Operations and Supply Chain Management: How do you make and deliver things in the most cost effective and efficient ways and also maintains the highest quality?
February 7, 2023
5 min read
Operations and Supply Chain Management (OSCM) is the heart of a business. It is the skill sets, tools and techniques of creating and delivering products and services. It’s all about systems of production and getting stuff to customers.
OSCM is the design, operation and continuous improvement of the systems that create and deliver what an enterprise is selling. OSCM is the series of steps and processes where inputs are transformed into the finished good and that good is delivered into the hands of the customer.
Optimizing the parameters of these systems requires trade-offs between performance measures such as low cost, high quality, and flexibility.
One strategy to outpace the competition and create competitive barriers is to rapidly scale. Rapid increases in scale and scope require the deployment of an effective OSCM strategy.
The Industrial Revolution was predicated on nascent ideas of OSCM. These ideas were put into practice as the divisions of labor, the assembly line, and analyzing productivity and efficiency.
Productivity and efficiency were brutal back in the day; like how many pins could an eight year old make in a typical 12-hour shift. We have tamed a lot of those issues through regulation and oversight, making a kinder, gentler work place. We no longer rely on slave labor or child labor. But labor issues are still a problem in some outsourced areas like factories in Bangladesh and enormous labor cities like FoxConn runs.
The goals of OSCM is to manage and reduce costs through increased productivity, cost reductions, sourcing and procuring, and increased efficiencies and effectiveness in the chains of logistics.
It also involves planning and estimating supply and demand, which is used to coordinate and orchestrate the relative quantities and levels of all these activities.
There are two key terms to define in relation to key performance indicators and the relevant business goals:
Efficiency: doing something at the lowest possible cost.
Effectiveness: doing the right things to create the most value for the company.
OCSM can be categorized into these five sequential steps: planning, sourcing, making, delivering, and returning.
Its not only about manufacturing. Distribution and inventory control are also area that can be optimized for strategic advantage.
OSCM is the set of strategic skills and tools that big retailers like Walmart have used to become successful. Walmart is the largest private employer in the US. For Walmart, leveraging economies of scope and scale in their supply chains is a key strategic element of their success. It is a strategy of ruthlessly optimizing OSCM. McDonald’s also has become hugely successful by applying OCSM to create inexpensive fast food of uniform quality.
Hot topics in the field are lean supply chains and sustainability, which increase the efficiency and environmental impact of supply chain processes.
Inventory controland the use of computational methods to optimize systems are another key element of OSCM. Measuring efficiencies such as how long it takes to make a product and measures of quality and defects are important concepts in continually improving OSCM processes. Methodologies like Six Sigma measure and aim to reduce the statistical likelihood of defects to minimal levels.
Computers and information systems are used to gather and codify these metrics. The managerial focus is placed on understanding the implications of the collected information and to how make good informed decisions based on it.
The constant evolution of information technologies has made it feasible and cost effective to capture information directly from the source through systems such as point-of-sale (POS), identification tagging, non-invasive testing for defects, bar code reading and image recognition.
Let’s break it down.
Operations refers to the process steps used to transform the resources employed by the company such as raw materials, labor, machines and scheduling, into products that are desired by customers. This is the world of manufacturing. It can be a physical or electronic product, or a service, or some combination of both.
Supply Chain refers to the processes that move information and material to and from the manufacturing or service and then on to customers. It also includes dealing with follow on support and returns.
Basically you don’t want to order too many supplies (or too little), build more than you can sell (or not enough and lose out on customers). You don’t want to be carrying too much inventory, which is costly and can become obsolete. You want just as much as you need, when you need it, and you want to turn your products around fast and out the door and into the hands of customers.
Digital products have streamlined things by eliminating some of these concerns. Digital downloads are available anytime and anywhere. You don’t need to get them into a physical store and display them for sale. Distribution issues evaporate. The same with inventory concerns. Each digital copy is relatively costless.
Physical products have many more concerns and vectors to optimize when it comes to OSCM.
There is a large body of work and expertise that has developed around OSCM since the 1980s when Toyota started employing these techniques throughout their manufacturing process. Toyota began holding their suppliers to higher standards and treating them like the strategic partners they are.
Networked computers have played an immense role in knitting together and coordinating these activities. There is emphasis now on the importance of being lean and green to ensure competitiveness. It is obviously critical to successfully manage the entire supply flow: from the sources and supplies, through the value-added processes you do in your business, and on to your customers and delivery. To do this well you need to know what tools and techniques have been developed and are available to you to implement in your own creative and strategic ways.
If you are going to be involved directly in making products or providing services you need to know how best to design, supply and run the processes. OSCM is a mix of managing people and applying technology. The goal is to efficiently create value and wealth by supplying quality goods and services. It’s the details that count.
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