Supply 1

Chapter 1
Operations Management (OM): is the management of processes used to design, supply,
produce, and deliver valuable goods and services to customers. It is a process-oriented discipline. A
process is a system of activities that transforms inputs into valuable outputs. Processes use
resources (workers, machines, money, and knowledge) to transform inputs (such as materials,
energy, money, people, and data) into outputs (goods and services). Processes can also transform
information, or even people (customers), from one condition into another. It is valuable to think
about operations as a set of processes and subprocesses with many interrelationships and linkages.
A lean operation produces maximum levels of efficiency and effectiveness using a minimal
amount of resources.
Operations management includes the planning and execution of tasks that may be long-term
(yearly) or short-term (daily) in nature. Operations management thus spans the boundaries of any
single firm, bringing together the activities of internal operations with the operations of customers,
suppliers, and other partners around the world.
A supply chain is the global network of organizations and activities involved in (1) designing a set
of goods and services and their related processes, (2) transforming inputs into goods and services,
(3) consuming these goods and services, and (4) disposing of these goods and services. Supply
chain organizations perform all the value-creating activities required to innovate, plan, source,
make, deliver, and return or dispose of a given set of products and services. Other terms sometimes
substitute for supply chain include demand chain, extended enterprise, supply network, or supply
web.
Operations management activities located throughout a supply chain create and enhance the value
of goods and services by increasing their economic value (lowering delivered cost), function value
(improving product quality or convenience), and psychosocial value (improving product aesthetics
and desirability). The following statements help define and describe operations management:
Operations management is mainly concerned with how resources will be developed and used to
accomplish business goals.
Is about designing, executing, and improving business processes.
Deals with processes that transform inputs including materials, information, energy, money, and
even people into goods and services.
Within a supply chain context, operations management brings together four major sets of player:
the firm, customer, suppliers, and stakeholders.
To be effective, operations management must be consistent with the strategic goals of the firm
It is dynamic because changes in customers demands, resources, competition, and technologies.
Important decisions in supply chain
Structural decisions affect physical resources such as capacity, facilities, technology, and the supply
chain network. Once made, decisions in these areas determine what the operations management
system can and cannot do well. Infrastructural decisions affect the workforce, production planning
and control, process innovation, and organization. Decisions in these areas determine what is done,
when it is done, and who does it.
Differences in goods and services
Products: Everything you wear, eat, sit on or in, use, read, or knock about on a sports field comes
to you courtesy of operations. Characteristics: tangible, can be inventoried, little customer contact,
long lead time, often capital-intensive, quality easily assured, material is transformed.
Services: Every book you borrow from the library, every medical treatment you receive, every
lecture you attend at a university, every service you receive comes to you courtesy of operations.
Characteristics: intangible, cannot be inventoried, extensive customer contact, short lead time,
often labor intensive, quality harder to assess, and information or customer is transformed.
While goods-manufacturing operations can use inventory to smooth out imbalances between
production capacity and customer demand, a producer of services must maintain enough capacity
during peak periods; otherwise, it must postpone (backlog) the demand (ex. reservations and

appointment systems to help customers avoid long lines). Because most firms deliver products that
involve both goods and services, operations managers recognize the importance of delivering a
total product experience (all the goods and services that are combined to define a customers
complete consumption experience. The experience includes all aspects of purchasing, consuming,
and disposing of the product.
Focus on core capabilities
Core capability is a unique set of skills that confers competitive advantage to a firm, because rival
firms cannot easily duplicate them. A focus on core capabilities leads a firm to concentrate on those
few skills and areas o knowledge that make the firm distinct and competitive. The firm would then
likely outsource other, noncore activities to suppliers who have advantages due to better skills or
higher scale of operations.
Collaborative networks
The creation of partnerships in integrated networks open up opportunities to take advantage of
complementary cost structures, the respective partners technical expertise, market knowledge,
and bran equities (reputations). By combining such assets, companies are able to make stronger
product offerings together than they could individually.
Viewing operations management form a supply chain management perspective
Supply Chain Management (SCM): is management of the processes and relationships in a
supply chain. It is the design and execution of relationships flows that connect the parties and
processes across a supply chain.
Operations management focuses on managing processes (design, supply, production, delivery);
supply chain management focuses on managing relationships and flows (flows of information,
materials, energy, money, and people). Think of supply chain management as a way of viewing
operations management. You can also think of the supply chain as a network of organizations in
which operations activities are conducted.
Operations management partners across the supply chain
Customers: parties that use or consume the products of operations management processes. The
firm cannot structure an effective or efficient operations management function unless it has
clearly identified its customers. Types of customers can include internal, intermediate, or final
customers. While each of these customer groups is important, it is beneficial for operations
managers to identify critical customers. Critical customers have the greatest impact on product
designs, sales, and future growth opportunities.
Suppliers: parties that provide inputs to operational processes. There are multiple types of
suppliers:
Upstream product suppliers typically provide raw materials, components, and services directly
related to manufacturing or service production processes.
Downstream product suppliers typically provide enhancements o finished goods such as assembly,
packaging, storage, and transportation services.
Resource & technology suppliers provide equipment, labor, product, and process designs, and
other resources needed to support a firms processes.
Aftermarket suppliers provide product service and support such as a maintenance, repair,
disposal, or recycling.
Stakeholders: groups of people who have a financial or other interest in the well-being of an
operation. Stakeholders include employees and unions, the local community, social groups (such
as animals rights ir environmental concerns), government, and financial investors.
Other Business Functions
Functional activities that connect operations managers
Customer management is the management of the customer interface, including all aspects of
order processing and fulfilment. Functional groups directly concerned with customer management
have names such as distribution, sales, order fulfillment, and customer service. Managers in these
functions are always thinking about ways o improve customer satisfaction in efficient ways. Supply

management is the management of processes used to identify, acquire, and administer inputs to
the firm. Related functional groups are called by names such as purchasing, sourcing, and
procurement. Managers in these functions are always thinking about insourcing and outsourcing
opportunities, and ways to improve supply transactions and relationships. Logistics management
is the management of the movement of materials and information within, into, and out of the firm.
Logistics functions go by names including transportation/traffic management, warehousing,
material managers, and so on. Managers in these functions are always thinking about ways to
optimize these flows through better scheduling and the use of alternative transportation, storage,
and information technologies.
Tier: an upstream stage of supply. The tier number refers to how directly the supplier works with
the firm. A first-tier supplier provides goods and services directly to the firm. A second-tier supplier
provides inputs to the firs-tier supplier, and so on. Downstream stages of the supply chain are made
up of layers of partners and customers commonly referred to as echelons (a downstream stage of
supply or consumption).
Levels of Operational Planning across the supply chain
Strategic planning is a type of planning that addresses long-term decisions that define the
operations objectives and capabilities for the firm and its partners. They include high-level product
and resource design decisions that define the overall operations objectives and capabilities for the
firm and its partners. These types of decisions take a long time to implement, and the choices made
put limits on the capacities governing operational processes. Tactical planning is a type of
planning that addresses intermediate-term decisions to target aggregate product demands and to
establish how operational capacities will be used to meet them. Such as sales and operations
planning seeks to identify and target customer demands for aggregate product families, and to
establish the inventory and capacity plans needed to satisfy these overall demands. At the
operational planning (a type of planning that establishes short-term priorities and schedules to
guide operational resource allocations) level, inventory and requirements planning activities
address demands, materials, and capacities at the individual product level. Tactical planning usually
spans months, whereas operational planning usually addresses weeks or days of activity.
Chapter 2
Operations strategy, which is a set of competitive priorities coupled with supply chain structural
and infrastructural design choices intended to create capabilities that support a set of value
propositions targeted to address the needs of critical customers. Strategic decisions define the
competitive objectives of an organization, establishing both the specific performance targets and
the means by which the targets will be achieved.
Levels of strategic planning
Internally, there is a hierarchy of strategic plans consisting of (1) corporate planning, (2) strategic
business unit (SBU) planning, and (3) functional planning.
Level 1: Corporate Strategic planning. Corporate strategic planning addresses the portfolio of
businesses owned by a firm. Corporate strategic planning is broadest in scope and the least
constrained. Decisions made at this level limit the choices that can be made at lower strategic
planning levels.
Corporate Strategy: overall mission and target businesses. Communicates the overall mission of
the firm, and identifies the types of businesses that the firm wants to be in.
Long time horizon
Overall values, direction and goals
Acquisitions and divestitures
Performance metrics
Risk management
Level 2: Business Unit Strategic Planning. Because products and markets differ across business
divisions, a separate management team (usually headed by a president or vice president) is usually
needed to run each of thses semi-independent organizations, or strategic business units (SBU). And
SBU can be organized along product, market, or geographic dimensions. Business unit strategy

essentially deals with the question, How should our business unit compete?. Business model is
the combination of the choices determining the customer an SBU will target, the value propositions
it will offer, and the supply chain/operations management capabilities it will employ. A business
units strategy and business model are both shaped by the corporate strategy, by the specific
requirements of the SBUs products and markets, and by the SBUs operating capabilities. One
technique that managers use to assess these attributes is SWOT analysis. A SWOT analysis helps
managers match strategies with strengths and opportunities while also reducing risks associated
with weaknesses and threats.
Strategic Business Unit (SBU): semi-independent organizations used to manage different
products or markets

Identification of customer or market segments

Appropriate competitive priorities

Constrained by corporate strategy

More detailed

Shorter time horizon

Level 3: Functional strategic planning. Every SBU consists of functional groups such as internal
operations, marketing, accounting, engineering, supply management, logistics, and finance (to
name a few). Each function has to generate a strategic plan one that is coordinate with and
supportive of the SBU plan. This level is the most detailed, as well as the most constrained, as it
must operate within a set of decisions made in the corporate and SBU strategic plans.
Functional strategy: determines how the functions will support the overall business unit
strategies.
Most detailed
Most constrained
Determines specific focus
Management of critical resources
Key metrics
Identification of capabilities
Coordination of activities
Developing operations strategy: Creating value & an Operations Strategy
At the heart of operations strategy are choices made in three primary areas: the objective of
operations strategy development is to maximize the overlap among choices in these areas. The
internal consistency of these choices is what ultimately creates value for the firm and for the
marketplace. To ensure that a high level of consistency is achieved, operation managers must
develop a deep understanding of their critical customers. First, this means understanding what
these customers value in products. Second, the critical features of the value proposition need to be
communicated in terms that make sense to operations managers. Third, strategic initiatives must
be launched. If the required operational capabilities do not exist, then they must be developed, or
different customers and value propositions should be targeted.
1. Critical Customer: is the customer or customer segment receiving priority because it is critical
to the firms current or future success. The starting and ending point for effective and efficient
supply chain operations is the customer. Customers are parties that use or consume the products
of operations management processes. A customer is not necessarily the end user.
Assessing Customers wants and needs:
Order Winners: why customers choose your firm. These product traits cause customers to choose
a product over a competitors offering; for example, better performance or lower price. These are
traits on which the operations management system must excel.
Order Qualifiers: minimum standards to be met. These are product traits such as availability,
price, or conformance quality that must meet a certain level in order for the product to even be
considered by customers. The firm must perform acceptable on these traits, usually at least as well
as competitors offerings.

Order Losers: why customers avoid your firm. Poor performance on these product traits can cause
the loss of either current or future business.
To recapitulate: order winners and order qualifiers form the basis for customers expectations. Order
losers, in contrast, result from customers actual experiences with the firm and its operations
management processes. They represent the gap between what the firm delivers and what
customers expect. Order winners, order qualifiers, and order losers vary by customer. An order
winner to one customer may become an order qualifier at another point in time.
Example: Dell Computers
Order Winner: Flexibility (Customization - A million combinations!)
Order Qualifier: Affordable price, high level of quality and reasonable delivery estimates
2. Value Proposition: is all of the tangible and intangibles benefits that customers can expect to
obtain by using the products offered by the firm. A collection of products and services features that
are both attractive to customers and different than competitors offerings.
A well-designed value proposition has four characteristics:
-Features that customers value and will pay for
-A difficult to imitate source of differentiation
-Satisfies financial and strategic firm objectives
-it can be reliably delivered given the operational capabilities of the firm and its supporting supply
chain
Competitive priorities
How customers problem is solved (Product-related competitive priorities). Product-related
priorities address the customers problem to be solved and are communicated in terms of the
quality, timeliness, and cost of the product solution.
Quality: fitness for consumption in terms of meeting customer needs & desires. (ex.
performance, features, conformance, reliability, durability, aesthetics, service/support, perceived
quality).
Timeliness: delivery or availability when customer wants. (ex. reliability, speed, and
availability). Lead time is the amount of time that passes between the beginning and ending of
a set of activities. There are two types of lead time that are typically important. The first, time to
market, is the total time that a firm takes to conceive, design, test, produce, and deliver a new
or revised product for the marketplace. This lead time is a once-in-product-life-cycle. The other
type of lead time is order-to-delivery lead time for an existing product. This encompasses the
time interval starting at the moment that the customer place and order for a product, including
the time required to place and fulfill an order, and ending at the moment that the customer takes
delivery of the product.
Cost: expenses incurred is acquiring or using the product. (ex. purchase, transaction,
maintenance/repair, operating, salvage/disposal). Different types of costs may be more or less
important to customers, depending on the product type. Purchase cost (price) is usually most
important for consumer goods. However, maintenance and operating costs are often much more
important for customers buying long-life items such as industrial machinery. Disposal costs are
becoming more important considerations for durable goods (cars, washing machines) due to
environmental concerns.
Competitive priorities (process-related). While product-related competitive priorities focus on the
outcomes that customers experience directly, process-related competitive priorities pertain to how
supply chain operations are run over time.
Innovation: refers to both radical and incremental changes in products and processes. Through
the creation of new and improved products, firms can appeal to new market segments, or take
away business from competitors. Innovation is a response to emerging customer needs, or it can
even be a way to create new needs. Product and process innovation are usually interrelated.
Operations managers located in various functions throughout the supply chain typically have two
sets of innovation-related priorities: support product innovation and drive process innovation.
Flexibility: operations ability to respond efficiently to changes in products, processes and
competitive environments. The word respond efficiently mean that an operation can cope with a
wider range of changes faster or with less cost than competitors can. There are many types of

flexibility, including short-term, operational flexibilities such as labor flexibility, as well as longerterm, strategic flexibilities such as the ability to introduce new products quickly.
Sustainability: operations that are profitable and non-damaging to society or the environment.
The increasing importance of sustainability has caused many companies to adopt a triple
bottom line. Using this approach, managers prepare three different measures of profit and
loss. The first is, the traditional measure of performance monetary profit; the second is an
assessment of its people account how socially responsible the firm has been throughout its
operations; the third is the companys planet account how environmentally responsible the
firm has been. Together, these three Ps (profit, people, and planet) capture the total impacts of a
firms business.
Risk Management: developing operations that anticipate and deal with problems resulting from
natural events, social factors, economic issues, or technological issues (unexpected events).
3. Capabilities: are operational activities that the firm can perform well; these define the types of
problems and solutions that operations can address proficiently. Unique and superior abilities based
upon the firms routines, skills and processes. Usually abilities to deliver superior performance come
from investments and developmental efforts in one or more of the following areas: processes,
planning systems (access and development of sources of information, and use of proprietary
decision support systems and processes), technology, people and culture, and supply chain
relationships (unique and exclusive relationships with customers and suppliers that are unmatched
by competitors).
Core capabilities: skills, processes, and systems that are unique to the firm and enable the firm to
meet customer expectations and are difficult for competitors to imitate.
Fit: alignment with capabilities, value proposition and critical customer. Fit exists when operational
capabilities support the value proposition and the outcomes desired by critical customers.
Management has three option: (1) live with the mismatch (which means reduced profits and
potential opportunities for the competition), (2) change the critical customers to those who value
the solutions provided by the firm; or (3) change the operational capabilities. Each option requires
top management involvement, resources, and time. Most often, changing operational capabilities is
the hardest of the changes to make because the development of capabilities typically takes large
investments made over long periods of time. Developing effective strategic planning processes that
maintain fit is therefore imperative for a firms survival over time.
Deploying operations strategy: creating value through execution
Strategy deployment consists of two interrelated activities:
-Execution: to carry out plans and initiatives in order to deliver the realized value to customers.
-Feedback/measurement: to assess, communicate, and manage performance in ways that capture
lessons learned and focus attention on areas needing improvement.
Initiatives need to be coordinated across internal supply chain management, logistics, marketing,
sales, and engineering groups in order to ensure that consistent decisions are made. Decisions and
strategic initiative must be formed in ways that integrate the concerns of internal operational
activities with the concerns of suppliers and customers, without creating too much dependence on
external partners. Decisions must also address the physical, structural elements of operations as
well as the intangible, infrastructural elements. The first four decision categories capacity,
facilities, technology, and supply chain network are structural in nature. They affect strategy and
the physical operations management system. Once made, decisions in these areas act as
constrains, determining what the operations management system can and cannot do well. Altering
these decisions often requires significant investments and lots of time often years. The remaining
four decision areas workforce, production planning and control, product/process innovation, and
organization are infrastructural in nature. Decisions in these areas determine what is done, when
it is done, and who does it. the decision areas are closely related.
Feedback/Measurement: communicating and assessing operations strategy
Performance measurement plays very important roles in operations strategy. First, performance
measures communicate strategic intentions, as formulated at the corporate/ SBU/ functional level,
to operational personnel. Second, performance measure control operations. By establishing metrics,
a performance measurement system establishes how performance measurement is measured, the

standard against which performance is to be compared, and the consequences of exceeding or not
meeting the standard. Different functional groups tend to measure performance in different ways.
The strategic profit model
Also known as the DuPont Model, the strategic profit model (SPM) shows how income and
balance sheet data are interrelated and how operational changes affect the overall performance of
a business unit. The SPM converts operational changes into financial impacts. The SPM focuses on
return on assets, a metric that indicated how profitably a firm uses its assets. ROA is calculated by
multiplying the net profit margin by asset turnover. The net profit margin measures the percentage
of each dollar that is kept by the firm as net profit. The asset turnover measures how efficient
management was in using its assets. The higher the ROA, the better the level of performance. The
SPM is useful for evaluating both operational and marketing-based plans and actions, and
answering what-if questions.
The balanced scorecard
An integrative approach for developing strategic, organizational-level metrics. Encourages the use
of a mix of financial metrics and nonfinancial, operational metrics. It seeks to integrate these
various metrics into a meaningful whole, creating a strategic framework for action. The balance
scorecard approach assumes that success is based on balanced management if activities in four
major areas: financial, internal business processes, learning and growth, and customer satisfaction.
For each question, the balanced scorecard approach requires the development of objectives,
measures for each objective, target performance levels for each measure, and planned initiatives
for reaching each target. The balance scorecard helps to:
-set direction and communicate specific goals
-define measures that indicate degree of achievement of specific objectives.
-determine the relative importance of the targets of opportunities for improvement.
-maintain consistency and alignment between the corporate-level objectives and the operational
initiatives, and the objectives/initiatives and strategic objectives and annual goals.
Supply chain operations: reference model
SCOR identifies basic management practices at different operations levels, for benchmarking and
strategy deployment. The SCOR model includes more than just metrics; it provides tools for
charting and describing supply chain processes. It also describes supply chain management best
practices and technology. The SCOR model identifies basic management practices at different levels
of operation. SCOR addresses five basic dimensions of performance:
Delivery reliability: correct items, place, time, condition, quantity, documentation and customer
Responsiveness: supply chain velocity to customer
Flexibility: agility to respond to change
Costs: operational costs of the supply chain
Asset management: effectiveness of assets in supporting demand satisfaction
Supply chain strategy
1. Strategic planning happens at multiple levels
2. Strategic planning begins with the customer
3. OM strategy brings together: critical customers, value propositions and operations
capabilities
4. Competitive priorities address product and process issues
5. Future capabilities depend on existing core competencies
6. Strategy involves multiple functions and SC partners
7. Must be fit between the elements of #3 above
8. Strategic assessment tools are needed
Power Point
A supply chain is 3 or more companies directly linked by the upstream and downstream flows of
materials, energy, money, people, and information from a source to a customer.
A Supply Chain Management integrates supply and demand management within and across
companies.

Operations and Supply Chain

Operations: Management of process used to design, supply, produce, and deliver goods and
services to customers. Operations Management (OM) is everywhere.
Supply Chain: Global network of organizations and activities involved in
o Designing set of good and services
o Transforming inputs into goods and services
o Consuming goods and services
o Disposing of goods and services
OM partners: Customers use or consume output. Suppliers provide inputs. Stakeholders have
an interest in organizational well-being and performance.
OM Relationships: Customer Management: interfaces with customers and order processing and
fulfillment. Supply Management: processes to identify, acquire, and administer inputs. Logistics
Management: movement of materials and information within, into and out of the firm.
From OM to SCM
Changes in the following have moved us from an OM to a SCM focus:

Technology and Infrastructure: especially in communications and transportation

Barriers to trade: shifting economies, governmental control and societal expectations

Core capabilities: organizations focusing on their unique skills that create competitive
advantage

Collaborative networks: greater influence of, and reliance upon, business partners
Supply Chain (SC): the global network of organizations and activities involved in designing,
transforming, consuming and disposing of goods and services.
Supply chain strategy
Broad policies and plans for using the resources of a firm to best support its long-term strategy.
Companies who have strategic Supply Chains Walmart, Dell, IKEA.
Chapter 12
Demand Planning The combined process of forecasting and managing customer demands to
create a pattern of demand.
Demand Forecasting a decision process where managers predict demand and tailor operations
around that prediction.
Demand Management Proactive approach where managers try to influence either the pattern or
consistency of demand.
Demand forecasting
Qualitative Forecasts: Do not use past data. Usually used when such data is not available (such as
planning for a new product). Customer surveys, expert opinions, etc.
Statistical Model-Based (Quantitative Forecasts)
Three techniques:
1. Causal forecasting uses extrinsic data as predictor of demand. Uses external data to predict
future demand. Looking for the factors that cause demand. Linear Regression.
2. Time series forecasting uses past demand to forecast future demand
3. Simulation
Components of Demand: patterns of demand over time.
** stable, seasonal, trend, step change.
Forecast error: unexplained component of demand
Planning activities

Time
Horizon/
Type of
Planning

Demand Planning
Units

Long Term
1-5 years
Strategic

Dollar or unit sales by

business unit across
sales network

Use of Forecast
and Demand
Planning

Medium Term
6-18 months
Tactical

Dollar or unit sales by

product family in a
region

Short Term
1-12 weeks
Operational

Dollar or unit sales by

item or service at a
given location

Types of Decisions
Involved

SC network
design
Technology
investment
Capacity
plans

Sales &
operations
plan
Portfolio
plans

Aggregate plans
Workforce plans
New product
launches

Inventory
plans
Purchasing
Labor
scheduling

Daily production
Purchase orders

Sources of supply
Open/close
facilities
Transportation

Judgment based forecasting

1.
Grassroots: input from those close to products or customers
2.
Executive Judgment: input from those with experience
3.
Historical Analogy: assume past demand is a good predictor of future demand
4.
Marketing Research: examine patterns of current customers
5.
Delphi Method: input from panel of experts
Forecast process performance
1. Short term forecasts are more accurate than long term forecasts
2. Aggregate forecasts are more accurate than detailed forecasts
3. Information from more sources yields a more accurate forecast
Casual forecasting
Recognized relationship between demand and some other variable
Some other variable is the leading indicator of the value you want to predict
Example the demand for refinancing and home mortgage interest rates
A good sample has many observations and potential predictor variables
Example will use temperature as the independent variable, but you could use
e.g., exam schedule, promotions, sporting events, day of the week, etc.
Time series
Time Series models try to predict the future based on past data.
Select forecasting model based on
Time horizon to forecast
Data availability
Accuracy required
Size of forecasting budget

Another issue is the degree of flexibility of the firm (ability to react quickly to changes)
Six components of a time series forecast
1.
Cycles

A pattern that repeats over a long period of time (such as 20 years).

Less important for demand forecasting, since we rarely have 20 years worth of

data.
2.
3.
4.

Trends: Component of a time series that causes demand to increase or decrease.

Seasonality: A pattern in a time series that repeats itself at least once a year.
Randomness: Unpredictable variation in demand that is not due to trend, seasonality,
or cycle.

5.
6.

Autocorrelation
Average demand for the period: Averaging is used to remove random fluctuations in
historical data. Various kinds of averages can be used. Differences between them are exploited to
create varying degrees of responsiveness. Averages constructed from bigger data sets (i.e., more
history) are less responsive to sudden changes. An average that uses the eight most recent data
points is less responsive than one that uses the past three.

Simple moving average: use a 3 period moving average.

Weighted moving average: when choosing weights, the most recent past is the most important,
so assign it the highest weight. Weight must equal 1.
Exponential smoothing: used because as data gets older, it is less useful with exponential
smoothing each past data is decreased by (1-). What you need to know: current periods forecast,
current periods actual value, and value of smoothing coefficient which varies between 0 & 1.
Demand management
Purpose is to coordinate and control all sources of demand so that the supply chain runs efficiently
and product is delivered on time.
-Dependent Demand
-Independent Demand
Active Role
Passive Role
Demand planning
Fluctuating customer demand cause operational inefficiencies, such as:
Need for extra capacity resources
Backlog
Customer dissatisfaction
System buffering (safety stock, safety lead time, capacity cushions, etc.)
Try to manage demand by:
Use pricing, promotions or incentives to influence timing or quantity of demand
Manage timing of order fulfillment
Encourage shifting to alternate products
Improving planning management
Improving information accuracy and timeliness
Reducing lead time
Redesigning the product
Collaborating and sharing information
Improving demand planning
Collaborative, planning, forecasting and replenishment (CPFR): supply chain partners share forecast
& demand & resource plans to reduce risk
Market Planning: changes to products, locations, pricing and promotions
Demand and resource planning: forecasting
Execution: order fulfillment
Analysis: data on key performance metrics
Chapter 9
Customer service management: Intense focus on understanding and providing customers with
products/service they desire.

Hierarchy of commitment to customers:

Customer success: assist customers in meeting objectives
Customer satisfaction: meet or exceed customer expectations
Customer service: product availability, lead time performance, service reliability.
Today, excellent service is considered to be the foundation of customer service management. In
addition, operations managers now think more holistically, in terms of customer satisfaction and
success. Customer satisfaction requires higher-level commitment than basic service in that it
explicitly addresses expectations customers have regarding the organizations performance. A
commitment to customer success focusses on leveraging the organizations operations capabilities
to help customers meet their critical objectives.
Lead time performance:
Lead Time: time between start and end of an activity

Design: conceptualize, design & test

Order: place and schedule for production

Procurement: source and arrive

Production: start to end of production

Delivery: warehousing & transportation to customer

Differing market orientations have different elements of Order-to-Delivery (OTD) lead time
Engineer to Order (ETO): design and make to customer specifications
Make to Order (MTO): make to customer demand from raw materials and components
Assemble to Order (ATO): assemble to customer demand from generic subassemblies
Make to Stock (MTS): build and stock in anticipation of customer demand
Service reliability & the perfect order
Service Reliability: performance of all order related activities error-free
If a firm has 97% reliability on four attributes, the probability of a perfect order is .
97x.97x.97x.97=88.5%
The Perfect Order: delivered without failure in any order attribute
Complete
On time
Damage free
Documentation correct
Limitations of customer service
Customer Service involves specifying the firms commitment to availability, operational
performance and reliability

Order winners, qualifiers and losers

Meeting or beating competitor levels

Link to competitive strategy

Link performance to customer satisfaction

Customer satisfaction
Customer Satisfaction: meeting or exceeding customer expectations, including:
Reliability: performance as promised
Responsiveness: prompt reply and resolution
Access: easy to use communication channels
Communication: proactive order notifications
Credibility: believable and honest
Security: low risk and confidential
Courtesy: polite, friendly and respectful
Competence: able to perform
Tangibles: physical appearance
Knowing the customer: responsive to unique customer needs
Customer satisfaction model gaps
Gaps occur at differences between

1.
2.
3.
4.
5.
6.

Knowledge: understanding of customer needs

Standards: internal performance and customer expectations
Performance: standard and actual performance
Communication: actual performance and communications about performance
Perception: customers view of performance and actual performance
Satisfaction: customers perceptions and expectations of performance

Limitations of customer satisfaction

Beyond basic service to relationship building
Happy customer satisfied, loyal customer
Customers are individual in their expectations
Customer success
Customer success requires a supplier to:
Have a long-term relationship focus
Comprehensive knowledge of customer needs
Consideration of customers customers
Adapt product production and distribution

Customer relationship management

Customer Relationship Management (CRM): technology enabled data gathering about
customers to develop strategic relationships
High basic
service or
customer
satisfaction
Review reason
for doing
business

Commitment
to customer
success

High basic
service or
customer
satisfaction