Dr S G Deshmukh ABV-Indian Institute of Information Technology & Management

www.iiitm.ac.in

Trends of Research in Operations Management : A case of SCM

Presentation @FDP @iiitm GwlOn 27 July 2012

The business function responsible for planning,

coordinating, and controlling the resources

needed to produce products and services for a

company

Source: Operations Management. Dan Reid & Nada R. Sanders, Wiley, 2010, 4th Edition

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Operations Management

• A management function

• An organization’s core function

• In every organization whether Service or

Manufacturing, profit or Not for profit

SUPPLY CHAIN MANAGEMENT – an important

domain within OM !3

Operations Management

• Opening remarks• Track 1: Performance Measurement System • Track 2: Revenue Sharing • Track 3: Information security issues• Track 4 :Service Oriented Architecture• Closing remarks

Speaking points..

• Manufacturing as Services

Opening Remarks..

• Source:

• Cuthbertson R and Piotrowicz, 2011, Performance measurement systems in Supply chains: A framework fro contextual analysis, Int J of Productivity & Performance Measurement , 60(6),583-602

Research Track 1: Performance Measurement System

• As early as 1985 A T Kearney Consultants have identified a high correlation between superior performance & development /use of sophisticated assessment/measurement capabilities– Firms engaging such systems reported realized

improvements in productivity of 14 to 22 %

Performance Measurement System

What Is Performance Management?

It is a systematic process of Planning work and setting expectations Continually monitoring performance Developing the capacity to perform Periodically rating performance in a summary

fashion Rewarding good performance

Performance Management Cycle

Planning

Rewarding

Rating

Developing

Monitoring

• How well the organization is doing?

• Is the organization meeting its goals?

• Are the customers happy?

• Are the processes in control?

• If and where improvements are necessary?

Issues in performance measurement system

• Measuring the activity (volume) and the SC performance

• Setting goals and comparing the actual situation• Following a plan• Determining the levers that will help achieve

goals and single out the priority action programs• Revealing the degree of flexibility

Objectives of Metrics

Speed, reliability , and simplicity are the main criteria for efficient metrics

• Arranging indicators by priority• Segmenting the metrics• Visualizing the function content• Classifying objectives of the function or team• Selecting indicators that deal with quality• Formatting the metrics effectively

Principles of metrics design

• Independence• Appropriateness• Objectivity• Regularity

• Linkage with other indicators

• Coherence• Simplicity• Cumulative• Realistic

Characteristics of Effective Metrics

• Transparent

• Simple

• self-regulating

• Objective

• Motivating and stimulating to all stakeholders

Performance measurement system (PMS): Desirable Features

• PMS should have multiple criteria• Primary purpose should not be to reward or to punish• Performance-to-schedule measures must use group, not

individual results• Specific goals must be established and reviewed• PM must be understood by those whose performance is

being measured.• PM data must be available for constant review

Performance measurement system (PMS): Desirable Features (contd.)

• Measurements of multiple performance factors occur frequently at each stage in the supply chain

• Time and cost are key measures, but others are used as appropriate to the specific supply chain.

• All measures must relate to the ultimate supply

chain goals.

Quantitatively based performance management

• Cost { total cost, cost/unit, cost/sales, inbound freight, outbound freight, warehouse cost, admn, processing, direct labor etc.}

• Customer service {fill rate, stock-outs, shipping errors, on-time delivery, back-orders, cycle time, customer feedback}

• Productivity {units shipped/employee, units/labour Rs., orders per sales person, etc.}

• Asset Measurement {Inventory turns, Inv. Carry costs, obsolete Inv., ROI etc.}

• Quality {frequency of damage, Rs of damage, Customer returns, Cost of returned goods etc.}

Internal Performance Measurement

• Customer Perception Measurement

• Best Practices benchmarking– World Class Logistic- CLM– Logistics Excellence - Michigan State University

External Performance Measurement

• Framework 1: Function based measurement system• Framework 2: Dimensions based measurement

system• Framework 3: Hierarchical measurement system• Framework 4: Balanced scorecard system• Framework 5:SCOR model

Various frameworks for measurement

• Covers detailed performance measures applicable at different linkages of SC– Marketing, Operations, Finance etc.

Framework 1: Function based measurement system

• Any SC can be measured on three dimensions– SERVICE– ASSETS– SPEED

Framework 2: Dimensions based measurement system

Performance in the functional areas of

• Inbound Logistics

• Operations

• Outbound Logistics

• Marketing

• Service-after-sales

Framework 3:Hierarchical System

quality inventory customer service cost flexibility time, and productivity.

Framework 3:Hierarchical System : Indicators

cost structure of the warehouse operations (handling-in, storage, and handling-out)

total investment total cost of the warehouse total capacity concerning output volume costs warehouse operations per unit volume (m3 , ton) total number of trucks loaded/unloaded per worked time unit labor hours per unit of output volume ( m3, ton) labor costs per unit of output volume (m3, ton) labor costs as percentage of sales

Indicators: Outbound logistics

• Compare each of the metrics and compute the relative weightage for each

• Compare each of the links (inbound logistics, manufacturing etc.) on each of the metrics above and compare relative weightages .

• Compute the aggregate weight for the links.• Rank the links on the basis of weights arrived• Devise an action plan to improve the performance of

weakest/weaker links in the supply chain.• Monitor the performance and repeat steps above on a continual

basis.

Hierarchical System :Procedure

• Various perspectives such as the following should be Balanced!– Financial– Innovation & learning– Customer service– Internal business

Balance scorecard balances and links financial and non-financial indicators, tangible and intangible measures, internal and external aspects, performance drivers and outcomes.

Framework 4: Balanced scorecard

The Supply-Chain Council (SCC) has developed and endorsed the Supply Chain Operations Reference-model (SCOR) as the cross-industry standard for supply chain management

The SCC was organized in 1996 by 69 voluntary member companies and the European Chapter was started in 1998.

www.supply-chain.orgwww.supply-chain.org

Framework 5:SCOR model

Plan

DeliverMakeSource DeliverMakeSourceDeliver Source

Supplier(Internal or External)

Your Company Customer(Internal or External)

ReturnReturnReturn

Customer’sCustomer

Supplier’sSupplier

Source Make Deliver

ReturnReturn Return

ReturnReturn

SCOR Model SCOR Model

Processes Best Practices Metrics Technology

Building Block Approach

SCOR Framework

Demand Chain

Supply Chain

• Performance measurement system and its linkages with strategy ?

• Behavioral issues related to performance measurement system?

• Development of Multi-criteria decision making framework ?

• Role of information system in measurement?• Benchmarking and performance measurement

system?

Performance Measurement: Research Issues ..1..

• What to benchmark and how?• Industry/sector specific measures?• Revenue /Profit/Cost sharing ?

Performance Measurement: Research Issues ..2..

• Source: Arshinder, Kanda Arun and Deshmukh, S G,2008, Supply Chain Coordination: Perspectives, Empirical Studies and Research Directions, International J of Production Economics, 115(2), 316-335

Track 2: Revenue Sharing Contracts

• It increases the total supply chain profits• It involves in risk sharing among supply chain

partners• It may be possible with supply chain contracts

that a member achieves more profits than he would do without contracts

• Hence, result in win-win situation for both supplier and his buyer

Objective of Supply Chain Contracts

Revenue sharing model parameters

Supplierc

Buyer

q

ω, Φpd

Where,c is the marginal unit cost of supplierω is a wholesale unit price charged by the supplier to the buyerp is the selling price of buyer per unitΦ is the fraction of supply chain revenue that the buyer keeps and (1- Φ) is the fraction the supplier earnsq is the buyer’s order quantity

• The buyer orders single product• The demand is uncertain with probability

distribution function fd(d) in a single selling period

• The wholesale price is less than the unit marginal cost (ω < c)

Assumptions

• To determine the total supply chain profits• To determine the optimal order quantities

to achieve the optimal supply chain profits

Objectives of revenue sharing contracts

• Most models in the form of network of “newsboy’ problem. There is still room for simple yet imaginative models exploring other inventory concepts

• Time evolution of decisions not fully explored• Use of Game theoretic frameworks: Static games built in s

Markov decision process• More complicated demand and supply structures (correlation,

advance information, disruptions etc.)• Information availability • More sophisticated Supply Chain structures• Implementation issues

Research Issues

• Source: • Arup Roy, 2012, Management of Information

Security in Supply Chains- A Process Framework, Presented at 42nd Intentional Con. On Computers in Industrial Engg, Cape town, S Africa, July 16-18

Track 3: Management of Information Security in Supply Chains

What is Information Security?

Information“Information is an asset that, like other

important business assets, is essential to an organization's business and consequently needs to be suitably protected”

Information Security“Preservation of confidentiality, integrity andavailability of information”

(Reference: ISO 27000)

Security in Supply Chains

“The application of policies, procedures, and technology to protect supply chain

assets (product, facilities, equipment, information, and personnel) from theft,

damage, or terrorism and to prevent the introduction of unauthorized contraband,

people or weapons of mass destruction into the supply chain”.

– Closs & McGarrell (2004)

There are 2 aspects:• Soft aspect – Intangible vulnerabilities such as information theft• Hard aspect – Tangible vulnerabilities such as physical theft / physical damages / terrorism

Information Security – one of the soft aspects

Hard aspects influence the soft aspects

Why do we need Information Security?

• Measure and mitigate risk related to information assets.

Key motivator –

• Management of business and financial risk

• Reduction of threat to both reputation and customers

.

• Ensure compliance to regulatory/ legislative/ contractual

requirements.

Summary of concerns

• Information leakage & misappropriation in supply chain networks, which can

lead to:

• Demand imperative overriding information imperative

• Product & service deliveries may not be optimal

• Firms may lose their competitive edge

• Vulnerabilities in IT infrastructure may not be adequately controlled

• Information reliability and consequently knowledge generation may be

compromised

• Human security requirements may be overlooked

What is a Process Framework?

• Formal description of processes in a company

• Formally existing / ad-hoc / need to be developed

• KPIs defined to “measure” the process, with industry benchmarks

• Improvements based on the KPI s achieved

• Methodologies – used to actually improve the process

Why do we need a Process Framework?

To enable organizations develop and maintain consistent business practices

• Helps in managing a company's key processes and roles & responsibilities

• Aligns processes and performance improvement with corporate strategy

• Can be implemented at any level of an organization

Research Propositions• Identify weaknesses related to information

security in supply chain processes

• Analyze information security related risks

• Study relationship between supply chain

performance metrics and information security

• Source:Giannakis M, 2011, Management of service supply chains with service-oriented reference : A case of management consulting, Supply Chain Management: An international Journal, 16(5), 346-361

Track 4: Service Oriented Architecture

Integration ◦ Providing the linkage between people, processes, and data

Open ◦ Supporting a strong commitment to standards for OS, Language and Web

Services/SOA

Virtualized ◦ Providing a flexible Build-time and Runtime environment for developing and

running applications across a highly distributed IT architecture

Autonomic ◦ Self regulating … self healing … self maintaining

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Four Characteristics of On Demand

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SOA: Service Oriented Architecture• An approach for building distributed systems that allows tight

correlation between the business model and the IT implementation.

• Characteristics:◦ Represents business function as a service◦ Shifts focus to application assembly rather than implementation

details◦ Allows individual software assets to become building blocks that

can be reused in developing composite applications representing business processes

◦ Leverages open standards to represent software assets

What is a service? A coarse grained, self-contained entity that performs a distinct business

function

What is a service description? A standards based interface definition that is independent of the

underlying implementation

How do services interact? Through loosely-coupled, intermediated connections

How are SOA solutions created and enhanced? Using tools and middleware according to SOA principles

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SOA Concepts

Build –Model Driven Architecture◦ A style of enterprise application development and integration based on

using automated tools to build system independent models and transform them into efficient implementations1

Run –Service Oriented Architecture◦ An approach for designing and implementing distributed systems that

allows a tight correlation between the business model and the IT implementation

Manage –Business Performance Management◦ An approach to systems management that tightly links IT concerns with

business process concerns

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Three Key Concepts for the Foundation for On Demand

• How to define service standards?• What is the role of technology in SOA?• How to align business strategy with SOA?• Issues related to flexibility ?

Research Issues

• Supply chain management: an opportunity for seamless integration

• Research issues involving a variety of domains : performance measurement, modeling, security, on-demand business

• Borrowing terminology & frameworks from IT !• Research : interdisciplinary !

Concluding remarks..

• www.researchgate.net• http://www.emeraldinsight.com/research/ind

ex.htm• http://www.emeraldinsight.com/research/co

nnections/index.htm

Useful web linkages

Thank you

deshmukh.sg@gmail.com

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