods, Non-Stock
(Consumables), Non-Valuated Materials, Packaging, etc
– Defines the basic quality requirements for a material
• Goods Receipts from PO, Goods Receipt from Production Order, Stock
Transfer, Goods Issue, Customer Delivery, etc.
• Post to “Inspection Stock” or “Unrestricted Stock”
•Vendor Master
– Vendors can be evaluated (scored) and/or blocked for all or some
materials (for quotations, purchase orders and/or goods receipts)
•Material Master + Vendor Master
– Modify Material Master Goods Receipt rules (e.g. Source Inspections)
– Valid date range, valid quantity level, dynamic rules
PTP – Goods Receipt from Vendor
•In this scenario, materials are procured from a vendor and inspected on receipt
– Condition: QM Master Data determines that an inspection is required; items will be received
into Inspection Stock; the Vendor is not “blocked” for this shipment
1. Purchase Requisition creates a Purchase Order which leads to an Inbound Delivery
2. On Goods Receipt, an Inspection Lot is created, the items are received (posted) into
Inspection Stock
3. The Inspection Plan (with tasks, characteristics, sample size, etc.) is performed
– Optionally, the items may require a “quality certificate” from the vendor, which can be
processed via EDI. Source Inspections may also be required (including for third parties)
4. Inspection Results and Defects are recorded and Quality Notifications created
5. The Inspection Lot is completed, a score is calculated and usage decisions are made
6. Stock postings are performed, the Vendor is updated, and a quality certificate may be
produced
7.If the items fail inspection, the Return Delivery process is triggered
Order to Cash – Sales and Delivery
•
In this scenario, materials sold to one specific customer require characteristics
that most but not all materials meet and that no other customer requires.
•
•
Condition: The combination of Customer A and Material B has an associated
Quality Inspection plan that requires Inspection Before Delivery
Note: the intent is not to “re inspect” materials that have already been inspected on
Goods Receipt or during Production, rather it is to meet customer-specific
requirements and minimize overall cost
1. Sales Order is received from Customer A for Material B
2. The Sales Order creates an Inspection Lot and materials are produced or
moved from inventory
3. QM performs the Inspection
4. Inspection results are recorded and a usage decision is made
5. If the items pass inspection, the Sales Order generates a Delivery Order and
the Shipping process is initiated
6. A Quality Certificate may be produced
Concept to Product and PLM
ERPs enable innovation quality and efficiency in new
product design and engineering –
Target customer market and customer requirements
identification (CRM, NDPI)
Collaborative product engineering (NDPI, cFolders and
PLM), mechanical and electronic-CAD (PLM), and
project management (PS)
Product quality engineering and specifications (NDPI, PLM,
MM and QM), including ISO 9001 and 14000
Product and component sourcing (SCM & SRM), Network
Planning (NDPI), Cost and Quotations (CQM)
Prospect to Order & Service Request to Satisfaction
Managing quality in services delivery with Customer
Relationship Management –
•Enforcing business rules and standardizing interactions with
scripts, alerts and messages and knowledge management tools
(Interaction Center)
•Online help procedures and step-through training aids for
customer service representatives
•Managing customer history and cross-channel engagement
information (CRM Marketing, Sales, Service)
•Service contract management (CRM Service), service history
and entitlement, SLAs and warranties, return material
authorizations, billing and shipping history
ERP Implementers and Users (Sampling)
Companies that Implement
ERPs:
-Accenture
-HP
-IBM
-Capgemini
-CSRA
-Deloitte
-KPMG
-PWC
-Many other smaller companies
Companies/Organizations
-AMD
-ALCOA
-BP/Amoco
-Bristol Myers Squibb
-Chevron
-CITGO
-Coca Cola
-Compaq
-Compass Group
-CONOCO
-DHL
-DirecTV
-Exxon/Mobil
-General Mills
-Halliburton
-Honeywell
-Intel
that Use ERPs:
-Kodak
-Lockheed
-NASA
-Nokia
-OfficeMax
-Pennzoil
-Phillips
-Proctor & Gamble
-Saralee
-Shell
-Siemens
-Statoil
-Many other large and
smaller companies
Implementation Methods – ASAP
Accelerated SAP (ASAP) is SAP’s standard
implementation methodology. It contains the
Roadmap, a step-by-step guide that incorporates
experience from many years of implementing the
solution.
Accelerated SAP contains a multitude of tools,
accelerators and useful information to assist all team
members in implementing the solution. Quality
checks are incorporated at the end of each phase to
easily monitor deliverables and critical success factors.
37
ASAP
Phase 1 : Project Preparation
Goal Setting
Define project goals & objectives
Implementation strategy
1.Clarify the scope of implementation
2.Establish the project organization and
relevant committees and assign
resources
Implementation
Sequence
During this phase the
team goes through initial
planning and
preparation for SAP
project.
Define sequence in project has to be
executed
Team
Core team+ project team+
consultant team
Sign Off
At the end of phase every above steps
will be documented & will be signed off
with the client
39
Phase 1 : Project Preparation
40
Phase 2 : Business Blueprint
SCOPE DOCUMENT
This document will consists of
questionnaire of entire business
process
AS IS
1.Understanding the business Process
from the core team. 2.Based on the
input ASIS document has to be created
according to module wise
TO BE
1.In this process will map the business
process in SAP based on ASIS
2.Module wise TOBE document has to
be created
The purpose of this phase is to
achieve a common
understanding of how the
company intends to run SAP
to support their business.
The result is the Business
Blueprint, a detailed
documentation of the results
gathered during requirements
workshops.
GAP ANALYSIS
1.The GAP b/w ASIS process & TOBE process
is called GAP analysis ie., The inputs or the
business process which can’t mapped into
standard SAP will be analyzed here
2.GAP document has to be created
SIGN OFF
Each process above has to be
taken sign off from client
41
Phase 2 : Business Blueprint
42
Phase 3 : Realization
Baseline
Major scope
Final
Configuration
Remaining scope
The purpose of this phase is to
implement all the business
process requirements based on
the Business Blueprint. The
system configuration
methodology is provided in two
work packages: Baseline (major
scope); and Final configuration
(remaining scope).
SIGN OFF
Each process above has to be
taken sign off from client
43
Phase 3 : Realization
Phase 4 : Final Preparation
Unit Testing
Testing within each module
Integration
Testing
Integrate testing of modules ie.,
combine testing of all the
modules
User Training
Cut over Strategy
legacy system will be migrated to
SAP system.
The purpose of this phase is to
complete the final
preparation (including testing,
end user training, system
management and cutover
activities) to finalize your
readiness to go live. The Final
Preparation phase also serves
to resolve all critical open
issues. On successful
completion of this phase, you
are ready to run your business
in your live SAP System.
SIGN OFF
Each process above has to be
taken sign off from client
45
Phase 4 : Final Preparation
46
Phase 5 : Go Live & Support
Production
Support
Monitor System
Transactions
Optimize
Performance
The purpose of this
phase is to move from
a project-oriented,
pre-production
environment to live
production operation.
Help Desk &
Competency
Center
47
Phase 5 : Go Live & Support
48
ASAP Roadmap
Project
Preparation
Business Blueprint
Realization
Final
Preparation
GoLive and
Support
Setup of Local Project
Organization
General
Project Management
General
Project Management
General
Project Management
General
Project Management
Adaption of
Strategic Framework
OCM Organizational
Alignment + Change Analysis
OCM
OCM
OCM
Establish OCM
Procedures + Responsibles
Early Adoption of Best
Business Practice Processes
Early Adoption of Best
Business Practice Processes
End User Training
System Support
Early Adoption of Best
Business Practice Proceesses
Training Planning
Training Preparation
Cutover Management
Business Support
Training and
Documentation Strategy
Local Business Blueprint
Documentation
Configuration &
Development
Business Simulation
Infrastructure Requirements
and Design
Security Requirements
Unit / Process / Integration /
Business Acceptance Testing
End User Practice in the
System
Data Management
Standards Implementation
Infrastructure Planning
Infrastructure
Implementation
Infrastructure Finalization
Data Cleansing
and Data Preparation
System Operation Stategy
Completion Check &
Prepare for Next Phase
Data Cleansing
and Data Preparation
Completion Check &
Prepare for Next Phase
Data Preparation & Data
Migration Simulation
Data Migration to
Production
Cutover Planning
& Preparation
Pre-Go-Live Operations
Business Transition
Planning for Cutover
Final Cutover and
Controlled Process GoLive
Completion Check &
Prepare for Next Phase
Completion Check &
Prepare for Next Phase
Project Closing
Systems Integrator
Implementation Methodologies
SI Methods/Tools
Extend Upon ASAP
Methodology*
* Accenture Example
Operations Management
MBUS 306
Lecture 10 – Supply Chain Management
Al Baharmast, Ph.D.
The Strategic Importance
of the Supply Chain
Supply-chain management is the integration
of the activities that procure materials and
services, transform them into intermediate
goods and the final product, and deliver
them to customers
Competition is no longer between
companies; it is between supply chains
Objective – structure the supply chain to
maximize its competitive advantage and
benefits to the ultimate consumer
Supply-Chain Management
Important activities include determining
1. Transportation
2. Credit and cash transfers
3. Supplier management
4. Distribution
5. Accounts payable and receivable
6. Warehousing and inventory
7. Order fulfillment
8. Sharing customer, supplier,
forecasting, and production
information
A View of the Supply Chain
Supply Network
More reflective of reality – much more complex!
e-tailer
• Multiple agents across the stages of
supply
• Multiple channels of distribution
(ways of selling a company’s goods)
• Multi-directional flows
Manufacturer
Supplier
Consumers
Retailer
Manufacturer
Supplier
Consumers
Retailer
Distributors
Manufacturer
Supplier
Consumers
Retailer
Consumers
Distributors
Manufacturer
The Supply Chain’s Strategic Importance
• The coordination of all supply chain activities,
starting with raw materials and ending with a
satisfied customer
• Includes suppliers, manufacturers and/or service
providers, distributors, wholesalers, retailers, and
final customers
The Supply Chain’s Strategic Importance
• Large portion of sales dollars spent on purchases
• Supplier relationships increasingly integrated and
long term
• Improve innovation, speed design, reduce costs
• Managing supplier relationships has added
emphasis
Global Supply-Chain Issues
Supply chains in a global environment
must be able to
 React to sudden changes in materials
availability, distribution or shipping
channels, import duties, and currency rates
 Use the latest computer and transmission
technologies to schedule and manage the
shipment of materials in and finished
products out
 Staff with local specialists who handle
duties, freight, customs and political issues
Supply-Chain Economics
Supply Chain Costs as a Percent of Sales
Make-or-Buy Decisions
Reasons for Making
1.
2.
3.
4.
5.
6.
7.
8.
Maintain core competence
Lower production cost
Unsuitable suppliers
Assure adequate supply (quantity or delivery)
Utilize surplus labor or facilities
Obtain desired quality
Remove supplier collusion
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
Table 11.4
Make-or-Buy Decisions
Reasons for Buying
1.
Frees management to deal with its primary
business
2. Lower acquisition cost
3. Preserve supplier commitment
4. Obtain technical or management ability
5. Inadequate capacity
6. Reduce inventory costs
7. Ensure alternative sources
8. Inadequate managerial or technical resources
9. Reciprocity
10. Item is protected by a patent or trade secret
Table 11.4
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
Supply-Chain Strategies
 Negotiating with many suppliers
 Long-term partnering with few
suppliers
 Vertical integration
 Joint Venture
 Keiretsu
 Virtual companies that use
suppliers on an as needed basis
Many Suppliers
 Commonly used for commodity
products
 Purchasing is typically based on
price
 Suppliers are pitted against one
another
 Supplier is responsible for
technology, expertise, forecasting,
cost, quality, and delivery
Few Suppliers
 Buyer forms longer term
relationships with fewer suppliers
 Create value through economies of
scale and learning curve
improvements
 Suppliers more willing to participate
in JIT programs and contribute
design and technological expertise
 Cost of changing suppliers is huge
Vertical Integration
Vertical Integration
Raw material
(suppliers)
Examples of Vertical Integration
Iron ore
Silicon
Farming
Flour milling
Backward integration
Steel
Current transformation
Automobiles
Integrated circuits
Forward integration
Distribution
systems
Circuit boards
Dealers
Computers Watches
Calculators
Finished goods
(customers)
Baked goods
Figure 11.2
Vertical Integration
 Developing the ability to produce goods or
service previously purchased
 Integration may be forward, towards the
customer, or backward, towards suppliers
 Can improve cost, quality, and inventory
but requires capital, managerial skills, and
demand
 Risky in industries with rapid technological
change
Joint Ventures
• Formal collaboration
– Enhance skills
– Secure supply
– Reduce costs
• The challenge is to cooperation without
diluting brand or conceding competitive
advantage
Keiretsu Networks
 A middle ground between few suppliers
and vertical integration
 Supplier becomes part of the company
coalition
 Often provide financial support for
suppliers through ownership or loans
 Members expect long-term relationships
and provide technical expertise and stable
deliveries
 May extend through several levels of the
supply chain
Virtual Companies
 Rely on a variety of supplier
relationships to provide services on
demand
 Fluid organizational boundaries that
allow the creation of unique enterprises
to meet changing market demands
 Exceptionally lean performance, low
capital investment, flexibility, and speed
Managing the Supply Chain
There are significant management issues in
controlling a supply chain involving many
independent organizations
 Mutual agreement on goals
 Trust
 Compatible organizational cultures
Issues in an Integrated Supply Chain
 Local optimization – focusing on local
profit or cost minimization; may magnify
fluctuations
 Incentives (sales incentives, quantity
discounts, quotas, and promotions) push merchandise prior to sale
 Large lots – low unit cost (resulting from
shipping and production efficiencies) but
higher inventory carrying costs
 Bullwhip effect – demand becomes
progressively distorted the further
upstream we go in the supply chain
Why Supply Chain Management is so difficult?
•
Nonlinearities –
1. Reliance on forecasts at each stage for basing decisions
2. Different demand patterns of different products over time
3. Different constraints (lot-sizing, transport capacity etc.)
4. Different supply chain structures
5. Dynamic nature of relationships and information
•
Results into upstream demand amplification (Bull-whip)
Courtesy of Partha Datta Martin Christopher
& Peter Allen Cranfield University
Opportunities in an Integrated
Supply Chain
 Accurate “pull” data
 Lot size reduction (or right-sizing)
 Single stage control of
replenishment
 Vendor managed inventory
 Postponement
Opportunities in an Integrated
Supply Chain
 Channel assembly
 Drop shipping
 Blanket orders
 Standardization
 Electronic ordering and funds transfer
 Vendor-managed inventory
 Collaborative planning, forecasting and
replenishment (CPFR) – supply chain
coordination
Purchasing Process
Individual initiates
requisition
Purchasing
department/buyer
Prepares requisition
Buyer reviews
requisition
Inputs request into
computer system
and transmits to
purchasing
department
Enters data into
Internet system
Assigns suppliers
to bid; gives
closing dates
and conditions
Collects/reviews
bids submitted
electronically
Selects a supplier
based on quality,
cost, delivery
performance;
issues purchase
order
Supplier
Receives
electronic
purchase order
Ships good;
receives
electronic
payment
Vendor Selection
 Vendor evaluation
 Critical decision
 Find potential vendors
 Determine the likelihood of them
becoming good suppliers
 Vendor Development
 Training
 Engineering and production help
 Establish policies and procedures
Vendor Selection
 Negotiations
 Cost-Based Price Model – supplier opens
books to purchaser
 Market-Based Price Model – price based on
published, auction, or indexed price
 Competitive Bidding – common practice for
most purchases but may not be conducive
to establishing long-term relationships if
contract durations are short
 Proposal pricing can be required to be
cost-based, fixed price, or time and
materials
Vendor Evaluation
Criteria
Weights
Scores (1-5)
Engineering/research/innovation skills
.20
5
1.0
Production process capability
(flexibility/technical assistance)
.15
4
.6
Distribution/delivery capability
.05
4
.2
Quality systems and performance
.10
2
.2
Facilities/location
.05
2
.1
Financial and managerial strength (stability
and cost structure)
.15
4
.6
Information systems capability (ecommerce, Internet)
.10
2
.2
Integrity (environmental compliance/
ethics)
.20
5
1.0
Total
1.00
Weight x Score
3.9
Using Auctions for Purchasing
 Auctions
 May be used for commodity items for
which long-term contracts do not
exist or where goods/ services
requirements are standardized and
performance requirements well
understood
Two Approaches  Seller’s Forward Auctions
 Buyer’s Reverse Auctions
Seller’s (Forward) Auctions
– Traditionally, auctions were seller-initiated events –
means of getting a highest price
– A seller identifies a single product or a lot that they intend
to sell
– Often requires an intermediary – an auctioneer/qualifier
– Generally, the highest bidder (English auction) or the first
high bidder (Dutch auction) ‘wins’
– B-2-B seller auctions are most viable for – Commoditized goods (wheat, cattle, steel)
– Consortium-controlled goods (oil, flowers)
Buyer’s (Reverse) Auctions
– Very successful for B-2-B buy environments – as a means
of getting the lowest price
– A buyer identifies a single product or a lot that they
intend to buy
– Often requires an intermediary – an auctioneer/qualifier
– Generally, the lowest bidder (English auction) or the first
low bidder (Dutch auction) ‘wins’
– B-2-B buyer auctions are most viable for – Standardized product acquisitions
– Simple services with broadly applicable
performance criteria
Distribution Systems
 Trucking
 Moves the vast majority of
manufactured goods
 Chief advantage is flexibility
 Railroads
 Capable of carrying large loads
 Little flexibility though
containers and piggybacking
have helped with this
Distribution Systems
 Airfreight
 Fast and flexible for light loads
 May be expensive
 Waterways
 Typically used for bulky, lowvalue cargo
 Used when shipping cost is
more important than speed
Distribution Systems
 Pipelines
 Used for transporting oil, gas,
and other chemical products
Cost of Shipping Alternatives
 Product in transit is a form of
inventory and has a carrying cost
 Faster shipping is generally more
expensive than slower shipping
 We can evaluate the two costs to
better understand the trade-off
Introduction to SCOR
• Supply Chain Council – A leading interindustry organization consisting of about
1000 top international firms including
manufacturers, services, distributors, and
retailers.
• SCOR – The Supply Chain Council’s “Supply
Chain Operations Reference Model”
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
• A Process Reference Model Contains:
• Standard descriptions of management processes
• A framework of relationships among the standard
processes
• Standard metrics to measure process performance
• Management practices that produce best-in-class
performance
• Standard alignment to features and functionality
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
• SCOR spans:
– All customer interactions, from order entry through paid
invoice
– All product (physical material and service) transactions, from
your supplier’s supplier to your customer’s customer, including
equipment, supplies, spare parts, bulk product, software, etc.
– All market interactions, from the understanding of aggregate
demand to the fulfillment of each order
• SCOR does not attempt to describe every business
process or activity, including:
–
Sales and marketing (demand generation)
Research and technology development
Product development
Some elements of post-delivery customer support
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
Five Supply Chain Management Processes
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
• Demand/Supply Planning and Management
– Balance resources with requirements and
establish/communicate plans for the whole supply
chain, including Return, and the execution processes
of Source, Make, and Deliver.
– Management of business rules, supply chain
performance, data collection, inventory, capital
assets, transportation, planning configuration, and
regulatory requirements and compliance.
– Align the supply chain unit plan with the financial
plan.
Note- Planning is
required in aggregate
and for other, detailed
processes
PLAN
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
• Sourcing Stocked, Make-to-Order, and
Engineer-to-Order Product
– Schedule deliveries; receive, verify, and transfer
product; and authorize supplier payments.
– Identify and select supply sources when not
predetermined, as for engineer-to-order product.
– Manage business rules, assess supplier performance,
and maintain data.
– Manage inventory, capital assets, incoming product,
supplier network, import/export requirements, and
supplier agreements.
SOURCE
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
• Make-to-Stock, Make-to-Order, and Engineerto-Order Production Execution
– Schedule production activities, issue product,
produce and test, package, stage product, and
release product to deliver.
– Finalize engineering for engineer-to-order product.
– Manage rules, performance, data, in-process
products (WIP), equipment and facilities,
transportation, production network, and regulatory
compliance for production.
MAKE
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
• Order, Warehouse, Transportation, and
Installation Management for Stocked, Make-toOrder, and Engineer-to-Order Product
– All order management steps from processing customer
inquiries and quotes to routing shipments and selecting
carriers.
– Warehouse management from receiving and picking product
to load and ship product.
– Receive and verify product at customer site and install, if
necessary.
– Invoicing customer.
– Manage Deliver business rules, performance, information,
finished product inventories, capital assets, transportation,
product life cycle, and import/export requirements.
DELIVER
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
• Return of Raw Materials and Receipt of Returns of
Finished Goods
– All Return Defective Product steps from source – identify product
condition, disposition product, request product return authorization,
schedule product shipment, and return defective product – and deliver
– authorized product return, schedule return receipt, receive product,
and transfer defective product.
– All Return of Maintenance, Repair, and Overhaul product steps from
source – identify product condition, disposition product, request
product return authorization, schedule product shipment, and return
MRO product – and deliver – authorize product return, schedule
return receipt, receive product, and transfer MRO product.
– All Return Excess Product steps from source – identify product
condition, disposition product, request product return authorization,
schedule product shipment, and return excess product – and deliver –
authorize product return, schedule return receipt, receive product, and
transfer excess product.
– Manage Return business rules, performance, data collection, return
inventory, capital assets, transportation, network configuration, and
regulatory requirements
and compliance.
RETURN
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
Level
Name
Top Level
(Process Types)
Description
➢Defines the scope and content for the Supply Chain
Operations Reference-model. Basis of competition
performance targets are set.
Configuration Level
(Process Categories)
➢Configuration from 30 core “process categories.”
Companies implement their operations strategy through the
supply chain configuration they choose.
Process Element Level
(Decompose Processes)
➢Defines a company’s ability to compete successfully in its
chosen markets, and consists of: Process element definitions,
Process element information inputs, and outputs, Process
performance metrics, Best practices, where applicable,
System capabilities required to support best practices, and
Systems/tools; Companies “fine tune” their Operations
Strategy at Level 3.
Implementation Level
(Decompose Process
Elements)
➢Companies implement specific supply-chain management
practices at this level. Level 4 defines practices to achieve
competitive advantage and to adapt to changing business
conditions.
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Introduction to SCOR
From the Supply Chain Council’s
SCOR Version 10.0 Overview
Operations Management
MBUS 306
Lecture 12 – Business Systems –
ERP/APS/SCM/CRM
Al Baharmast, Ph.D.
Enterprise Resource Planning (ERP) Fundamentals
•ERP Fundamentals:
Not just another business software system…, ERPs are •Packaged business solutions comprised of multiple
components, that, when implemented in tandem,
automate, integrate and optimize extended business
processes across organizational value chains
•They enable sharing of common data and business
practices both within the enterprise and across supply
chains
•Also referred to as “Packaged Software,” “Standard
Software,” and “Best Practices Software”
ERP Solution Drivers
What Compels the Adoption of Best Practices Software Solutions?
▪ ERP Standards Software (COTS) applications ▪ Deliver a lower Total Cost of Ownership (TCO)* over an extended lifecycle:
▪ Development, Implementation, Integration and Support/Maintenance Costs
▪ Longer Life Cycles than custom applications
▪ Provide proven methodologies (Embedded resources) for implementation, testing,
training, documentation
▪ Limit financial risks (vendor/systems knowledge dissolution)
▪ Provide scalability
▪ Allow businesses to focus on their core competencies (unless you are a software
development firm …)
▪ Ultimately, ERP implementations are driven by the desire to ▪ Obtain better information on process performance
▪ Improve operational efficiency & implement system-enforced controls
▪ Support process transformation, product innovation and partner integration
* TCO reductions rarely realized in isolation; benefits accrue from
operational improvements &
process innovations
ERP Evolution
ERP’s Manufacturing Roots
Material Requirements Planning (MRP)
Material Resource Planning (MRP II)
Enterprise Integration
ERP (Back-office – Human Resources, Financials, Supply Chain)
Industry Vertical Solutions
Expanding Enterprise Integration
ERP (Services Offerings), Supply Chain Management (SCM), Supplier Relationship
Management (SRM) and Customer Relationship Management (CRM)
The Newest Wave
ERP II (Lehman, 2001) – “C-commerce and collaborative business models are
beginning to replace standard strategies focused on operational efficiency
and value chain management.”
▪ Collaborative Commerce – Sharing business processes across the enterprise bounds within
“communities of interest” – automating process interactions with customers/clients and
third parties.
ERP Vendors
Big market players – SAP and Oracle
The Financial Picture (from FY 2018) –
SAP
▪ Revenues – $24.7 Billion
▪ R&D Expenditures – $3.6 Billion
▪ Net Income – $5.3 Billion
Oracle*
▪ Revenues – $39.8 Billion
▪ R&D Expenditures – $6.1 Billion
▪ Net Income – $13.7 Billion
* Includes Oracle Database and other non-ERP product/service lines
ERP Concepts
Best Practices Software
Embedded Business Processes
ERP Concepts
Best Practices Software
ERP as “Best Practices Software” – All ERP applications
execute extended business processes either as explicitly
represented or implicitly understood (increasingly
becoming explicit)
▪ Embedded business processes are those developed from years of
research and synthesis into “best practices”
▪ Allows you to map your business processes to those executed in
the system (solution reference models)
▪ Thousands of ways to configure the embedded business
processes to better suit your needs
▪ May require modification of business processes
▪ If neither configuration nor adaptation is possible, other
alternatives may be sought (i.e., bolt-ons and extensions;
customization is seldom recommended)
▪ If all else fails, only then seek alternative solutions that customize
and/or integrate with external system (bolt-on/extension)
Generally
Rule –
Configuration – Good
Customization – Bad
Not All Customizations are Made the Same
Key to Customization Reduction –
Business Process Reengineering & Governance
Having just said customizations are bad, now you have to know you
will need them Though ERPs are generally enabled via industry best practice configuration, customers
often need to enhance standard functionality to address product gaps or customer-specific
requirements (e.g., printing, reporting, systems interfaces, etc.). We categorize
customizations by the following groupings – Reports, Interfaces, Conversion, Extensions,
Forms, Workflow, Authorizations (RICE-FWA) and other Business Intelligence (BI)-unique
custom content (Data-Stores, Multi-Providers, Info-Cubes, Reports, etc.). This custom code
introduces complexity, but there are methods of retaining these customizations with
through baseline software releases from the vendor.
– Customization of core code is a separate distinct category. It will often require a
vendor key to make this type of change, and there is much greater risk these
customizations!!
Customizations are not equally complex; some are more challenging and
time-consuming to develop/maintain. Generally…
More Complex – Interfaces, Conversions, Extensions (Vary Greatly)
Less Complex – Reports, Workflow
Least Complex & Often Most Numerous – BI-Unique Custom Content
SAP Supply Chain Collaboration
Process Model (High Level)
With hundreds of best
practices incorporated into
the SAP system,
organizations have a
ready-made facility for
adopting proven processes
without the burdens of trialand-error operational
design and of
benchmarking themselves
against another
organization [Curran, 1997]
Source: SAP
Business Process Management
The Antithesis of “Clean-Slate” Business Process Reengineering
Reengineering, as some have conceptualized it, calls for “clean slate”
process redesign prior to searching for technology solutions.
A standard software solution is implemented in an opposite fashion:
– A set of “reference” process, data, and function models are purchased.
– Internal processes are aligned with the standard software solution
reference processes.
– Through configuration analysis, many options exist for finding the
most suitable variant of a reference process.
Standard software-based Business Process Management (BPM)
– Anticipates alignment to reference business processes and the systems
configuration that will build a process variant that is most suitable for
the adopting organization.
ERP Concepts
Process Orientation
Functionally-Oriented Operations Management
Domain “A”
Acquisition
(Purchasing)
Domain “B”
Logistics
(Receiving)
Domain “C”
Finance
(Payables)
Input
A
Vertical
Processes
B
2
β
C
3
γ
D
4
δ
E
Vertical,
Non-Integrated
Systems
“Stovepipes”
α
1
ε
5
Output
Acq.
IS
Log.
IS
Fin.
IS
Process-Oriented Operations Management –
Driven by ERP
Domain “A”
Acquisition
(Purchasing)
Input
Process
Variant 1
Domain “B”
Logistics
(Receiving)
Domain “C”
Finance
(Payables)
Functions
A
Output
α
1
Process
Variant 2
B
C
β
2
γ
3
D
δ
4
Process
Variant 3
Process
Variant 4
E
5
ε
Solution
Spotlight
Oracle – Maintenance, Plan to Schedule Process
Asset to Maintenance Plan
Signal to Replenishment
Assess to Progress
Strategic Staffing to Hire
Payroll to Payment
Plan to Project Budget
Schedule to Maintain
AM7513
AM7527
AM7515
AM7516
Determine
Asset
Availability
Manage
Work Request
Process
Schedule
and Resource
Asset
Create
Maintenance
Schedule
• Perform constraint
based scheduling,
what-if analysis,
and adjustment of
variables
(overtime, contract
labour, deferrals,
etc.)
• Schedule work
orders, identify
dependencies,
and identify
resources (People/
Equipment/ Parts)
• Review production
orders, property
usage/hours,
shutdown/holidays
etc. in order to
determine asset
availability.
• Create a work
request, approve
the work request,
and associate the
work request to a
work order.
Schedule to Maintain
Signal to Replenishment
Assess to Progress
Strategic Staffing to Hire
Payroll to Payment
Plan to Project Budget
Source: Oracle
Enterprise
Roles
Maintenance Planner
Maintenance Supervisor
ERP Concepts
Enterprise-Level Standards
Enterprise-Level Standards
Business Process Standardization
– Results in significant reduction in or elimination of the
different ways of doing the same job.
Configuration Standardization & Management
– Embeds process standardization in the ERP system.
– Requires a pre-defined configuration control process to avoid
constant change and/or the development of process variances.
User Roles Standardization
– Identifies logical groups of users based on common activities
and organizations. System functions and data visibility are
constrained (or enabled) by user role.
User Training Standardization
– Provides the discrete information to user groups necessary to
enable process standardization.
ERP Concepts
Single Source of Data
Single Source of Data
One of the central tenets of ERP is the
consolidated and centralized management of
all the instances of identical data (both
Master Data and Transactional Data)
… based on the foundational efficiency
principle of data reutilization
Process 1
Requisition
Process 2
P.O. Issuance
Process 3
Receiving
Process 4
A.P.
SAP – Quality
Inspection
Example
Define Product Quality Characteristics
and Leverage One Set of Master Data
that to Manage Inspections
Vendor A
Data
ERP Database
Master data – relatively static referential data against which
variable transactions will be posted (e.g., Vendors, Customers,
Materials).
Transactional data – variable data that define the parameters of
a business event and make reference to master data (units
ordered, lots held in inventory)
Source: SAP
ERP Concepts
Broad Scope of
Integrated Solutions
SAP Modules
SAP Business Suite and Industry Solutions
Defense Forces & Public Security
Public Sector
Oracle E-Business Suite
ERP and Functional Activites
Managing Business Functions
with ERP
Select Examples
Functional Business Activities
Of utility in defining scope and organizational support requirements
Examples – Financial Management
– Procurement
– Project Management
– Quality Management
– Supply Chain Management
Financial Management
Procurement
Project Management
Quality Management
Business Functions as Part of
Extended ERP Business Processes
•Business functions are interwoven throughout each
extended business process enabled by an ERP. ERP
functional component capabilities enable
organizations to execute their part of a
comprehensive end to end process.
•Examples of business functions as part of extended
ERP business processes:
– Creating an obligation to reflect a financial liability at the time
of Purchase Order Issuance (Financial Management)
– Enabling Goods Receiving and Invoice Receiving with
Reference to a Previous Procurement Action/Document
(Procurement)
– Enabling Goods Quality Inspection Upon Receipt and Based on
Pre-specified Contractual Terms and Conditions (Quality
Management)
– Recognizing Goods Receiving to Project Stock and Updating
Task Completion or Percent Completion (Project Management)
Managing Business Processes with ERP
Select Examples of Quality Management Functions
Interwoven into Varied End to End Business Processes
Supported by ERP
•
•
•
•
•
Procure to Pay
Order to Cash
Concept to Product/PLM
Prospect to Order
Service Request to Resolution
QM and Procure-to-Pay (PTP) Master Data
•Material Master
– Material Masters exist for all materials that are purchased, produced or
stocked
• Services, Raw Materials, Semi-Finished Goods, Finished Goods, Non-Stock
(Consumables), Non-Valuated Materials, Packaging, etc
– Defines the basic quality requirements for a material
• Goods Receipts from PO, Goods Receipt from Production Order, Stock
Transfer, Goods Issue, Customer Delivery, etc.
• Post to “Inspection Stock” or “Unrestricted Stock”
•Vendor Master
– Vendors can be evaluated (scored) and/or blocked for all or some
materials (for quotations, purchase orders and/or goods receipts)
•Material Master + Vendor Master
– Modify Material Master Goods Receipt rules (e.g. Source Inspections)
– Valid date range, valid quantity level, dynamic rules
PTP – Goods Receipt from Vendor
•In this scenario, materials are procured from a vendor and inspected on receipt
– Condition: QM Master Data determines that an inspection is required; items will be received
into Inspection Stock; the Vendor is not “blocked” for this shipment
1. Purchase Requisition creates a Purchase Order which leads to an Inbound Delivery
2. On Goods Receipt, an Inspection Lot is created, the items are received (posted) into
Inspection Stock
3. The Inspection Plan (with tasks, characteristics, sample size, etc.) is performed
– Optionally, the items may require a “quality certificate” from the vendor, which can be
processed via EDI. Source Inspections may also be required (including for third parties)
4. Inspection Results and Defects are recorded and Quality Notifications created
5. The Inspection Lot is completed, a score is calculated and usage decisions are made
6. Stock postings are performed, the Vendor is updated, and a quality certificate may be
produced
7.If the items fail inspection, the Return Delivery process is triggered
Order to Cash – Sales and Delivery
•
In this scenario, materials sold to one specific customer require characteristics
that most but not all materials meet and that no other customer requires.
•
•
Condition: The combination of Customer A and Material B has an associated
Quality Inspection plan that requires Inspection Before Delivery
Note: the intent is not to “re inspect” materials that have already been inspected on
Goods Receipt or during Production, rather it is to meet customer-specific
requirements and minimize overall cost
1. Sales Order is received from Customer A for Material B
2. The Sales Order creates an Inspection Lot and materials are produced or
moved from inventory
3. QM performs the Inspection
4. Inspection results are recorded and a usage decision is made
5. If the items pass inspection, the Sales Order generates a Delivery Order and
the Shipping process is initiated
6. A Quality Certificate may be produced
Concept to Product and PLM
ERPs enable innovation quality and efficiency in new
product design and engineering –
Target customer market and customer requirements
identification (CRM, NDPI)
Collaborative product engineering (NDPI, cFolders and
PLM), mechanical and electronic-CAD (PLM), and
project management (PS)
Product quality engineering and specifications (NDPI, PLM,
MM and QM), including ISO 9001 and 14000
Product and component sourcing (SCM & SRM), Network
Planning (NDPI), Cost and Quotations (CQM)
Prospect to Order & Service Request to Satisfaction
Managing quality in services delivery with Customer
Relationship Management –
•Enforcing business rules and standardizing interactions with
scripts, alerts and messages and knowledge management tools
(Interaction Center)
•Online help procedures and step-through training aids for
customer service representatives
•Managing customer history and cross-channel engagement
information (CRM Marketing, Sales, Service)
•Service contract management (CRM Service), service history
and entitlement, SLAs and warranties, return material
authorizations, billing and shipping history
ERP Implementers and Users (Sampling)
Companies that Implement
ERPs:
-Accenture
-HP
-IBM
-Capgemini
-CSRA
-Deloitte
-KPMG
-PWC
-Many other smaller companies
Companies/Organizations
-AMD
-ALCOA
-BP/Amoco
-Bristol Myers Squibb
-Chevron
-CITGO
-Coca Cola
-Compaq
-Compass Group
-CONOCO
-DHL
-DirecTV
-Exxon/Mobil
-General Mills
-Halliburton
-Honeywell
-Intel
that Use ERPs:
-Kodak
-Lockheed
-NASA
-Nokia
-OfficeMax
-Pennzoil
-Phillips
-Proctor & Gamble
-Saralee
-Shell
-Siemens
-Statoil
-Many other large and
smaller companies
Implementation Methods – ASAP
Accelerated SAP (ASAP) is SAP’s standard
implementation methodology. It contains the
Roadmap, a step-by-step guide that incorporates
experience from many years of implementing the
solution.
Accelerated SAP contains a multitude of tools,
accelerators and useful information to assist all team
members in implementing the solution. Quality
checks are incorporated at the end of each phase to
easily monitor deliverables and critical success factors.
37
ASAP
Phase 1 : Project Preparation
Goal Setting
Define project goals & objectives
Implementation strategy
1.Clarify the scope of implementation
2.Establish the project organization and
relevant committees and assign
resources
Implementation
Sequence
During this phase the
team goes through initial
planning and
preparation for SAP
project.
Define sequence in project has to be
executed
Team
Core team+ project team+
consultant team
Sign Off
At the end of phase every above steps
will be documented & will be signed off
with the client
39
Phase 1 : Project Preparation
40
Phase 2 : Business Blueprint
SCOPE DOCUMENT
This document will consists of
questionnaire of entire business
process
AS IS
1.Understanding the business Process
from the core team. 2.Based on the
input ASIS document has to be created
according to module wise
TO BE
1.In this process will map the business
process in SAP based on ASIS
2.Module wise TOBE document has to
be created
The purpose of this phase is to
achieve a common
understanding of how the
company intends to run SAP
to support their business.
The result is the Business
Blueprint, a detailed
documentation of the results
gathered during requirements
workshops.
GAP ANALYSIS
1.The GAP b/w ASIS process & TOBE process
is called GAP analysis ie., The inputs or the
business process which can’t mapped into
standard SAP will be analyzed here
2.GAP document has to be created
SIGN OFF
Each process above has to be
taken sign off from client
41
Phase 2 : Business Blueprint
42
Phase 3 : Realization
Baseline
Major scope
Final
Configuration
Remaining scope
The purpose of this phase is to
implement all the business
process requirements based on
the Business Blueprint. The
system configuration
methodology is provided in two
work packages: Baseline (major
scope); and Final configuration
(remaining scope).
SIGN OFF
Each process above has to be
taken sign off from client
43
Phase 3 : Realization
Phase 4 : Final Preparation
Unit Testing
Testing within each module
Integration
Testing
Integrate testing of modules ie.,
combine testing of all the
modules
User Training
Cut over Strategy
legacy system will be migrated to
SAP system.
The purpose of this phase is to
complete the final
preparation (including testing,
end user training, system
management and cutover
activities) to finalize your
readiness to go live. The Final
Preparation phase also serves
to resolve all critical open
issues. On successful
completion of this phase, you
are ready to run your business
in your live SAP System.
SIGN OFF
Each process above has to be
taken sign off from client
45
Phase 4 : Final Preparation
46
Phase 5 : Go Live & Support
Production
Support
Monitor System
Transactions
Optimize
Performance
The purpose of this
phase is to move from
a project-oriented,
pre-production
environment to live
production operation.
Help Desk &
Competency
Center
47
Phase 5 : Go Live & Support
48
ASAP Roadmap
Project
Preparation
Business Blueprint
Realization
Final
Preparation
GoLive and
Support
Setup of Local Project
Organization
General
Project Management
General
Project Management
General
Project Management
General
Project Management
Adaption of
Strategic Framework
OCM Organizational
Alignment + Change Analysis
OCM
OCM
OCM
Establish OCM
Procedures + Responsibles
Early Adoption of Best
Business Practice Processes
Early Adoption of Best
Business Practice Processes
End User Training
System Support
Early Adoption of Best
Business Practice Proceesses
Training Planning
Training Preparation
Cutover Management
Business Support
Training and
Documentation Strategy
Local Business Blueprint
Documentation
Configuration &
Development
Business Simulation
Infrastructure Requirements
and Design
Security Requirements
Unit / Process / Integration /
Business Acceptance Testing
End User Practice in the
System
Data Management
Standards Implementation
Infrastructure Planning
Infrastructure
Implementation
Infrastructure Finalization
Data Cleansing
and Data Preparation
System Operation Stategy
Completion Check &
Prepare for Next Phase
Data Cleansing
and Data Preparation
Completion Check &
Prepare for Next Phase
Data Preparation & Data
Migration Simulation
Data Migration to
Production
Cutover Planning
& Preparation
Pre-Go-Live Operations
Business Transition
Planning for Cutover
Final Cutover and
Controlled Process GoLive
Completion Check &
Prepare for Next Phase
Completion Check &
Prepare for Next Phase
Project Closing
Systems Integrator
Implementation Methodologies
SI Methods/Tools
Extend Upon ASAP
Methodology*
* Accenture Example
Operations Management
MBUS 306
Lecture 7 – Design of Goods & Services
Al Baharmast, Ph.D.
Regal Marine
 Global market
 3-dimensional CAD system
 Reduced product development time
 Reduced problems with tooling
 Reduced problems in production
 Assembly line production
 JIT
Product Decision
 The good or service the organization
provides society
 Top organizations typically focus on core
products
 Customers buy satisfaction, not just a
physical good or particular service
 Fundamental to an organization’s strategy
with implications throughout the
operations function
Product Strategy Options
 Differentiation
 Shouldice Hospital
 Low cost
 Taco Bell
 Rapid response
 Toyota
Product Life Cycles
 May be any length from a few
hours to decades
 The operations function must
be able to introduce new
products successfully
Sales, cost, and cash flow
Product Life Cycles
Cost of development and production
Sales revenue
Net revenue (profit)
Cash
flow
Negative
cash flow
Introduction
Loss
Growth
Maturity
Decline
Figure 5.1
Product Life Cycle Costs
100 –
Costs committed
Percent of total cost
80 –
60 –
Costs incurred
40 –
20 –
Ease of change
0–
Concept
design
Detailed Manufacturing
design
prototype
Distribution,
service,
and disposal
Product Life Cycle
Introduction
 Fine tuning
 Research
 Product development
 Process modification and
enhancement
 Supplier development
Product Life Cycle
Growth
 Product design begins to
stabilize
 Effective forecasting of
capacity becomes necessary
 Adding or enhancing capacity
may be necessary
Product Life Cycle
Maturity
 Competitors now established
 High volume, innovative
production may be needed
 Improved cost control,
reduction in options, paring
down of product line
Product Life Cycle
Decline
 Unless product makes a
special contribution to the
organization, must plan to
terminate offering
Importance of New Products
Percentage of Sales from New Products
50%
40%
30%
20%
10%
Industry
leader
Top
third
Middle
third
Bottom
third
Position of Firm in Its Industry
Figure 5.2
Product-by-Value Analysis
 Lists products in descending order of
their individual dollar contribution to
the firm
 Lists the total annual dollar
contribution of the product
 Helps management evaluate
alternative strategies
Product-by-Value Analysis
Sam’s Furniture Factory
Individual
Contribution ($)
Total Annual
Contribution ($)
Love Seat
$102
$36,720
Arm Chair
$87
$51,765
Foot Stool
$12
$6,240
Recliner
$136
$51,000
New Product Opportunities
1. Understanding the customer
2. Economic change
3. Sociological and demographic
change
4. Technological change
5. Political/legal change
6. Market practice, professional
standards, suppliers, distributors
Employing
tools such as
Brainstorming,
Mind Mapping,
Surveys, and
Focus Groups
Product Development Stages
Quality Function Deployment
 Identify customer wants
 Identify how the good/service will satisfy
customer wants
 Relate customer wants to product hows
 Identify relationships between the firm’s
hows
 Develop importance ratings
 Evaluate competing products
 Compare performance to desirable
technical attributes
QFD
House of Quality
Interrelationships
What the
Customer
Wants
Relationship
Matrix
Technical
Attributes and
Evaluation
Analysis of
Competitors
How to Satisfy
Customer Wants
House of Quality Example
Your team has been charged with
designing a new camera for Great
Cameras, Inc.
The first action is
to construct a
House of Quality
House of Quality Example
Interrelationships
What the
Customer
Wants
Technical
Attributes and
Evaluation
What the
customer
wants
Lightweight
Easy to use
Reliable
Easy to hold steady
No double exposures
Relationship
Matrix
Customer
importance
rating
(5 = highest)
3
4
5
2
1
Analysis of
Competitors
How to Satisfy
Customer Wants
House of Quality Example
Interrelationships
Relationship
Matrix
Ergonomic design
Auto film advance
Auto exposure
Auto focus
Technical
Attributes and
Evaluation
Aluminum components
Low electricity requirements
What the
Customer
Wants
Analysis of
Competitors
How to Satisfy
Customer Wants
How to Satisfy
Customer Wants
Representations of
Form, Fit and Function
of the Product
House of Quality Example
Interrelationships
What the
Customer
Wants
High relationship – 5 points
Medium relationship – 3 points
Low relationship – 1 point
Lightweight
Easy to use
Reliable
Easy to hold steady
No double exposures
3
4
5
2
1
Relationship matrix
Relationship
Matrix
Technical
Attributes and
Evaluation
Analysis of
Competitors
How to Satisfy
Customer Wants
House of Quality Example
Interrelationships
What the
Customer
Wants
Relationship
Matrix
Ergonomic design
Auto film advance
Auto exposure
– Or negative
Auto focus
– May be
positive
Aluminum components
Relationships
between the
things we can do
Low electricity requirements
Technical
Attributes and
Evaluation
Analysis of
Competitors
How to Satisfy
Customer Wants
House of Quality Example
Interrelationships
What the
Customer
Wants
Relationship
Matrix
Technical
Attributes and
Evaluation
Lightweight
Easy to use
Reliable
Easy to hold steady
No double exposures
Our importance ratings
Weighted
rating
3
4
5
2
1
22
9
27 27
32
25
Analysis of
Competitors
How to Satisfy
Customer Wants
House of Quality Example
Interrelationships
Technical
Attributes and
Evaluation
How well do
competing products
meet customer wants
Lightweight
Easy to use
Reliable
Easy to hold steady
No double exposures
Our importance ratings
3
4
5
2
1
22
5
Company B
Relationship
Matrix
Company A
What the
Customer
Wants
Analysis of
Competitors
How to Satisfy
Customer Wants
G
G
F
G
P
P
P
G
P
P
House of Quality Example
Interrelationships
2’ to ∞
75%
0.5 A
Technical
attributes
2 circuits
Technical
Attributes and
Evaluation
Panel ranking
Relationship
Matrix
Failure 1 per 10,000
What the
Customer
Wants
Analysis of
Competitors
How to Satisfy
Customer Wants
Company A 0.7 60% yes 1
ok G
Technical
evaluation Company B 0.6 50% yes 2
Us
0.5 75% yes 2
ok F
ok G
House of Quality Example
Completed
House of
Quality
House of Quality Sequence
Deploying resources through the
organization in response to
customer requirements
Quality
plan
Customer
requirements
House
1
House
2
House
3
Production
process
Design
characteristics
Design
characteristics
Specific
components
Specific
components
Production
process
House
4
Figure 5.4
Organizing for Product Development
Traditionally – distinct departments
 Duties and responsibilities are defined
 Difficult to foster forward thinking
Today – team approach
 Cross functional – representatives from all
disciplines or functions
 Concurrent engineering – cross functional
team
A Champion
 Product manager drives the product through
the product development system and related
organizations
Manufacturability and
Value Engineering
Benefits:
1.
2.
3.
4.
5.
6.
7.
Reduced complexity of products
Reduction of environmental impact
Additional standardization of products
Improved functional aspects of product
Improved job design and job safety
Improved maintainability of the product
Robust design
Cost Reduction of a Bracket
through Value Engineering
Figure 5.5
Issues for Product Development







Robust design
Modular design
Computer-aided design (CAD)
Computer-aided manufacturing (CAM)
Virtual reality technology
Value analysis
Sustainability and Life Cycle Assessment
(LCA)
Robust Design
 Product is designed so that small
variations in production or
assembly do not adversely affect
the product
 Typically results in lower cost and
higher quality
Modular Design
Products designed in easily segmented
components
Adds flexibility to both production and
marketing
Improved ability to satisfy customer
requirements
Computer Aided Design (CAD)
Using computers to
design products and
prepare engineering
documentation
Shorter development
cycles, improved
accuracy, lower cost
Information and designs
can be deployed
worldwide
Extensions of CAD
• Design for Manufacturing and Assembly
(DFMA)
Solve manufacturing problems during the
design stage
• CAD Through the Internet
• 3-D Object Modeling
Small prototype development
• 3-D Printing
• International data exchange through STEP
Computer-Aided Manufacturing
(CAM)
 Utilizing specialized computers
and program to control
manufacturing equipment
 Often driven by the CAD system
Virtual Reality Technology
 Computer technology used to develop
an interactive, 3-D model of a product
from the basic CAD data
 Allows people to ‘see’ the finished
design before a physical model is built
 Very effective in large-scale designs
such as plant layout
Ethics and Environmentally
Friendly Designs
It is possible to enhance productivity,
drive down costs, and preserve
resources
The Ethical Approach
1. View product design from a systems
perspective
2. Consider the entire life cycle of the
product
Goals for Ethical and Environmentally
Friendly Designs
1. Develop safe and more environmentally
sound products
2. Minimize waste of raw materials and energy
3. Reduce environmental liabilities
4. Increase cost-effectiveness of complying
with environmental regulations
5. Be recognized as a good corporate citizen
Legal and Industry Standards
For Design …
 Federal Drug Administration
 Consumer Products Safety Commission
 National Highway Safety Administration
 Children’s Product Safety Act
Legal and Industry Standards
For Manufacture/Assembly …
 Occupational Safety and Health
Administration
 Environmental Protection Agency
 Professional ergonomic standards
 State and local laws dealing with
employment standards, discrimination, etc.
Legal and Industry Standards
For Disassembly/Disposal …
 Vehicle Recycling Partnership
 Increasingly rigid laws worldwide
Time-Based Competition
 Product life cycles are becoming
shorter and the rate of
technological change is
increasing
 Developing new products faster
can result in a competitive
advantage
Product Development Continuum
Figure 5.6
External Development Strategies
Alliances
Joint Ventures
Purchase Technology or Expertise
by Acquiring the Developer
Internal Development Strategies
Migrations of Existing Products
Enhancement to Existing Products
New Internally Developed Products
Internal
Lengthy
High
Cost of Product Development
Speed of Product Development
Risk of Product Development
Shared
Rapid and/
or Existing
Shared
Defining The Product
 First definition is in terms of
functions
 Rigorous specifications are
developed during the design phase
 Manufactured products will have an
engineering drawing
 Bill of material (BOM) lists the
components of a product
Product Documents
Engineering drawing
 Shows dimensions, tolerances, and materials
 Shows codes for Group Technology
Bill of Material
 Lists components, quantities and where used
 Shows product structure
Monterey Jack Cheese
(a) U.S. grade AA. Monterey cheese shall conform to the
following requirements:
(1) Flavor. Is fine and highly pleasing, free from undesirable
flavors and odors. May possess a very slight acid or feed
flavor.
(2) Body and texture. A plug drawn from the cheese shall be
reasonably firm. It shall have numerous small mechanical
openings evenly distributed throughout the plug. It shall not
possess sweet holes, yeast holes, or other gas holes.
(3) Color. Shall have a natural, uniform, bright and attractive
appearance.
(4) Finish and appearance – bandaged and paraffin-dipped.
The rind shall be sound, firm, and smooth providing a good
protection to the cheese.
Code of Federal Regulation, Parts 53 to 109,.
Revised as of Jan. 1, 1985, General Service
Administration
Engineering Drawings
Figure 5.8
Bills of Material (BOM)
Panel Weldment
NUMBER
DESCRIPTION
QTY
A 60-71
PANEL WELDM’T
1
A 60-7
R 60-17
R 60-428
P 60-2
LOWER ROLLER ASSM.
ROLLER
PIN
LOCKNUT
1
1
1
1
A 60-72
R 60-57-1
A 60-4
02-50-1150
GUIDE ASSM. REAR
SUPPORT ANGLE
ROLLER ASSM.
BOLT
1
1
1
1
A 60-73
A 60-74
R 60-99
02-50-1150
GUIDE ASSM. FRONT
SUPPORT WELDM’T
WEAR PLATE
BOLT
1
1
1
1
Figure 5.9
Bills of Material (BOM)
BBQ Bacon Cheeseburger
Description
Qty
Bun
Hamburger patty
Cheddar cheese
Bacon
BBQ onions
Hickory BBQ sauce
Burger set
Lettuce
Tomato
Red onion
Pickle
French fries
Seasoned salt
11-inch plate
HRC flag
1
8 oz.
2 slices
2 strips
1/2 cup
1 oz.
1 leaf
1 slice
4 rings
1 slice
5 oz.
1 tsp.
1
1
Figure 5.9
Group Technology
 Parts grouped into families with
similar characteristics
 Coding system describes processing
and physical characteristics
 Part families can be produced
in dedicated manufacturing cells
Group Technology Scheme
(b) Grouped Cylindrical Parts (families of parts)
(a) Ungrouped Parts
Grooved
Slotted
Threaded
Drilled
Machined
Figure 5.10
Group Technology Benefits
•
•
•
•
Improved design
Reduced raw material and purchases
Simplified production planning and control
Improved layout, routing, and machine
loading
• Reduced tooling setup time, work-inprocess, and production time
Documents for Production
Assembly drawing
Assembly chart
Route sheet
Work order
Engineering change notices (ECNs)
Assembly Drawing
 Shows exploded
view of product
 Details relative
locations to
show how to
assemble the
product
Figure 5.11 (a)
Assembly Chart
1
2
3
4
5
6
7
8
9
R 209 Angle
R 207 Angle
Bolts w/nuts (2)
Left
bracket
SA
A1
1 assembly
R 209 Angle
R 207 Angle
Bolts w/nuts (2)
Right
bracket
SA
A2
2 assembly
Bolt w/nut
R 404 Roller
A3
Lock washer
Part number tag
10
 Identifies the point
of production
where
components flow
into
subassemblies
and ultimately into
the final product
Poka-yoke
inspection
A4
Box w/packing material
11
A5
Figure 5.11 (b)
Route Sheet
Lists the operations and times required
to produce a component
Process
Machine
Operations
1
Auto Insert 2
2
3
Manual
Insert 1
Wave Solder
4
Test 4
Insert Component
Set 56
Insert Component
Set 12C
Solder all
components
to board
Circuit integrity
test 4GY
Setup
Time
Operation
Time/Unit
1.5
.4
.5
2.3
1.5
4.1
.25
.5
Work Order
Instructions to produce a given quantity
of a particular item, usually to a schedule
Work Order
Item
Quantity
Start Date
Due Date
157C
125
5/2/06
5/4/06
Production
Dept
Delivery
Location
F32
Dept K11
Engineering Change Notice (ECN)
 A correction or modification to a
product’s definition or
documentation
 Engineering drawings
 Bill of material
Quite common with long product life
cycles, long manufacturing lead times, or
rapidly changing technologies
Configuration Management
 The need to manage ECNs has led
to the development of configuration
management systems
 A product’s planned and changing
components are accurately
identified and control and
accountability for change are
identified and maintained
Product Lifecycle Management
 Integrated software that brings
together most, if not all, elements of
product design and manufacture
 Product design
 CAD/CAM, DFMA
 Product routing
 Materials
 Assembly
 Environmental
Service Design
 Service typically includes direct
interaction with the customer
 Increased opportunity for customization
 Reduced productivity
 Cost and quality are still determined at
the design stage
 Delay customization
 Modularization
 Reduce customer interaction, often
through automation
Moments of Truth
 Concept created by Jan Carlzon of
Scandinavian Airways
 Critical moments between the
customer and the organization that
determine customer satisfaction
 There may be many of these moments
 These are opportunities to gain or lose
business
Moments-of-Truth
Computer Company Hotline
Experience Enhancers
Standard Expectations
Experience Detractors
I had to call more than
once to get through
A recording spoke to me
rather than a person
While on hold, I get
silence,and wonder if I am
disconnected
The technician sounded
like he was reading a form
of routine questions
The technician sounded
uninterested
I felt the technician rushed
me
Only one local number
needs to be dialed
I never get a busy signal
I get a human being to
answer my call quickly and
he or she is pleasant and
responsive to my problem
A timely resolution to my
problem is offered
The technician is able to
explain to me what I can
expect to happen next
The technician was
sincerely concerned and
apologetic about my
problem
He asked intelligent
questions that allowed me
to feel confident in his
abilities
The technician offered
various times to have work
done to suit my schedule
Ways to avoid future
problems were suggested
Figure 5.13
Documents for Services
 High levels of customer
interaction necessitates different
documentation
 Often explicit job instructions for
moments-of-truth
 Scripts and storyboards are
other techniques
Transition to Production
 Know when to move to production
 Product development can be viewed as
evolutionary and never complete
 Product must move from design to
production in a timely manner
 Most products have a trial production
period to insure producibility
 Responsibility must also transition as the
product moves through its life cycle
Operations Management
MBUS 306
Lecture 8 – Location Strategies
Al Baharmast, Ph.D.
Federal Express
Central hub concept
 Enables service to more locations with
fewer aircraft
 Enables matching of aircraft flights with
package loads
 Reduces mishandling and delay in transit
because there is total control of packages
from pickup to delivery
Location Strategy
 One of the most important decisions
a firm makes
 Increasingly global in nature
 Long term impact and decisions are
difficult to change
 The objective is to maximize the
benefit of location to the firm
Varied Focus by Industry
Location decisions often relate to business type:
– Industrial location decisions (e.g.,
manufacturing, processing, inventory,
maintenance operations – focus is generally cost
reduction
– Retail and services facilities – focus is generally
revenue generation
– Exceptions for remote support services
(help-desks, customer service call centers)
– Warehouses and distribution center facilities –
focus is generally a combination of cost reduction
and responsiveness/speed of delivery
Location and Potentials for Innovation
 Even when very relevant, cost is not always the
most important aspect of a strategic decision
 Four key attributes when strategy is based on
innovation (product development responsiveness)
 High-quality and specialized inputs
 An environment that encourages investment and local
rivalry
 A sophisticated local market
 Local presence of related and supporting industries
Location Decisions
 Long-term decisions
 Decisions made infrequently
 Decision greatly affects both fixed
and variable costs
 Once committed to a location,
many resource and cost issues are
difficult to change
Factors Affecting Global Location Decisions
Drivers of globalization
– Access to markets (customers, suppliers, labor)
– Economic imperatives
– Tax / Other Government Inducements (positive & negative)
– Communication
– Rapid, reliable transportation / infrastructure
– Ease of capital flow / reduced friction (e.g., exchange rate
risk)
– Differing labor costs and productivity rates
– Political factors
Counters –
– Where there is no strategic/ economic value
– Contending with the protectionism and nationalism!
Location Decisions
Country Decision
Key Success Factors
1. Political risks, government
rules, attitudes, incentives
2. Cultural and economic issues
3. Location of markets
4. Labor/talent availability,
attitudes, productivity, costs
5. Availability of supplies,
communications, energy
6. Exchange rates and currency
risks
Figure 8.1
Location Decisions
Region/
Community
Decision
MN
WI
MI
IL
Figure 8.1
IN
OH
Critical Success Factors
1. Corporate desires
2. Attractiveness of region
3. Labor availability, costs,
attitudes towards unions
4. Costs and availability of utilities
5. Environmental regulations
6. Government incentives and
fiscal policies
7. Proximity to raw materials and
customers
8. Land/construction costs
Location Decisions
Site Decision
Critical Success Factors
1. Site size and cost
2. Air, rail, highway, and
waterway systems
3. Zoning restrictions
4. Nearness of services/
supplies needed
5. Environmental impact
issues
Figure 8.1
Factors That Affect
Location Decisions
 Labor productivity
 Wage rates are not the only cost
 Lower productivity may increase total cost
Labor cost per day
= cost per unit
Productivity (units per day)
South Carolina
Juarez
$70
= $1.17 per unit
60 units
$25
= $1.25 per unit
20 units
Factors That Affect
Location Decisions
 Exchange rates and currency risks
 Can have a significant impact on cost
structure
 Rates change over time
 Costs
 Tangible – easily measured costs such as
utilities, labor, materials, taxes
 Intangible – less easy to quantify and
include education, public transportation,
community, quality-of-life
Factors That Affect
Location Decisions
 Attitudes
 National, state, local governments toward
private and intellectual property, zoning,
pollution, employment stability
 Worker attitudes towards turnover, unions,
absenteeism
 Globally cultures have different attitudes
towards punctuality, legal, and ethical
issues
Factors That Affect
Location Decisions
 Proximity to markets
 Very important to services
 JIT systems or high transportation costs
may make it important to manufacturers
 Proximity to suppliers
 Perishable goods, high transportation
costs, bulky products
Factors That Affect
Location Decisions
 Proximity to competitors
 Called clustering
 Often driven by resources such as natural,
information, capital, talent
 Found in both manufacturing and service
industries
Clustering of Companies
Industry
Locations
Reason for clustering
Wine makers
Napa Valley (US)
Bordeaux region
(France)
Natural resources of land
and climate
Software firms
Silicon Valley, Boston,
Bangalore (India)
Talent resources of bright
graduates in
scientific/technical areas,
venture capitalists nearby
Race car builders
Huntington/North
Hampton region
(England)
Critical mass of talent and
information
Table 8.3
Clustering of Companies
Industry
Locations
Reason for clustering
Theme parks
Orlando
A hot spot for
entertainment, warm
weather, tourists, and
inexpensive labor
Electronic firms
Northern Mexico
NAFTA, duty free export
to US
Computer
hardware
manufacturers
Singapore, Taiwan
High technological
penetration rate and per
capita GDP,
skilled/educated workforce
with large pool of
engineers
Table 8.3
Clustering of Companies
Industry
Locations
Reason for clustering
Fast food chains
Sites within one mile
of each other
Stimulate food sales, high
traffic flows
General aviation
aircraft
Wichita, Kansas
Mass of aviation skills
Table 8.3
Growth Competitiveness Index
Factor-Rating Method
 Popular because a wide variety of factors can
be included in the analysis
 Six steps in the method
1. Develop a list of relevant factors called key success
factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor and total the
score for each location
6. Make a recommendation based on the highest point
score
Factor-Rating Example
Key
Success
Factor
Labor
availability
and attitude
People-to
car ratio
Per capita
income
Tax structure
Education
and health
Totals
Scores
(out of 100)
Weight France Denmark
Weighted Scores
France
Denmark
.25
70
60
(.25)(70) = 17.5 (.25)(60) = 15.0
.05
50
60
.10
.39
85
75
80
70
(.10)(85) = 8.5 (.10)(80) = 8.0
(.39)(75) = 29.3 (.39)(70) = 27.3
.21
60
70
(.21)(60) = 12.6 (.21)(70) = 14.7
(.05)(50) = 2.5
1.00
70.4
Table 8.3
(.05)(60) = 3.0
68.0
Locational Cost-Volume Analysis
 Method of cost-volume analysis used for
industrial locations
 Three steps in the method
1. Determine fixed and variable costs for
each location
2. Plot the cost for each location
3. Select location with lowest total cost for
expected production volume
Locational Cost-Volume Analysis
Example
Three locations:
Fixed Variable
City
Cost
Cost
Akron
$30,000
$75
Bowling Green
$60,000
$45
Chicago
$110,000
$25
Selling price = $120
Expected volume = 2,000 units
Total
Cost
$180,000
$150,000
$160,000
Total Cost = Fixed Cost + (Variable Cost x Volume)
Locational Cost-Volume Analysis
Annual cost
Example
Figure 8.2
–
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
$30,000 –
–
$10,000 –
|
–
0
Akron
lowest
cost
Chicago
lowest
cost
Bowling Green
lowest cost
|
|
|
|
|
|
500
1,000
1,500
2,000
2,500
3,000
Volume
Center-of-Gravity Method
 Finds location of distribution
center that minimizes distribution
costs
 Considers
 Location of markets
 Volume of goods shipped to those
markets
 Shipping cost (or distance)
Center-of-Gravity Method
 Place existing locations on a
coordinate grid
 Grid origin and scale is arbitrary
 Maintain relative distances
 Calculate X and Y coordinates for
‘center of gravity’
 Assumes cost is directly
proportional to distance and volume
shipped
Center-of-Gravity Method
x-coordinate of the
center of gravity
xQ
=
Q
i
i
i
i
i
y-coordinate of the
center of gravity
y Q
=
Q
i
i
i
i
i
Where
xi = x − coordinate of location i
y i = y − coordinate of location i
Qi = Quantity of goods moved to or from location i
Center-of-Gravity Method
North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)
90 –
60 –
30 –
|
–
Atlanta (60, 40)
|
30
Arbitrary
origin
|
|
|
|
60
90
120
150
East-West
Center-of-Gravity Method
Number of Containers
Store Location
Shipped per Month
Chicago (30, 120)
2,000
Pittsburgh (90, 110)
1,000
New York (130, 130)
1,000
Atlanta (60, 40)
2,000
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
x-coordinate =
2000 + 1000 + 1000 + 2000
= 66.7
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
y-coordinate =
2000 + 1000 + 1000 + 2000
= 93.3
Center-of-Gravity Method
North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)
+
90 –
Center of gravity (66.7, 93.3)
60 –
30 –
|
–
Atlanta (60, 40)
|
30
Arbitrary
origin
|
|
|
|
60
90
120
150
East-West
Transportation Model
 Finds amount to be shipped from
several points of supply to several
points of demand
 Solution will minimize total
production and shipping costs
 A special class of linear
programming problems
Worldwide Distribution of
Volkswagens and Parts
Figure 8.4
Service Location Strategy
• 1. Purchasing power of customer-drawing area
• 2. Service and image compatibility with
demographics of the customer-drawing area
• 3. Competition in the area
• 4. Quality of the competition
• 5. Uniqueness of the firm’s and competitors’
locations
• 6. Physical qualities of facilities and neighboring
businesses
• 7. Operating policies of the firm
• 8. Quality of management
Location Strategies
Service/Retail/Professional Location
Goods-Producing Location
Revenue Focus
Cost Focus
Volume/revenue
Drawing area; purchasing power
Competition; advertising/pricing
Physical quality
Parking/access; security/lighting;
appearance/image
Cost determinants
Rent
Management caliber
Operations policies (hours, wage
rates)
Tangible costs
Transportation cost of raw material
Shipment cost of finished goods
Energy and utility cost; labor; raw
material; taxes, and so on
Intangible and future costs
Attitude toward union
Quality of life
Education expenditures by state
Quality of state and local
government
Table 8.4
How Hotel Chains Select Sites
 Location is a strategically important
decision in the hospitality industry
 La Quinta started with 35 independent
variables and worked to refine a
regression model to predict profitability
 The final model had only four variables
 Price of the inn
 Median income levels
 State population per inn
 Location of nearby colleges
Built a predictive
model to assess
profitability based
on four key
variables!
Telemarketing/Internet
Industries
 Require neither face-to-face contact
nor movement of materials
 Have very broad location options
 Traditional variables are no longer
relevant
 Cost and availability of labor may
drive location decisions
Geographic Information Systems
(GIS)
 New tool to help in location analysis
 Enables more complex demographic
analysis
 Available data bases include
 Detailed census data
 Detailed maps
 Utilities
 Geographic features
 Locations of major services
Geographic Information Systems
(GIS)
Geographic Information Systems (GIS)
Geographic Information Systems (GIS)
Operations Management
MBUS 306
Lecture 9 – Layout Strategies
Al Baharmast, Ph.D.
Innovations at McDonald’s
• Indoor seating (1950s)
• Drive-through window (1970s)
• Adding breakfast to the menu (1980s)
• Adding play areas (late 1980s)
• Redesign of the kitchens (1990s)
• Self-service kiosk (2004)
• Now three separate dining sections
Six out of the seven are layout decisions!
McDonald’s New Layout
• Seventh major innovation
• Redesigning all 30,000 outlets around the world
• Three separate dining areas
1. Linger zone with comfortable chairs and Wi-Fi
connections
2. Grab and go zone with tall counters
3. Flexible zone for kids and families
– Self-service kiosks
• Facility layout is a source of competitive advantage
Strategic Importance of Layout Decisions
The objective of layout strategy is to develop an
effective and efficient layout that will meet the firm’s
competitive requirements
Layout Design Considerations
• Higher utilization of space, equipment, and people
• Improved flow of information, materials, or people
• Improved employee morale and safer working conditions
• Improved customer/client interaction
• Flexibility
Types of Layout (1 of 4)
1. Office layout
2. Retail layout
3. Warehouse layout
4. Fixed-position layout
5. Process-oriented layout
6. Focus Facility/ Work-cell layout
7. Product-oriented layout
Types of Layout (2 of 4)
1. Office layout: Positions workers, their equipment, and
spaces/offices to provide for movement of information
2. Retail layout: Allocates display space and responds to
and attempts to influence customer behavior
3. Warehouse layout: Addresses trade-offs between
space utilization and material handling efficiency
Types of Layout (3 of 4)
4. Fixed-position layout: Addresses the layout
requirements of large, bulky projects such as shipbuilding and building construction
5. Process-oriented layout: Deals with low-volume, highvariety production (also called job shop or intermittent
production)
Types of Layout (4 of 4)
6. Focused Facility/ Work cell layout: Arranges
machinery and equipment to focus on production of a
single product, select menu of products or group of
related products
7. Product-oriented layout: Seeks the best personnel
and machine utilizations in repetitive or continuous
production (low variability)
Table 9.1 Layout Strategies (1 of 2)
Blank
Objectives
Examples
Office
Locate workers requiring
frequent contact close to one
another
Allstate Insurance
Microsoft Corp.
Retail
Maximize profitability per sq.
ft. of floorspace and expose
customer to high-margin
items/ direct traffic flow
(influence consumer behavior)
Kroger’s Supermarket
Walgreen’s
Bloomingdale’s
Warehouse
(storage)
Balance trade-offs between
cost of storage/space with
low-cost material handling
Federal-Mogul’s warehouse
The Gap’s distribution center
Project (fixed
position)
Move material to the limited
storage areas around the site
Ingall Ship Building Corp.
Trump Plaza
Pittsburgh Airport
Table 9.1 Layout Strategies (2 of 2)
Blank
Objectives
Examples
Job Shop
(process
oriented)
Manage varied material flow for Arnold Palmer Hospital
each product (differentiation
Hard Rock Cafe
and responsiveness are more
Olive Garden
important that cost)
Focused
Facility/ Work
Cell (product
families)
Identify a product family, build
teams, cross-train team
members (increased efficiency
and cost reduction but
differentiation and
responsiveness still important)
Hallmark Cards
Wheeled Coach Ambulances
Repetitive/
Continuous
(product
oriented)
Equalize the task time at each
workstation (focus is on
efficiency and cost reduction)
Sony’s TV assembly line
Toyota Scion
Office Layout (1 of 2)
• Grouping of workers, their equipment, and spaces to
provide comfort, safety, and movement of information
• Movement of information is main distinction
• Typically in state of flux due to frequent technological
changes
Who is the single
biggest office space
tenant in New York
City?
Innovations in office layout
• Hoteling areas
• Innovation spaces
• Collaboration rooms
• Open design
• Shared workspace/ offices
Office Relationship Chart
Figure 9.1 The Muther Grid for a software firm.
Office Layout (2 of 2)
• Three physical and social aspects
– Proximity
– Privacy
– Permission
• Two major trends
– Information technology
– Dynamic needs for space and
services
Retail Layout
• Objective is to maximize profitability per square foot of floor
space
• Sales and profitability vary directly with customer exposure
Five Helpful Ideas for Supermarket Layout
1. Locate high-draw items around the periphery of the
store
2. Use prominent locations for high-impulse and highmargin items
3. Distribute power items to both sides of an aisle and
disperse them to increase viewing of other items
4. Use end-aisle locations
5. Convey mission of store through careful positioning of
lead-off department
Store Layout
Figure 9.2 Store Layout with Dairy and Bakery, High-Draw Items, in Different
Areas of the Store
Slotting
• Manufacturers pay slotting fees to retailers to get the
retailers to display (slot) their product
• Contributing factors
– Limited shelf space
– An increasing number of new products
– Better information about sales through POS data
collection
– Closer control of inventory
Servicescapes – physical surroundings and how they
affect customers and employees
1. Ambient conditions – background
characteristics such as lighting,
sound, smell, and temperature
2. Spatial layout and functionality which involve customer
circulation path planning, aisle
characteristics, and product grouping
3. Signs, symbols, and
artifacts – characteristics of building
design that carry social significance
Warehouse and Storage Layouts
• Objective is to find the optimum trade-offs between
handling costs and costs associated with warehouse
space
• Maximize the total “cube” of the warehouse – utilize its
full volume while maintaining low material handling costs
Warehousing and Storage Layouts (1 of 2)
Material Handling Costs
• All costs associated with the transaction
– Incoming transport
– Storage
– Finding and moving material
– Outgoing transport
– Equipment, people, material, supervision, insurance,
depreciation
• Minimize damage and spoilage
Warehousing and Storage Layouts (2 of 2)
• Warehouse density tends to
vary inversely with the number
of different items stored
• Automated Storage and
Retrieval Systems (ASRSs) can
significantly improve warehouse
productivity
• Dock location is a key design
element
Cross-Docking
• Materials are moved directly
from receiving to shipping and
are not placed in storage in the
warehouse
• Requires tight scheduling and
accurate shipments, bar code or
RFID identification used for
advanced shipment
notification as materials are
unloaded
Random Stocking
1. Maintain list of “open” locations
2. Maintain accurate records
3. Sequence items to minimize travel, “pick” time
4. Combine picking orders
5. Assign classes of items to particular areas
• Typically requires automatic identification
systems (AISs) and effective information
systems
• Allows more efficient use of space
• Key tasks
Customizing
• Value-added activities performed at the warehouse
• Enable low cost and rapid response strategies
– Assembly of components
– Loading software
– Repairs
– Customized labeling and packaging
Fixed-Position Layout
• Product remains in one place
• Workers and equipment come to
site
• Complicating factors
– Limited space at site
– Different materials required
at different stages of the
project
– Volume of materials needed
is dynamic
Alternative Strategy
• As much of the project as
possible is completed off-site
in a product-oriented facility
• This can significantly improve
efficiency but is only possible
when multiple similar units
need to be created
Process-Oriented Layout (1 of 4)
• Like machines and equipment are grouped together
• Flexible and capable of handling a wide variety of
products or services
• Scheduling can be difficult and setup, material handling,
and labor costs can be high
Process-Oriented Layout (2 of 4)
Figure 9.3 An Emergency Room Process Layout Showing the Routing of Two
Patients
Process-Oriented Layout (3 of 4)
• Arrange work centers so as to minimize the costs of
material handling
• Basic cost elements are
– Number of loads (or people) moving between centers
– Distance loads (or people) move between centers
Work Cells
• Reorganizes people and machines into groups to focus
on single products, menu of products or product groups
• Group technology identifies products that have similar
characteristics for particular cells
• Volume must justify cells
• Cells can be reconfigured as designs or volume changes
Advantages of Work Cells
1. Reduced work-in-process inventory
2. Less floor space required
3. Reduced raw material and finished goods inventories
4. Reduced direct labor cost
5. Heightened sense of employee participation
6. Increased equipment and machinery utilization
7. Reduced investment in machinery and equipment
Requirements of Work Cells
• Identification of families of products
• A high level of training, flexibility and empowerment of
employees
• Being self-contained, with its own equipment and
resources
• Test (poka-yoke) at each station in the cell
Improving Layouts Using Work Cells (1 of 2)
Figure 9.9 Improving Layouts by Moving to the Work Cell Concept
Improving Layouts Using Work Cells (2 of 2)
Figure 9.9 [continued]
U-shaped line may reduce employee movement and space
requirements while enhancing communication, reducing the
number of workers, and facilitating inspection
Staffing and Balancing Work Cells
Determine the takt time (pace of production)
Total work timeavailable
Takt time =
Units required to satisfy customer demand
Determine the number of operators required
Total operation time required
Workers required =
Takt time
Staffing Work Cells Example (1 of 2)
• 600 mirrors per day required
• Mirror production scheduled for 8 hours per day
• From a work balance chart total operation time = 140 seconds
Figure 9.10 Work Balance Chart for Mirror Production
Staffing Work Cells Example (2 of 2)
(8hrs x 60mins)
Takt time =
600units
= .8 min = 48 seconds
Total operation time required
Workers required =
Takt time
140
=
= 2.92
48
Work Balance Charts
• Used for evaluating operation times in work cells
• Can help identify bottleneck operations
• Flexible, cross-trained employees can help address labor
…
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