Operations and Sales

Exam notes: 75 questions – must get 50 correct for 5.5 in TP4.

Week 1: Competitive advantage

LO1: Explain the concept of order qualifiers and order winners.
LO2: List and describe the 5 elements of creating a Competitive
Advantage
LO3: Explain the essential function of Value and its relation to Competitive
Advantage
LO4: Describe the interaction between different organizational functions
according to Porter.
LO5: Recognize the importance of each activity in creating value.
A company must have the ability to identify customer needs and have the
appropriate range of goods or services to meet them.
Order qualifying factors are characteristics of a product or service that are
required for it to be even considered by a customer.
Order winners are the characteristics of a product or service that directly
contribute to winning business from a customer.
 How do companies do all of this whilst creating the most value and
profit margin?
The value that is created and captured by a company is the profit margin.

Value created and captured – cost of creating that value = profit margin.

The more value an organization creates, by having better performance

objectives than your competitors, the more profitable it is likely to be.

When you provide more value to your customers, you build a competitive
advantage.

5 performance objectives:
1. Cost: the ability to provide a product or service at a price the
customer is willing to pay.
2. Quality: the ability to provide products or services that mee
customer’s expectations.
3. Flexibility: the ability to change a product or service to meet
customer’s needs.
 4. Dependability: the ability of an organization to consistently meet its
promises to the customer.
5. Speed: the ability to provide products or services with as short as
possible time delay between customer order and delivery.

Porter’s value chain is a chain of activities common to all businesses,

divided into primary and support activities.

Primary activities relate directly to the physical creation, sale,

maintenance and support of a product or service.
1. Inbound logistics: all the processes related to receiving, storing, and
distributing inputs internally. Your supplier relationships are a key
factor in creating value here.
2. Operations: the transformation activities that change inputs into
outputs that are sold to customers.
3. Outbound logistics: these activities deliver your product or service
to your customer. Ex. Collection, storage, distribution systems, and
they may be internal or external to the organisation.
4. Marketing and sales: all the processes you use to persuade clients
to purchase from you instead of your competitors. The benefits you
offer, and how well you communicate them, are sources of value
here.
5. Service: these are the activities related to maintaining the value of
your product or service to your customers, once it’s been
purchased.
Each support activity plays a role in helping the primary activities.
 1. Procurements / Purchasing: what the organization does to get the
resources it needs to operate. This includes finding suppliers and
negotiating the best prices.
2. Human resource management: how well a company recruits, hires,
trains, motivates, rewards, and retains its workers. People are a
significant source of value, so businesses can create a clear
advantage with good HR practices.
3. Technological development: activities that relate to reducing
(information) technology costs, increasing efficiency, staying current
with technological advances, and achieving technical excellence are
sources of value creation (R&D).
4. Infrastructure: these are a company’s support systems, and the
functions that allow it to maintain daily operations. Accounting,
legal, administrative, and general management are examples of
necessary infrastructure that businesses can use to their advantage.
Using the value chain:
Step 1: identify sub-activities for each primary activity.
Step 2: identify sub-activities for each support activity.
Step 3: connect activities and identify risks.
 Step 1 – The three types of sub-activities are:
1. Direct activities create value by themselves: for example, in a book
publisher's marketing and sales activity, direct sub-activities include
making sales calls to bookstores, advertising, and selling online.
2. Indirect activities allow direct activities to run smoothly : for
example, the book publisher's sales and marketing activity, indirect
sub-activities include managing the sales force and keeping
customer records.
3. Quality assurance activities ensure that activities meet the
necessary standards: for example, the book publisher's sales and
marketing activity, this might include proofreading and editing
advertisements.
Step 2 – One must consider how human resource management adds value
to inbound logistics, operations, outbound logistics etc.
Step 3 – Finding the connection between all the value activities you’ve
identified. These links are key to increasing competitive advantage from
the value chain framework and identifying potential risks. Example:
there’s a link between developing the sales force and sales volume, and
another link between order turnaround times and service phone calls from
frustrated customer waiting for deliveries.
Week 2: Sales

LO1: Explain the purpose of Sales

LO2: Describe the Main Sales Functions

LO3: Explain Sales Responsibilities

LO4: Understand how to Manage the Customer Portfolio

LO5: Consider the Ethics in Sales

LO6: Describe How Sales Interacts with Operations

The purpose of selling is to generate income for the company with

products and services provided by the other functions of the company
that provide a positive contribution to the buyer at a competitive price.

The key responsibilities of salespeople include:

¨ Prospecting – searching for new, potential customer
¨ Implementing sales and marketing strategies
¨ Providing service – setting up a long-term, profitable relationship,
merchandising, sales engineers
¨ Database and knowledge management
¨ Self-management
¨ Handling complaints
¨ Sales and profit success
¨ Relationship management
Managing the customer portfolio consists of making and regularly
updating an analysis that identifies current and potential customers that
are most likely to generate the greatest profit and lifetime value for the
selling company.
Some types of unethical behaviour in trade and sales include:
 Bribery – can be between businesses or officials.
 Deception
 The hard sell
 Promotional inducement to the trade
 Slotting allowance
There are some legal and cultural differences that vary across the world
when it comes to ethical behaviour in trade and sales. For example,
bribery is illegal almost everywhere, but enforcement varies. Many
companies in the UK, EU and USA have mandatory training programmes
to enforce the regulations of bribery.

Apart from legality and ethics, an individual problem with this type of
action is that once you initiate or accept, you are compromised.
Errors and conflicts happen in any working process.

In the NPI (New Product Introduction) phase, there may be:

 Misunderstandings in the customer requirements
 Impossible solutions demanded (technically or economically not
feasible)
 Solutions that need time to develop capabilities.
 Incorrectly specified solutions passed on (wrong materials purchase,
disconnection with clients etc.)
 An over-/underestimated market potential.

In the execution phase, there may be:

 Transfers of data not executed.
 Overselling by sales (promises on spec or delivery times that are
unrealistic)
 Internal errors that may lead to delivery defects (ex. Machine and
transport breakdowns, staffing shortages, product mixes in orders
are not compatible, finance doesn’t invoice etc).
Week 3: Sales and Procurements:
LO1: Explain sales skills.
LO2: Understand the various phases of the selling process.
LO3: Dealing with objections and closing the sale.
LO4: Connecting sales to marketing and operations.
Week 3: Sales:
The purpose of selling is to improve the buyer’s business.
Key characteristics of salespeople desired by buyers:
¨ Expertise in their company’s products and the market
¨ Good communication skills
¨ Ability to solve problems.
¨ Ability to understand and satisfy the buyer’s needs.
¨ Thoroughness
¨ Ability to help in ensuring the reliable and fast delivery of orders.
Skills required in selling:
 Personable
 Interactive
 Ability to adapt to sales style situationally.
 Focused
 Organized
 Verbal and written communication skills.
 Listening skills
 Demonstrated ability to overcome objectives.
 Information retention
 Determination
The selling process:
1. The opening
2. Need and problem identification.
3. Presentation and demonstration
4. (Dealing with objections)
 5. Negotiation
6. Closing the sale
7. Follow-up

Dealing with objections:

 Listen and do not interrupt.
 The straight denial
 Forestall the objection.
 Hidden objections
 Trial close
 Question the objection.
 Agree and counter.
Closing the sale:
 Ask for the order.
 The concession close
 The objection close – ‘if I can convince you that this model is the
most economical in its class, will you buy it?’
 Action agreement – agree on the next step to build relationship.
 The assumptive close – ‘would you like the red one or the blue one?’
 Summarise and ask for the order.
Connecting marketing to sales:
Week 3: Procurement
LO1: Explain the purpose and impact of procurement.
LO2: Describe procurement’s goals and list what procurement buys.
LO3: Describe the procurement and purchasing process.
LO4: Understand supplier selection and supplier relationships.
LO5: Be aware of contracts with suppliers, and its consequences.
Procurement is a business activity, a professional process, and an
instrument to achieve efficiency, optimization, cost reductions, and value,
all of which are strategic goals.
Strategic goals of procurement:
 Reduction of quality costs
 Product standardization
 Increase flexibility.
 Pursue interaction with innovative suppliers.
 Stock reduction
 Foster ‘synergy’.

All of which are done to improve their own organization.

Most commonly, raw materials, supplementary materials, semi-

manufactured products, components, finished products, investment
goods, capital equipment, MRO (maintenance, repair, and operating
materials, and contracted services.
Example:
The procurement process:
1. Define specifications.
2. Select supplier. Sourcing
3. Contract agreement
4. Ordering
5. Expediting Purchasing
6. Evaluation and follow-up.
Procurement = sourcing + purchasing
The added value of the professional buyer lies in the ability to act as a
facilitator for the supply process:
 Supporting internal customer in defining purchasing specifications.
 Being involved in new product development and investment
projects.
 Selecting suppliers – includes identifying new, potential suppliers
and business partners for the company’s changing business needs.
 Preparing and carrying out contract negotiations.
 Setting up requisitioning and ordering routines in such a way that
the users can place orders themselves.
 Place orders at suppliers and maintain and monitor orders,
contracts, and supplier files.
 Monitoring outstanding orders and financial obligations.
 Follow up and evaluate supplier performance.
Supplier selection:
 Request for information (RFI)
  Request for proposal (RFP) – ask for specifications and price.
 Request for quotation (RFQ) – specification already known, ask for
price only.
 Selection criteria
 Terms and conditions – financial, legal and performance.
Supplier relationships:
 Conventional – no strings attached, arm’s length, one-off purchase
order.
 Associated – long-term, guaranteed quality.
 Partnership – strong relationship, joint development
Contracts with suppliers:

Week 4: Supply chains and managing processes.

Supply chains learning objectives:
LO1: Understand Supply Chain basics.
LO2: Know Supply Chain Terminology.
LO3: Consider using the Performance Objectives for Supply Chains
A supply chain is a sequence of business and information processes that
link suppliers of products or services to operations which then link those
operations through distribution channels to end users.
They include all the steps that transform raw materials to final products
for end users. They are usually made up of connected companies that
each add value to their part of the final product.
In complex supply chains, many materials and components are included.
Materials flow downstream towards the demand side (customers).
Information flows both ways, upstream and downstream, towards both the
consumers and suppliers. There are also different tiers of suppliers in the
upstream process. The demand side of the process includes different
types of wholesalers, retailers, etc, and, ultimately, the customers.
Supply chain management is the planning, designing, organization and
control of the flow of information and materials to meet customer
requirements in an efficient manner. Supply chain management can use
the 5 performance objectives, especially in the case of international
businesses with complex material flows.
- Cost: capital / resources / labour, cost of complexity, transportation.
- Quality: capabilities of suppliers, specialization, reputation.
- Flexibility: capable of variety, change for customer demand.
- Speed: getting from ordered materials or services to the end user.
- Dependability: risk of breakdowns in the supply chain.
A sixth performance objective is introduced,
- Sustainability: what environmental footprint does the supply chain
have?
Managing processes learning objectives:
LO1: List and describe key responsibilities of an operations manager.
LO2: Explain the meaning of process and operations and how they impact
each other.
LO3: List and describe how suppliers, inputs, processes, outputs, and
customers are linked.
LO4: List and describe types of operations processes according to SCOR.
LO5: Recognise the importance of customer demands in relation to
process and suppliers.
Operations management is the management of processes that convert
inputs (such as labour, materials and energy) into outputs (in the form of
goods and services).
Some key responsibilities of an operations manager include:
 Developing and maintaining the systems infrastructure
 Managing the system inputs and distribution of outputs.
 Controlling the material inputs within the system
 Managing the customer inputs within the system
 Managing the rate of flow through the system
 Assuring the quality of system outputs
 Designing and developing human work systems
 Developing and enhancing the system’s processes.
A process is a series of actions or steps taken in order to achieve a
particular outcome or objective. It includes anything one would do to turn
one situation into another through decisions or actions.
SIPOC Diagram – a model of the logistics chain.

Information flow: requirements and resources, demand and time-bound

planning.
Suppliers: providing resources and material to the operational process.
Inbound: resources and material in to the operational process
Process operation: the series of actions taken in order to achieve a
particular goal / objective
Outbound: the good(s) or services that is an output of the operational
process.
Customers: the end user or target of the operational process and total
chain.
Material flow: the physical activity of inputs and transformation to outputs,
end to end.
The SIPOC model has a focus on the operational elements of an
organisation in relation to suppliers and customers. The SCOR model
takes a wider view of the supply chain.
SCOR – Supply Chain Operations Reference Model.
SCOR was created by the non-profit Supply Chain Council and is a
framework that sets clear guidelines on the management of the key
processes in the supply chain – plan, source, make, deliver, and return.

Each separate company adopting these practices ensures that each link in
the network is equally strong.

The key elements for every company:

  Plan: the supply chain strategy which aligns requirements with the
resources available. Business and finance plans must be aligned and
communicated.
 Source: meeting demands with effective procurement of goods by
selecting suppliers, scheduling deliveries, and managing
inventories.
 Make: producing what is required by effective production
scheduling, manufacturing, testing, and packaging.
 Deliver: managing and fulfilling ordered and transporting goods to
the customer.
 Return: managing customer returns, repairs, disposal, or
replacement.
Customer demands are the specifications of the products that a supplier
needs to meet. These can reach far back into the supply chain.
The specification of the final product determines:
- The specifications of the processes to make and deliver that
product.
- The specifications of the inputs (materials, services) that must be
sourced to make the final products.
A supply chain is often a network of relationship between supplying and
purchasing companies. The demands of the final customer move
backwards into the supply chain (upstream) managing the information
flows, the goods movements, and the processes to come to the final
product determines the success of the supply chain.
Week 5: Manufacturing and Services
LO1: Describe the four Vs of operations management.
LO2: List and explain the key characteristics of manufacturing.
LO3: List and explain the key characteristics of services.
LO4: Explain the evolution of process types.
LO5: Recognise and describe the different operations management
requirements of manufacturing and services.
LO6: Discuss the role of ethics, sustainability, and CSR in operations
management.
Four Vs – the heart of operations management:
1. Volume – volume of output – how much?
2. Variety – variety of products – how many different types of products
in the standard range?
3. Variation – variation in demand – high and low, fluctuation or
constant demand.
4. Variability – variability in customization – how many customizable
options available?
The word manufacturing represents many different processes:
- To make into a product suitable for use.
- To make from raw materials by hand or by machinery.
- To produce according to an organized plan with division of labour.
- Prefabrication of a manufactured home.
- Invent, fabricate – manufacturing evidence.
- To produce something by manufacturing.
- Manufacturing / creating.
A service is a valuable action, deed, or effort performed to satisfy a need
or to fulfil a demand and, ultimately, deliver value to the customer in
order to then capture value from the customer.
Examples: hospitality, travel services, transportation services, healthcare
services, financial services, insurance, lawyers, accountants etc.
Manufacturing includes tangible products. The physical, durable output
that can be inventoried. Manufacturing entails low customer contact, a
long response time due to selling of large inventories, is capital intensive
and quality is easily measured.
Services do not physically exist but are directly experienced by the
customer. Each customer experience is unique and cannot be inventoried
or put into stock. Services are produced at the same time as they are
consumed.
Operations managers must manage service operations differently from
manufacturing operations.

The evolution of process types:

 The “Craft Era”
 The “Mass Production Era”
 The “Strategic Operations Era”
 The Fourth Industrial Revolution
3 key elements to decision making:
 Amount of customer contact.
 Level of variety in the product or service.
 The volume of the products produced.
Operations management requirements for manufacturing:

Manufacturing process types:

 Project – unique output.
 Job – highly customised and low volume.
 Batch – small variety in products and moderate volume.
 Line – repetitive work and high volume.
 Continuous – continuous, high volume and standardised work.
Operations management requirements for services:

Service process types:

 Professional service – highly customised and high customer contact.
 Service shop – slightly standard tasks and some customer contact.
 Mass service – standardised and routine tasks and little or no
customer contact.
Key elements of business ethics include:
 Morality
 Behaviour
 Principle
 Trust
 Responsibility
 Relationship
 Reliability
 Choice
Sustainability should lie between the environment, society, and economics
in any business practice.
CSR – Corporate Social Responsibilities – include the environment,
community development, human resources and the workplace.
Week 6: Process Improvement and Analysis
LO1: Explain the need for Process Analysis and Improvement.
LO2: List and describe the 6 steps of Process Analysis and Improvement.
LO3: List and describe 4 methods of Documenting a Process.
LO4: List 4 Data Gathering Techniques
Supply chains are often based on the lowest price for “getting the job
done”. Flexibility, speed, and dependability, however, have become
rapidly more important. Adapting supply chains may not only reduce risk
but also create opportunities for firms.
Why use Process Analysis and Improvement?
 Companies and whole industry sectors need to innovate and
improve to keep afloat.
 Enterprises that embrace regular and focused change tend to
survive.
 Continuous improvement in organisations has proven to better the
organisation.
 An innovative organisation finds new and better way of
outperforming its competition and achieving a competitive
advantage.
Steps to Process Analysis:
1. Identify an opportunity.
2. Define scope.
3. Document process.
4. Evaluate performance.
5. Redesign process.
6. Implement changes.
Identifying opportunities – an organisation may do this by paying
particular attention to 4 core processes: supplier relationships, new
services / product development, order fulfilment, and customer
relationship.
Defining scopes – establishing the boundaries of the chosen process to be
analysed. For example, the starting and ending points, the level of detail
needed, what needs to be involved, realistic and achievability, and the
required resource availability.
4 methods of describing the process:
  Value stream mapping – a visual process from start to finish,
created by team members, highlighting issues and opportunities
faced along the way.
 Flowcharts – a tool to trace the flow of information, customers,
equipment, and materials through the various steps of a process.
 Swim lane flowcharts – a visual representation that shows which
groups’ functional areas are responsible for different sub-processes,
split into lanes.
 Service blueprints – a special flowchart of a service process that
shows which steps have high customer contact.
4 Data Gathering Techniques:
 Time Study – Timing elements of a process, determining the sample
size, and setting a standard.
 Work Sampling Method – a technique that estimates the proportion
of time spent by people or machines on different activities based on
observations.
 Learning Curve Analysis – the relationship between processing time
and the cumulative quantity of a product of service produced.
 Process Charts – an organized way to document all the activities
performed by a person or group.
When evaluating performance, organisations compare metrics
documented against agreed standards and competitive priorities and look
for performance gaps.
Tools that may assist in this are:
 Checklists
 Histograms / Bar charts
 Pareto Charts – 20%/80% rule
 Root Cause Analysis
When redesigning the process, analysts, design teams, and people
directly involved in the process give ideas and inputs to make
improvements. 6 key questions to ask when doing this are:
 What is being done and why?
 When is it being done?
 Who is doing it?
 Where is it being done, and does it have to be done there?
 How is it being done, and can it be done in a better way?
 How well does it do on the various metrics of importance?
When implementing changes, ensuring that the new process has
leadership buy in, is communicated correctly, and involves all the people
affected by the changes is key.
Referring to John Kotter’s change model, organisations must ensure that:
  Management is involved from the start.
 Communication of changes is in a language all employees
understand.
 All employees are able to contribute to the changes.
 Obstacles to the changes are quickly removed.
 Results of the new changes are celebrated.

Week 7: Load and Capacity

LO1: Describe load and demand and understand the relationship between
both terms.
LO2: Define what is capacity and its different types.
LO3: Understand the differences between utilization and efficiency.
LO4: Understand the need for capacity management, and how to use it for
service processes.
LO5: Explain strategies to manage capacity according to load variations.
LO6: Recognize the need of demand management and how it can be
done.
LO7: Describe strategies to expand capacity.
Demand is the willingness and ability to purchase a commodity or service.
The quantity of a commodity or service wanted at a specified price and
time. The requirement of work or the expenditure of a resource.
Load is the quantity that can be carried at one time by a specified means.
Whatever is put in a ship or vehicle or airplane for conveyance. Load can
also be described as a burdensome or laborious responsibility.
What the customers demand creates load for a company. A company will
load its personal / machinery to fulfil customer’s demand.
Capacity is the maximum possible output in a given time. It is the amount
of goods a company can produce and / or services it can perform within a
certain period of time.
Types of capacity:
 Design capacity: the theoretical maximum capacity of an operation.
In general, design capacity cannot be exceeded.
 Effective capacity: the potential capacity that can be achieved in a
typical day. This includes preventive maintenance and product
changeovers.
  Achieved capacity: the operation achieved in a given day. This
includes unplanned events such as breakdowns and shortages.

Can capacity be exceeded?

Capacity can be exceeded, for example on a bus or train with standing
people. However, on a plane, it is not possible to have people standing or
add more seats. On a train, if capacity is exceeded significantly, the train
or train tracks may be damaged as the boundaries have been pushed too
far.
Utilization is the proportion of design capacity that is actually achieved =
Achieved capacity
Design capacity
Efficiency is the proportion of effective capacity that is actually achieved
Achieved capacity
=
Effective capacity
How do the four Vs (Variety, Variation, Volume and Variability) affect
capacity?
- Fixed location
- Infrastructure
- Simultaneity
- Unpredictability
- Service variety
Demand management:
 Operations with inflexible capacities.
 Mainly services like hotels and airlines.
 The objective is to optimize utilization and revenue.
 Mix of tools – relies heavily on statistics and historical data.
 Pricing for same service may be variable over time or markets.
Managing capacity in an ongoing business situation:
Level capacity examples – paper mills, steel facilities, aluminium facilities
etc. These are better for products as they can be stored.
Chase capacity examples – beach clubs, seasonal facilities etc.

When expanding the base capacity of an operation, like investing in extra

machines or opening another plant.
Capacity leading – expansionist ahead of the market.
Capacity lagging – wait and see and react when the market changes.
Week 8: Forecasting
LO1: Discuss the use of forecast in different contexts.
LO2: Understand the different demand patterns.
LO3: Describe alternative methods / techniques for forecasting demand.
LO4: Describe the forecasting as a process.
LO5: Understand how forecasting links to sales and operations.
Forecasts are:
 Critical inputs to business plans, annual plans, and budgets.
 Used by finance, marketing, sales, and HR.
 Can be specified to market segments, products, and services.
 Almost always wrong, but still useful.
 More accurate about a near term.
 More accurate at group level than at an individual level.
A time series is the repeated observation of demand for a service or
product in their order of occurrence. Five basic time series patterns are
horizontal, trend, seasonal, cyclical, and random.
Firms must decide what to do if they do have past data (how do they use
it?) or if they don’t have past data (what to do now?).
Forecasting techniques:
 Judgement methods – use contextual knowledge gained through
experience ex. expert panels, scenario planning, and the delphi
method. Generally has no / unreliable date.
  Causal methods.
 Time-series analysis – simple moving average, weighted moving
average, exponential smoothing.
 Trend projection using regression.
 Require an adequate history file, which might not be available.
Companies can also combine forecasting methods.

Connecting forecasting to operations:

Forecasting and planning

Marketing Sales Operations

Identifying needs Identifying solutions Delivering
solutions

Process of forecasting:
 Adjust history file.
 Prepare initial forecasts.
 Consensus meetings and collaboration
 Revise forecasts.
 Review by operating committee.
 Finalize and communicate.
 Restart cycle if needed.
CPFR – Collaborative planning, forecasting and replenishment. A nine-step
process for supply chain integration that allows a supplier and its
customers to collaborate on making the forecast by using the internet.
1. Front-end agreement.
2. Joint business plan.
3. Create sales forecast.
4. Identify exceptions.
 5. Resolve exceptions.
6. Create order forecast.
7. Identify exceptions.
8. Resolve exceptions.
9. Generate order.

Week 9: Planning and Scheduling

LO1: Describe what is meant by the objective and composition of a Sales
& Operations plan.
LO2: Differentiate between Material Requirement Planning (MRP),
Manufacturing Resource Planning (MRP2) and Enterprise Resource
Planning (ERP).
LO3: Explain the term Bill of Materials (BOM) and its use in operations
management.
LO4: List and describe scheduling and its different types.
LO5: Explain why scheduling is necessary for operations management.
LO6: Differentiate between planning and scheduling.
Plan – a set of decisions about how to do something in the future.
To plan – to think about and decided what you are going to do or how you
are going to do something.
The objective of Sales & Operations plan is to meet forecasted demand
while minimizing cost over planning period.
S%OP – establishes overall production, workforce, and inventory levels.
3 main factors in a Sales and Operations Plan – time, product, workforce.
Key players in a Sales and Operations Plan:
 Operations – current machine capacity and plans for future machine
capacity and workforce capacity and current staffing levels.
 Materials – supplier capabilities, material availability, and storage
capacity.
  Engineering – new products and designs, and machine standards.
 Marketing & Distribution – customer needs, demand forecasts and
competition behaviour.
 Accounting & Finance – cost data and financial condition of the firm.
 Human Resource – labour market conditions and training capacity.
Planning levels:
 Sales and Operations Plan
 Resource Planning
 Scheduling
Planning: S&OP -> Aggregate Plan -> Production Plan (Manufacturing
Firm)
-> Staff Plan (Service Firm)
Resource Planning for Materials – Materials Requirements Planning (MRP):
 Bill of Materials – ingredients for production.
 Master Production Schedule
 Finished Goods Inventory
Master Production Scheduling (MPS) determines when specific products
will be made, when specific customers orders will be filled, and what
products inventory are available to meet new demand.
Material Requirements Planning (MRP) calculates the timing and
quantities of material orders needed to support the mast schedule. This
relates only to material planning within the company.
Manufacturing Resource Planning (MRP2) is an extension of material
requirements planning to include finance, sales & marketing, and human
resource management – combining all required information for the
operation in one system. This involves various internal aspects of the
operation, including finance, sales, and material planning as well.
Enterprise Resource Planning (ERP) is an extension of business system
integration across different companies in the supply network. This
involves internal and external aspects of the operations, including finance,
sales, as well as suppliers and customers inputs.
Schedule – a list of planned activities or things to be done showing the
times or dates when they are intended to happen or be done.
To schedule – to arrange that an event or activity will happen at a
particular time.
Scheduling takes operations and scheduling process form planning to
execution and generates a work schedule for employees or sequences of
jobs or customers at workstations.
Scheduling requires gathering data from sources such as demand
forecasts, resource availability from the sales and operations plan, and
specific constraints from employee and customers.
Gantt charts – a bar chart that illustrates a project schedule.
Resource planning – personnel:
 Workforce utilization – overtime, undertime.
 Part-time workers
 Subcontractors
 Vacation schedules
Scheduling employees translates the staffing plan into specific schedules
of work for each employee.
Some constraints include:
 Technical constraints
 Legal and behavioural considerations
 Psychological needs of workers

Types of schedules:
 Rotating schedules – rotates employees through a series of
workdays and hours.
 Fixed schedule – a schedule that calls for each employee to work
the same days and hours each week.
Planning and scheduling is the process of making sure that demand and
supply plans are in balance, from the aggregate level to the short-term
scheduling level.
 Making sure that a company can produce / fulfil its demand by
making the best use of its machine and personnel.
Week 10: Inventory Management
LO1: Define Inventory.
LO2: List and describe 7 different inventory types.
LO3: List and describe the 4 costs of inventory.
LO4: Define Inventory Management.
LO5: Explain ABC inventory classification.
LO6: Define the Bullwhip effect.
Inventory is the quantifiable item that is stores and used in an operation
to satisfy a customer demand.
Types of inventories include:
 Raw materials – the essential ingredients, components, and
subassemblies that are needed to make a product.
 Works in progress – partially completed products.
 Finished goods inventory – complete products.
 Cycle inventory – the repeated ordering and depletion of regularly
used inventory in a ‘cycle.
 Buffer inventory – sometime also called ‘Safety Stock’.
  Anticipation inventory – inventory order in anticipation of a large
order or seasonal event.
 Pipeline inventory – also known as ‘inventory in transit’.
Dead stock is stock which has no realistic need. Sometimes, safety stock
becomes dead stock.
Factors of inventory decision making:
 Cost – buying in bulk can give cost advantages.
 Quality – having spare materials in case a lot is rejected due to
defective parts (continuity).
 Flexibility – having raw materials or finished goods in stock can help
with short term demands.
 Dependability – customers demand can always be accommodated.
 Speed – material throughput is easier with inventory always
available.
Inventory costs:
 Holding costs: physically storing, controlling, and handling costs
space and money.
 Ordering costs: calculating and actually making transactions costs
clerical and managerial time.
 Set-up costs: completing one product and starting another requires
time to prepare and ‘set up’.
 Shortage costs: running out of inventory can result in missed
deliveries, poor customer service, and penalty fines.
Inventory Management is the planning and controlling of inventories in
order to meet the competitive priorities of the operation. It will involve
activities – inside and outside company – to ensure the right quantity,
right quality, and type or delivered at the right place, at the right time,
and at the right cost.
ABC Analysis – Classification.

Class A: These are items of very high-cost relative to other items or those
with very high demand.
Class B: These are items that account for 25-30% of the total quantity and
are mid value.
Class C: The remaining 50-55% of total quantity but only 5-10% of total
value.
ABC Classification:
 Individual inventory items are known as SKUs (Stock Keeping Units).
 An organization may have thousands of SKUs and to effectively
manage them via an inventory management system (MRP), it is
important to classify them based on their value.
 By categorizing them by their value, organizations can prioritize
which inventory they control the most.
 ABC Classification is not only used for counting and storing in the
warehouse, but also used for ordering strategies.
Bullwhip effect – Customer -> Warehouse -> Distribution Centre -> Plant /
Supplier.

Week 11: Quality

LO1: Define quality.
LO2: Explain why quality is important is important to business.
LO3: Explain what the costs of quality are.
LO4: Describe Quality Management strategies and their purpose.
LO5: Explain the PDCA cycle.
Quality is:
 The standard of something as measured against other things of a
similar kind; the degree of excellence of something – ‘an
improvement in product quality’.
 General excellence of standard or level – ‘a masterpiece for
connoisseurs of quality’.
 A distinctive attribute or characteristics possessed by someone or
something – ‘he shows strong leadership qualities’.
Quality, in terms of Operations Management, is described as the totality of
features and characteristics of a product or service that bear on its ability
to satisfy a given need.
Quality relies on fitness for purpose and reliability to result in customer
satisfaction.
Insufficient quality means that the quality does not align with the features
and requirements of the product.
Costs of quality:
 Prevention - Costs associated with preventing defects:
- Employee training
- Developing standards
- Selecting suppliers
- Quality check
 Assurance – Costs associated with maintaining quality (paperwork):
- Audits
- Documentation
- Surveys
 Internal failure – Costs associated with defects internally (hasn’t
reached the customer yet):
- Rework
- Scrap
- Downtime
 External failure – Costs associated with defects externally (when a
defect reaches the customer):
- Warranty
- Poor word of mouth
- Loss of repeated business
Quality management strategies:
 Quality inspection – inspect product after production according to
quality standards.
 Quality control – control processes and outcomes during production
according to quality and process standards.
 Quality assurance – ensure errors and faults do not happen during
production.
 Total quality management
 Customer driven and holistic approach involving the entire
organization.
 Senior executives lead quality drive, communicate quality
messages, and define parameters.
 Employees are empowered to make decisions within the
parameters to address quality issues.
 Includes features of quality control and quality assurance.
  Continuous improvement
- Customer oriented
- Overall standardization, visibility, and control of processes.
- Effective leadership and communication with total employee
involvement.
- Waste reduction.
- Continuous and incremental changes to improve all aspects
of the operation.

PDCA cycle – Plan -> Do -> Check-> Act

Plan: Analyse current status, plan course of action, and identify problems.
Do: Experiment designs, test solutions, and train staff.
Check: Audit processes and monitor and study results of change.
Act: Standardize new processes, seek for further improvement, and take
corrective and preventive actions.
Week 12: Logistics
LO1: Explain the definition and purpose of logistics.
LO2: Describe logistics elements and their importance.
LO3: Explain the main goal of logistics and how it changed with time.
LO4: Explain the advantages and disadvantages of logistics as a service.
LO5: Define the relationship between logistics, sales and production.
LO6: Explain reverse logistics and its purpose.
The planning, execution and control of the movement and placement of
people and / or goods and of the supporting activities (…) to achieve
specific objectives. – Gleisner & Femerling
All activities concerning planning, execution and control of the movement
and placement of people and / or goods. Logistics includes information in
systems and documentation about the shipping and transportation itself,
but also about the business transaction, duties and taxes, and
responsibilities and liability.
7Rs of the purpose of logistics:
 Make sure the right product,
 Is available to the right customer,
 At the right place
 And right time
 On the right quantity
 With the right quality
 For the right cost.
Difference between the goals of logistics past vs present:
- Past: transportation and storage.
- Present: reduction of costs, increase in adaptability, and enhancing
value.
Elements of logistics:
 Core services: order processing, storage, transport.
 Additional services: information services, supplementary services.
3PL – third-party logistics is an organization’s long-term commitment of
outsourcing its distribution services to third-party logistics businesses.
3PL companies: Storage, picking, packaging, postage.
Advantages: flexibility, reduced costs, expertise, focus on core activities.
Disadvantages: loss of logistics control, dependence on service level,
product integrity, IT platforms incompatibility.

Sales and logistics: delivery time, delivery flexibility, readiness to deliver.

Incoterms – The Incoterms are globally standardized sets of trading terms
and conditions, designed to assist traders when goods are sold and
transported. Every contract that involves transportation should include an
agreed Incoterm code.
Incoterms record what seller and buyer agree to when it comes to who is
responsible for paying what cost element (transportation, insurance
premiums, customers clearance etc.) and are the basis for sorting out
things in case of trouble.
Reverse logistics: