MANAGEMENT

Study guide

CHAPTER ONE
OPERATIONS AND SUPPLY CHAIN MANAGEMENT (OSCM):
Broad area that covers both manufacturing and service
industries, involves sourcing, materials management,
logistics, distribution, retailing, fulfilling, etc.
SUPPLY CHAIN:
Set of three or more organizations linked together by the
upstream or downstream flows of products, services, or
information from source to customer.
*It is obviously important that organizations keep track of the companies that are
involved in their supply chain with so if a problem ever appears they will be able to find
and solve it easily.

MANAGEMENT ACTIVITIES:
- Purchasing
- Inbound/Outbound transportation
- Shipping
- Warehousing
- Materials and inventory control
- Order processing
- Supply planning
- Customer Service

OPERATIONS MANAGERS: control more than 70 percent of

the organizational resources -people, money, materials,
buildings- used in manufacturing and services.
FOUR PILLARS FOR PURCHASING AND SUPPLY CHAIN EXCELLENCE

Measurement Information
Technology

Organizational Human
Design Resources

*Operations management oversees making sure that inputs turn into outputs.
*Successful operation managers need info about different areas, like marketing, human
resources, finances, etc.

PRODUCTIVITY: Measures how well resources are used.

Measures how well inputs are transformed into outputs.
FORMULA OF PRODUCTIVITY: outputs/inputs
*Total productivity takes in all measures, like machinery, labor, and capital.

CHAPTER TWO
PURCHASING PROCESS: process used to identify user
requirements, evaluate the need effectively and
efficiently, identify suppliers, ensure payment occurs
promptly, ascertain that the need was effectively met,
and drive continuous improvement.
PURCHASE REQUISITION: The most common method of
informing the need of a material
RECEIVING DISCREPANCY REPORT: reports any discrepancies
in the shipping or receiving process by the departments.
 PURCHASING
OBJECTIVES RESPONSIBILITIES
1. Supply continuity 1. Evaluate and select
2. Manage the purchasing suppliers
process efficiently and 2. Review specifications
effectively 3. Determine the method of
3. Develop supply base awarding purchasing
management contracts
4. Develop aligned goals 4. Act as a primary contact
with internal functional with suppliers
stakeholders
5. Support organizational
goals

*It is a responsibility of the purchasing department to lead and coordinate negotiations

with suppliers.

CAPITAL EQUIPMENT: involves buying assets that will last

for over a year.
Online Requisitioning System from Users to Purchasing:
System designed to save time through efficient and rapid
communication. (Internal Systems)
PROCUREMENT CARD: credit card provided to all the
internal customers.
KEY BENEFIT OF ELECTRONICAL CATALOGUES: shorter cycle
time, low cost, lowers ordering costs.
CHAPTER THREE
CAPACITY: Amount of output that a system can achieve
over a period of time.
BEST OPERATIONS LEVEL: Level of capacity for which the
process was designed and is the volume of output at
which average unit cost is minimized. -el maximo, el mas
chido-
CAPACITY UTILIZATION RATE: Measure of how close the
firms actual output rate is to its best operation level.
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑈𝑠𝑒𝑑
𝐶𝐴𝑃𝐴𝐶𝐼𝑇𝑌 𝑈𝑇𝐼𝐿𝐼𝑍𝐴𝑇𝐼𝑂𝑁 𝑅𝐴𝑇𝐸 =
𝐵𝑒𝑠𝑡 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 𝐿𝑒𝑣𝑒𝑙

ECONOMIES OF SCALE: The Idea that as the plant gets

larger and volume increases, the average cost per unit
drops. The plant gets too large and cost per unit increases.
ECONOMIES OF SCOPE: The production of one good reduces
the cost of another similar related good.
CAPACITY PLANNING: Balances the available hours of the
team vs what the project needs.
*Planning is how one orders the schedules, so things are done in time.
*Capacity in this case is the maximum work that can be done over a period.
CAPACITY PLANNING RESOURCE PLANNING
Determines if the organization has Coordinates & allocates resources to
enough resources acc. to skill sets. projects based on req. skills
Looks at availability of resources. Resources planned to be used 4
About supply and demand. projects.
People resource utilization.
CAPACITY CUSHION: amount of capacity in excess of
expected demand. If it does not have enough capacity,
then it is a negative capacity cushion.
DECISION TREE: schematic model of the steps to solve a
problem and the conditions and consequences of each
step. Are composed with decision nodes that have
branches in each one that show possible choices. They also
show probabilities of happening. Shows a clear pathway to
a decision.
- cons of decision tree: overfitting and maybe too complex, not suitable for problems
with lots of variables, calculations may become complicated when there are too
many variables.

*When using a decision tree, you work backwards from top to bottom.
SERVICE CAPACITY: volume that a service can handle
while keeping its quality. Ex. Calls per minute, tickets per
hour, data storage.
MANUFACTURING: production of goods through the use
of labor, machines, tools and chemical or biological
processing.
CAPACITY UTILIZATION: metric used to calculate the
rate at which the expected levels of output are met.
CHAPTER FOUR
INTERNAL INTEGRATION: process of joining groups
either physically or virtually, formally, or informally, in a
business-related purpose.
*PURCHASING COMMUNICATION FLOW in linkages charts shows quality assurance,
legal and environmental safety, marketing, supplies, etc.
*Pursuing closer relationships to suppliers helps with trust and long-term
contracts.

TRUST: belief in the character, ability, strength, and

truthfulness of another party.
LONG-TERM CONTRACT: a contract of more than five
years in duration. Provides an intent to suppliers to invest
in new plants and equipment. Leads to the joint
development of technology and risk sharing.
CHARACTERISTICS OF BUYER SELLER
RELATIONSHIPS TRADITIONAL APPROACH:
1. Suppliers: Multiple sources played off against each other.
2. Cost sharing: Buyer takes all cost savings, supplier hides.
3. Joint improvement efforts: Little or none.
4. Dispute resolution: Buyer unilaterally solves them.
5. Communication: Minimal
6. Marketplace adjustments: Buyer determines response to
changing conditions.
7. Quality: Buyer inspects at receipt.
CHARACTERISTICS OF BUYER SELLER
RELATIONSHIPS MODERN APPROACH:
1. Suppliers: One of a few preferred suppliers for each
major item.
2. Cost sharing: win-win.
3. Joint improvement efforts: Mutual interdependence
4. Dispute resolution: Conflict resolution systems
5. Communication: Open and complete sharing of info.
6. Marketplace adjustments: Buyer and seller work together
to adapt to new conditions.
7. Quality: Designed into the product.
OBSTACLES OF BUYER SELLER RELATIONSHIPS: confidentiality,
limited interests by suppliers, legal barriers, and resistance to
change.
CROSS-FUNCTIONAL TEAMS: personnel from different areas of
the company and also suppliers joint to achieve supply
management or supply chain related tasks.
BENEFITS OF CROSS FUNCTIONAL TEAMS:
1. Reduced time to complete task.
2. Innovation
3. Joint ownership of decisions
4. Communication between functions or areas of company
5. Synergies
6. Resolution of problems.
RELATIONSHIP CAPITAL: professionals’ ability to transform
supply market data into compelling insights for solving
problems and enable organizational connections and networking
to accelerate business success.
PROCESS LOSS: when a team does not complete the task in its
best and most efficient manner and are not motivated to get
the best possible outcome.
GROUPTHINK: tendency of a rational group to arrive at a bad
decision when other information is available.
SOURCING TEAM: a cross-functional team tasked with the
development and implementation of the sourcing strategy. Vets
suppliers and negotiates contracts with them for the supplies
the organization needs.
SIX QUESTIONS FOR ISSUES OF SOURCING TEAMS
PERFORMANCE
1. Does our organization consider cross functional team
planning issues when establishing sourcing teams?
2. Does executive management practice subtle control
over sourcing teams?
3. Does our organization reward team member
participation?
4. Do we have the right members selected as the
sourcing team leader?
5. Does our sourcing team effectively establish
performance goals?
6. Are key suppliers part of the sourcing team process?
STEPS TO FORM A CROSS FUNCTIONAL TEAM:
1. Selecting a task to be performed
2. Selecting the members
3. Training requirements
4. Resource support
MEANINGFUL TASK: Is one that requires members to use a
variety of higher-level skills, supports giving members
regular feedback about performance, results in an
outcome with a significant effect on the organization.

SUPPLY MANAGEMENT: plays a key role in the delivery of

new products and services.
TEAM APPROACH: Allows the company to know what it
needs earlier so it can get identify most capable suppliers.
WHITE BOX DESIGN: supplier is given blueprints and is
ordered to make a product from them.
GRAY BOX DESIGN: Suppliers engineers work with the
buying company engineers to create the product
BLACK BOX DESIGN: Suppliers are given functional
specifications and are asked to complete the technical
ones including blueprints.
*One of supply managements responsibility is to provide information to suppliers involved
in a new product development project.
*Supply management and engineering must work closely because they must check if the
product will be convenient, they must determine whether there is a common convergence
in technology strategies with the supplier.
BENEFITS THAT SUPPLIERS CAN PROVIDE ARE lower costs, improved delivery, lower
inventory, and problem-solving capabilities.
Teams that include suppliers as participants report positive outcomes
and great supplier contributions across many performance areas:
- Providing cost reduction ideas
- Providing quality improvement ideas
- Supporting actions to improve material delivery
- Offering process technology suggestions
- Supporting material-ordering cycle time reductions
There are a number of purchase categories where an on-site supplier
representative can be used:
- Waste management
- Printing services
- Spare parts inventory and other MRO items
- Computer equipment and software
- Office furniture
- Uniforms and protective equipment
- Process control equipment
- Production parts
- Transportation services
- Production maintenance
CHAPTER FIVE
PURPOSES OF A FORMAL ORGANIZATIONAL STRUCTURE:
It shows the assignment of work along with the authority
that accompanies those responsibilities, helps defining
how a firm communicates and integrates decision making
across the groups comprising the organization -
coordination-
FACTORS THAT AFFECT THE PURCHASING POSITION IN
THE ORGANIZATIONAL HIERARCHY: history, type of
industry and total value of goods and services.
*Purchasing is gaining more visibility in the corporate hierarchy.

TO WHOM DOES PURCHASING REPORT? To the ceo

*The higher that purchasing is in the corporate structure, the greater the role it plays in
supporting organizational objectives.

SPECIALIZED PURCHASING ACTIVITIES:

- Sourcing and negotiating: identifies and negotiates with
potential suppliers
- Purchasing research: long range material forecasts, analysis.
- Operational Support and order Follow Up: day to day
operations.
- Administration and support: develop policies that personnel
must follow.
PURCHASING DEPARTMENT ACTIVITIES:
- Buying
- Expediting
- Inventory Control
- Transportation
- Countertrade agreements
- Insourcing and outsourcing
- Value Analysis
 - Purchasing Research
- Supply management
- Other
SUPPLY MANAGEMENT: Involves purchasing, engineering, supplier
quality assurance, the supplier, and other related functions working
together to further mutual goals.
PURCHASING AUTHORITY STRUCTURES:
- Centralized: Supply executive at corporate hq has the authority
- Decentralized: Purchasing authority is at divisional business level.
- Hybrid: Combination of both.
Factors Influencing Centralized/Centrally Led or
Decentralized Structures:
1. Similarity of purchases
2. Firms’ overall business strategy
3. Total Purchase dollar expenditures
4. Overall philosophy of management.
PROS OF CENTRALIZED:
1. Coordinate purchasing plans
2. Reduce duplication of purchasing effort
3. Coorfinate companywude systems
4. Develop expertise
PROS OF DECENTRALIZED:
1. Reduces burden of top executives
2. Diversification
3. Motivation
4. Better control
5. Quick decision making
6. Understanding unique operational requirements
7. Product development support
SPEED AND RESPONSIVENESS: ability to respond quickly to user
and customer.
OWNERSHIP: local personnel feel personally committed to the
objectives of the business unit
GLOBAL BUYING COMMITTEES: When a key commodity is
purchased by many major business units, a joint global strategy is
beneficial.
CORPORATE PURCHASING COUNCILS: A group of buyers who
purchase similar items at various facilities.
CORPORATE STEERING COMMITTEES: Meet periodically and
discuss strategies on the company’s major purchased commodities.
SUPPLY CHAIN MANAGEMENT: process of integrating the supply
and demand management, not only within the organization, but also
across all the various members and channels in the supply chain so
they work together most efficiently and effectively.
*The trend today is to move away from a vertical focus, where work and information are
managed up and down within functional groups, toward a horizontal focus, where work
and information are managed across groups and between organizations.
*Horizontal eliminates hierearchy.

CHAPTER SIX
INCREASE REVENUES: raising prices or keeping them but selling
more items.
INTEGRATIVE STRATEGY DEVELOPMENT: aligning supply
management goals with corporate objectives.
CORPORATE STRATEGIES: concerned with the definition of
businesses in which the corporation wishes to participate and the
acquisition and allocation of resources to these business units.
BUSINESS UNIT STRATEGIES: concerned with the scope or
boundaries of each business and the links with corporate strategy.
COMMODITY STRATEGIES: how a group tasked with developing
the strategy for the specific commodity being purchased will achieve
goals that in turn will support the supply management
CATEGORY STRATEGY DEVELOPMENT: A decision process used
to identify which suppliers should provide a group of products or
services, the form of the contract, the performance measures used to
measure supplier performance, and the appropriate level of price,
quality, and delivery arrangements that should be negotiated.
STEPS OF STRATEGIC SOURCING PROCESS: Build the team,
market research, strategy development, contract negotiation and
supplier relationship management.
SUPPLY BASE OPTIMIZATION: determining the appropriate
number and mix of suppliers to maintain, also referred to as
rightsizing.
LONG TERM SUPPLIER RELATIONSHIP: selection of and
continuous involvement with suppliers viewed as critical over an
extended period of time.
COST OWNERSHIP: identifying cost considerations beyond unit
price, transport, and tooling.
PRIMARY ROLE OF SUPPLY MANEGEMENT MANAGERS:
ensure that enough supply capacity exists.
PURPOSE OF GLOBAL SOURCING: provide immediate and
dramatic improvements in cost and quality as determined through the
commodity* research process.
*A commodity is a basic good used in commerce that is interchangeable with other goods
of the same type. Ex. gold, oil, natural gas.

Early Supplier Design Involvement: Early supplier design

involvement and selection requires key suppliers to participate at the
concept or predesign stage of new-product development.
Supplier Development: Working directly with the supplier to
facilitate improvement in a designated function or area.
Global Sourcing: Entire world is a source for components, goods,
and services.
Supply Risk Management: Identifying, assessing, and mitigating
the risks inside of a supply chain.
E-REVERSE AUCTIONS: bring buyers and sellers together to expose
prices on a dynamic and real-time basis. A reverse auction involves
suppliers bidding on a clearly specified buyer requirement.
Evolving Sourcing Strategies:
1. Basic beginnings: focuses on supply base optimization, and more
attention is paid to total quality management.
2. Moderate development: buyers may begin to establish better
relationships with critical suppliers while continuing to optimize the
supply base.
3. Limited integration: supply management strategies are established
and integrated early into the product and process design stage
4. Fully integrated supply chains: supply management has assumed a
strategic orientation.
CHAPTER SEVEN
Supplier Evaluation: evaluate and approve their current and
potential suppliers through a series of evaluations ex. forms or
formats.
HOW TO MAKE THE SELECTION OF SUPPLIERS
1. Search of suppliers: search and collection of
information about the providers.
2. Selection criteria: companies must have selection
criteria to make the choice easier.
3. Supplier evaluation according to criteria: Final filter.
4. Selection of suppliers: self-explanatory, after the
evaluation.
5. Feedback: keep in track the performance of the
suppliers. Give feedback on selected and non-selected
providers.
KEY SUPPLIER EVALUATION CRITERIA
 1. Cost or price
2. Quality
3. Delivery
Management Capability: Buyer must evaluate suppliers
management capability by asking key questions.
Employee capability: Evaluate employee skills and willingness
gathering information to meet the buyer’s expectations.
Cost structure: To evaluate the cost, understand
Manufacturing Process operating costs, general overhead costs,
direct labor costs, and material costs.
E-Commerce Capability: Ability to communicate electronically
between buyer and seller.
Total Quality: safety, training, facilities, and equipment
maintenance.
Process and Technological Capability: technological and
equipment manners used to develop a product or provide a
service.
Environmental Regulation: Disclosure of Environmental
infractions, Toxic waste management, Recycling management,
Control of ozone-depleting substances
Financial Stability: Assessment of a supplier financial
stability.
Production Scheduling and Control Systems: Includes
systems that release, schedule, and control a supplier’s
production process.
Supplier evaluation often follows a rigorous, structured approach
using formal surveys.
Surveys should be:
- Comprehensive
- Objective
- Reliable measurement scales
- Mathematically straightforward
- Flexibility
CRITICAL ISSUES
Size Relationship: A purchaser may decide to select suppliers
over which it has a relative size advantage.
International Suppliers: Generally, more complex than
domestic. Overall way more complex.
Competitors as suppliers: The purchase transaction is usually
straightforward, and the buyer and seller may not develop a
working relationship with trust.
Countertrade requirements: extensive worldwide marketing
may have to contend with countertrade requirements before it
can sell to international customers.
*Countertrade is a broad term that refers to all trade where buyer and seller have at
least a partial exchange of goods for goods.

TOOLS AND APPROACHES TO REDUCE A SUPPLIER EVALUATION

AND SELECTION TIME
* Supply managers should measure process cycle times to identify rates of improvement
against pre-established performance targets.

Integrate with Internal Customers: The need to anticipate

rather than react to supplier evaluation and selection decisions
requires closer involvement with internal customers.
Data Warehouse: Can include information about potential
supplier information, performance history of current suppliers,
and info that may make the process faster.
*Third Party Support: An example is Dun & Bradstreet, which provides financial ratio
data, the business background of supplier management, payment trends, and an overall
supplier risk score.

New organizational design features: Commodity teams,

which are responsible for understanding in depth entire families
or groups of purchased goods and services.
Preferred supplier list: Many firms create a list of their
highest-performing suppliers. The cool list :)
Predefined Contract language and shorter contacts: legal
area works with supply managers to create predefined contract
languages that can be pasted during supplier negotiation. Also,
there are efforts to make contacts shorter.
Electronic Tools: E-Learning Scorecard, Special Edition, RFP 2.0,
Decision Analysis, SPEX evaluation.
- E-Learning Scorecard is a tool to use during first-time
visits with suppliers to make a quick “yes or no” decision.
- Special Edition is a microsite developed by Northern Light
Technology, this tool provides current news and
information.
- RFP Version 2.0 is a web-based software package that
enables companies to develop customized online supplier
surveys and proposal requests.
- Decision Analysis is a widely used supplier evaluation and
selection process that uses a weighted-point system.
- SPEX evaluation kits use a four-step process that consists
of industry analysis and project formalization.