Trends in Operation Management

INTRODUCTION
Operations management is an area of business that is concerned with the production of good quality goods and services, and involves the responsibility of ensuring that business operations are efficient and effective. It is the management of resources, the distribution of goods and services to customers, and the analysis of queue systems. The Association for Operations Management also defines operations management as "the field of study that focuses on the effectively planning, scheduling, use, and control of a manufacturing or service organization through the study of concepts from design engineering, industrial engineering, management information systems, quality management, production management, inventory management, accounting, and other functions as they affect the organization" The Operations Management Body of Knowledge (OMBOK) Framework defines the scope of operations management and the activities and techniques that are a part of the operations management profession. Operations also refer to the production of goods and services, the set of valueadded activities that transform inputs into many outputs. Fundamentally, these valueadding creative activities should be aligned with market opportunity for optimal enterprise performance. Operations Management is the function of managing the operating core of an organization: the activities associated with creation, production, distribution and delivery of the organizations goods and services.

Trends in Operation Management

IMPORTANCE OF OPERATIONS MANAGEMENT

Operation management is a critical component of the successful management of a business. Operations management is the management of productive resources that are used to create salable products or services. It is that sale of products and services that provide an opportunity for profitability. The Profit Model was introduced as an organizing framework of operations concepts. The model provides three primary elements. 1. Foundations for success - It consists of value, strategy and value, and processes. This connection is critical because finance exists in the environment of operations management decisions. Profitability is a measure of the productivity of money invested in a business, typically a ratio of net income to some input as net sales or total assets. The goal of any investor is to find an investment that will create value for the owner. 2. Components of value - It consists of cost, quality and timeliness. Cost is an expenses associated with ownership. Quality is a meeting customer expectation and timeliness is the speed at which a business completes tasks and the degree to which it completes tasks on schedule and as promotion. 3. Managing resources used to create value - It consists of demand forecasting, followed by inventory, logistic, capacity, facilities, and workforce. These resource management topics are enhanced by three integrative frameworks, supply chain management, lean systems, and constraint management. Integrative management framework is a management approach or philosophy that guides day-to-day decisions in a way that is consistent with a firm's profitability goals. Lean systems is a productive system that functions with little waste or excess, usually with low inventory levels. Constraints management is a framework for managing the constraints of a system in a way that maximizes the system's accomplishment of its goals.

Trends in Operation Management An overview of the Profit Model shows that profitability results from the creation of value and a strategy for maintaining a link to the customers who define it. The creation of value at a level that exceeds the cost of creating it provides the potential for profitability. Operations management has responded to and will continue to respond to four dominant environmental forces, competition resulting from the globalization of business, increasing levels of communication and competition brought about by the internet and other disruptive technologies, the impact of the natural environment, and regional pressures that have varying impacts on business decisions. Two business outputs, where is products and services, are critical to the management of operations resources. Effective operations management must acknowledge the differences and similarities of those environments. Two different types of customer must be recognized because of the differences in their expectations and needs.

COMPETITIVE PRIORITIES IN OPERATIONS MANAGEMENT

The important dimensions of each of the four competitive priorities are discussed below: 1. Cost importance. Although all manufacturers are concerned to some degree with cost, most do not compete solely or even primarily on this basis. Manufacturing cost-related categories include (direct) production costs, productivity, capacity utilization, and inventory reduction. Individual survey items measure the importance that respondents place on each of these cost categories. 2. Quality importance. Engineering, marketing, and manufacturing functions have often been portrayed as possessing different definitions of quality. Garvin (1987) clarified the different points of view by suggesting an eight-dimensional framework: performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality. Manufacturing's traditional observance of quality control reflects a focus on the conformance dimension of quality. Each of the other dimensions also represent possible 3

Trends in Operation Management bases of competition, but these other dimensions require more inter-functional coordination among manufacturing, marketing, and research and development/engineering than does achieving conformance quality. The importance to responding firms of the first six of Garvin's quality dimensions are addressed by items in the survey. The last two dimensions, aesthetics and perceived quality, are omitted because they are inherently difficult to measure and are more removed from the knowledge base of the responding manufacturing executives. 3. Delivery time importance. On-time delivery is the ability to deliver according to a promised schedule. Here, the business unit may not have the least costly nor the highest quality product, but is able to compete on the basis of reliably delivering products when promised, even if the promise date is far in the future. For some customers delivery reliability is not enough; delivery speed is also necessary to win the order. Individual survey items measure the importance that respondents place on each of these delivery-time categories. 4. Flexibility importance. In a conceptual study, Gerwin (1993) developed seven dimensions of flexibility. Individual survey items measure the importance of the first four of Gerwin's dimensions of flexibility: product mix, volume, changeover, and modification.

Environmental management and operations management

Deepening concerns about climate change, local and regional impacts on air, ground and water pollution, and perceptions of increased risk to health and safety of community residents from industrial activities have led to a significant increase in interest in research at the intersection of environmental management and operations. The reasons are both economic and political. On the political side, increasing public pressure has focused on reducing the environmental impacts of industrial operations, with many new laws and regulations which have resulted in setting standards and penalties for noncompliance for environmentally intensive industrial operations. Economically, the stakes 4

Trends in Operation Management are very large in both required capital investment as well as in changes in operating policies and management systems. The research challenges are significant and have captured the interest of operations management scholars and practitioners around the globe. A wide variety of research is being conducted on environmental management within the operations management community. Foremost among these are the use of internet technologies to improve shared knowledge about industrial impacts on the environment, globalization of supply chain and sourcing activities, and the continuing advancement of the science of risk analysis. In all these areas, the key challenge will be to link individual actors, be they government agencies, companies or households, to a science-based assessment of the impacts of their actions on their environment, and to design effective incentive and regulatory systems that allow companies to pursue their economic mission in a responsible fashion. Arguably the most important leverage point for integrating such systems with actual decisions occurs at the operations level. It is here that integration of environmental impacts and economic tradeoffs concerning the firm's products, supply chain and material and energy conversion processes take place.

RAW MATERIALS PRICE INFLATION AND OPERATIONS MANAGEMENT

Manufacturers in process industries are no strangers to raw material price volatility. Historically, price fluctuations of 15 to 20 percent have been common and threatened only the weakest companies. But when prices surge by 100 to 200 percent over the course of 12 to 24 months, the rules of the game change. And when those increases become systemicnot just cyclicalthey threaten the viability of all processors large and small. And thats exactly where the industry finds itself today. Take food processors, for example. According to a growing number of industry analysts, the current inflationary trend is much more than a hiccup. The unstoppable 5

Trends in Operation Management demand for grain-derived ethanol, higher global demand for energy, shortage of arable land, a weak dollar and the rapidly growing middle class in Asia and Latin America are all part of a series of fundamental drivers that have created a perfect storm for food processors. Unfortunately, passing on the increased cost in lockstep is not always an option, so there is an escalating margin lag every quarter. Employment and personal income growth has slowed dramatically. And consumers, who continue to feel the pinch from falling home values, skyrocketing fuel costs, and recession fears, are already showing that they are not impervious to price increases. Recipe reformulations and creative packaging solutions offer no panacea, as many of these strategies carry their own risks related to brand equity and customer loyalty. And the situation is even direr for private-label manufacturers, where price sensitivity is an even greater issue. In an effort to offset higher raw material costs, many processors have flocked to short-term, equipment-based continuous improvement (CI) initiatives. Unfortunately, the results have been less than inspiring. Only a fraction of food processors ever report experiencing substantial and sustained financial gains from a CI effort, even after heavy additional investments in data capture technology such as manufacturing execution systems (MES) and data historians. While the reasons for these disappointing results vary, research shows that much of it has to do with companies myopic obsession with plant and equipment issuesfactors that ignore the potentially dramatic impact of the workforce. But that tide is rapidly turning. A growing number of processors are recognizing that their biggest hope for sustainable production performance improvements in this inflationary environment does not lie in plant and equipment improvement initiatives. Instead, it resides in the workforcethe operators and supervisors on the shop floor who can make a direct and dramatic impact on production efficiency, if only they had the visibility and mechanisms necessary to repeatedly contribute their knowledge, skills and experience to the production process. The idea that the workforce holds the key to massive and sustained production efficiency improvements in plants is certainly not new. Management has been trying to 6

Trends in Operation Management tap into this under utilized asset for years. But a number of obstacles have prevented most from unlocking the latent human contribution. For one, shop floor personnel are operating in the dark in most plants today. They lack the relevant real-time information required to identify and report production-line problems as they occur, which prevents the company from being able to identify where the waste-reduction opportunities lie and how significant they really are. Additionally, even when a CI program is rolled out, many processors rarely have a framework within which to identify, teach, execute, and sustain daily operating best practices. The result is that plant directors arent able to identify and quantify the compelling need and potential improvement benefits not because theyre unwilling to reveal the opportunity, but because they are not aware of it themselves. As a result, company executives are not able to take steps to drive meaningful change. The key to solving this elusive challenge lies in providing the shop floor personnel with a system they can use to improve performance. Specifically, they need a people-centric application that allows them to contribute their knowledge and experience to the production process in real timenot a data-hungry beast that only leads to more paperwork and cynicism on the factory floor. A growing number of companies have turned to manufacturing operations management (MOM) to close this performance gap. Much more than technology, MOM systems and techniques represent a fundamental shift in the way manufacturers improve production performance. In essence, its a new way of thinking about the shop floors contribution to the business. By systemizing the human element, MOM systems, techniques, and best practices take what has traditionally been a theoretical, feel-good concept (the idea that people are the most under utilized asset in food plants) and turn it into practical, repeatable and predictable production efficiency improvements. MOM systems also eliminate the endless, de-motivating reams of paperwork and instead provide plant floor personnel with clear, real-time insight into the performance of their own production lines at any given moment; much like a speedometer helps a driver adjust his or her speed. 7

Trends in Operation Management The inflationary challenges the processing industry is facing today require practical solutions that deliver immediate and significant results. Because of the size of the improvement opportunity and its potential impact on the entire business, companies must move beyond the traditional engineering-led, silo-driven approaches to production improvement and look for ways to systematically tap into the knowledge, skills and experience of the factory floor personnel.

SUPPLY CHAIN MANAGEMENT

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize output and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved. Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm, and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management. Cooper and Ellram [1993] compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.

Trends in Operation Management

Supply Chain Decisions

The decisions for supply chain management can be classified into two broad categories -strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy, and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The effort in these type of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain. There are four major decision areas in supply chain management: 1) location, 2) production, 3) inventory, and 4) transportation (distribution), and there are both strategic and operational elements in each of these decision areas. 1. Location Decisions The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc. Although location decisions are primarily strategic, they also have implications on an operational level. 2. Production Decisions The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities--and this largely depends the 9

Trends in Operation Management degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility. 3. Inventory Decisions These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw materials, semi-finished or finished goods. They can also be in-process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels. 4. Transportation Decisions The mode choice aspects of these decisions are the more strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by tradingoff the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels, and geographic location play vital roles in such decisions. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key in effective management of the firm's transport strategy.

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Trends in Operation Management

Supply Chain Modeling Approaches

Clearly, each of the above two levels of decisions require a different perspective. The strategic decisions are, for the most part, global or "all encompassing" in that they try to integrate various aspects of the supply chain. Consequently, the models that describe these decisions are huge, and require a considerable amount of data. Often due to the enormity of data requirements, and the broad scope of decisions, these models provide approximate solutions to the decisions they describe. The operational decisions, meanwhile, address the day to day operation of the supply chain. Therefore the models that describe them are often very specific in nature. Due to their narrow perspective, these models often consider great detail and provide very good, if not optimal, solutions to the operational decisions. To facilitate a concise review of the literature, and at the same time attempting to accommodate the above polarity in modeling, the modeling approaches are divided into three areas --- Network Design, ``Rough Cut" methods, and simulation based methods . The network design methods, for the most part, provide normative models for the more strategic decisions. These models typically cover the four major decision areas described earlier, and focus more on the design aspect of the supply chain; the establishment of the network and the associated flows on them. "Rough cut" methods, on the other hand, give guiding policies for the operational decisions. These models typically assume a "single site" (i.e., ignore the network) and add supply chain characteristics to it, such as explicitly considering the site's relation to the others in the network. Simulation method is a method by which a comprehensive supply chain model can be analyzed, considering both strategic and operational elements. However, as with all simulation models, one can only evaluate the effectiveness of a pre-specified policy rather than develop new ones.

GLOBAL SUPPLY CHAIN MANAGEMENT

Global supply chain management is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption in order to meet customers' requirements on a worldwide scale. 11

Trends in Operation Management In other words, global supply chain management is the process of understanding and integrating the existing business activities along the value chain, with a view to improving them, while extracting efficiencies from different functional and geographic areas in order to create value for the end customer.

Drivers of Globalization
To understand the importance of global supply chains, there is a need to understand some of the drivers of globalization and their effect on the enabling of efficient global supply chains. The drivers of globalization and their effects on global supply chains are described below. 1. Market Drivers The recent years have seen the globalization of products and services. There has been a growth of global market segments which are receptive to and demand branded goods and services offered by global companies such as Nike and Sony. Companies can also reduce the risk incurred by dependence on limited geographic markets and saturated markets in developed countries by catering to customers across the world. 2. Competitive Drivers An efficient global supply chain can offer companies cost advantages through efficient operations, and can serve as a source of differentiation by assuring timely delivery and customer service. Typically, companies which are global competitors have substantial cost advantage over local competitors. Also, if the customers have world wide operations and require services across different locations, a company with global operations is better suited to serve their needs. It is also being seen that globalization provides opportunities for companies to cross subsidize across markets in order to pursue growth strategies. 3. Cost Drivers

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Trends in Operation Management One of the main reasons why companies shift production and sourcing to overseas locations is so that they can take advantage of location-specific advantages, such as skilled labor, low wages, lower cost of raw materials, and lower overheads. Also when a company goes global, it gets opportunities to exploit economies of scale and scope. The modernization of transportation methods and the number of options available to transport goods has greatly decreased costs and reduced lead-times. This means that it has become competitive for companies to locate their operations in locations which offer greatest efficiency and lowest total cost and serve world markets from these locations. 4. Technology Drivers The development in communication and information technology such as the proliferation of the Internet and modernization of telecommunication networks worldwide have reduced the time required to communicate information across the globe. The conveying of real time information, the use of Electronic Data Interchange and other technologies has increased visibility across the supply chain and facilitates the management of information. This has meant that it is possible for companies to coordinate global operations effectively by use of technology. 5. Political Drivers Many governments across the world are beginning to recognize the benefits of globalization and are increasingly allowing their previously closed economies to be open to global trade. This along with the emergence of organizations such as the WTO has contributed to the decrease in tariffs and regulations world wide.

Strategic Planning
In order to begin creating a global supply chain, a company needs to first have a clear and coherent strategy for the same. This strategy should encompass the following factors: Developing a Structure 13

Trends in Operation Management In developing the structure, the various functional activities to be performed need to be examined. These activities are separated on the basis of characteristics such as delivery time, service characteristics, labor intensity and percentage of outsourcing. The location of plants and other infrastructure in proximity to suppliers and customers respectively form a vital part of strategy, Developing a Process Developing the process refers to planning the sequence of operations through the supply chain. These include production planning, scheduling, inventory control and transportation, all of which have a bearing on the chain or preceding / subsequent processes. Optimizing the entire process is far more important than optimizing each link. Development of Organizational Networks Companies need to identify their core competencies and look to outsource the non value added tasks. This outsourcing leads to the search for outside parties that are capable of meeting these functional needs at favorable terms. Another aspect of an organizational network is the prevalence of information technology that helps manage the business activities along the supply chain and with its external partners. Partnerships & Alliances Global companies have partnerships and alliances that stretch across the globe and encompass various business activities. It is important for these associations to be mutually beneficial and compatible in terms of work ethos and objectives.

Design of a Global Supply Chain Global Sourcing

Sourcing from low-cost countries is the obsession of the day at multinationals around the world. Pushed by maturing markets and price competition from competitors in 14

Trends in Operation Management those low-cost locations, companies in all industries are aggressively assessing new locations for sourcing components and manufacturing goods. Most companies report a 10% to 35% cost savings by sourcing from low-cost-country suppliers. Global sourcing is the process of identifying, evaluating, negotiating and configuring supply across multiple geographies to reduce costs, maximize performance and mitigate risks. Global sourcing differs from international purchasing in scope and complexity. International purchasing merely refers to a commercial transaction between buyers and sellers located in different countries. Global sourcing, however, for most organizations, is a progression from international purchasing which is illustrated in the diagram given below: Although led by supply managers, global sourcing is a team effort, requiring coordination and input from multiple internal functions. Due to the cross-border nature of these activities, logistics professionals play a vital role in global sourcing efforts. Also playing an important role in the global sourcing teams are manufacturing, finance and business unit executives.

Figure 1: Global Sourcing & International Purchasing Levels Critical Success Factors for Global Sourcing The critical success factors that determine the success of a global sourcing strategy are defined below : 15

Trends in Operation Management Personnel with required knowledge, skills and abilities Availability of required information Awareness of potential global suppliers Time for personnel to develop global strategies Availability of suppliers with global capabilities Ability to identify common requirements across buying units Operations and manufacturing support of the global sourcing process Internal customer buy-in to global sourcing strategy Direct site visits to suppliers Issues in Global Procurement Quality Suppliers overseas might not have the same stringent quality controls that are required by a firm. Low cost must not be the chief driver in the global sourcing strategy, since it often brings with it poor quality. Service level agreements are used to enforce quality standards upon suppliers based on requirement specifications, number of rejects and delays. Just-in-Time Sourcing There are a large number of apparent incompatibilities that exist between the pursuits of JIT policies on one hand, and the achievement of global sourcing efficiencies, on the other. JIT calls for single / limited sourcing, the establishment of closer buyerseller relationships, frequent and small lot size deliveries, enhanced supplier reaction time and supplier flexibility. Establishing an optimal global sourcing strategy renders it 16

Trends in Operation Management impossible to satisfy JIT requirements. However, the two strategies have been synthesized by many companies with a high degree of planning in logistics and collaboration between buyers to combine lot shipments.

Facility Decision
This deals with the number and location of manufacturing plants and distribution centers. Facility decisions are important to exploit location cost advantages, minimize transportation costs and increase responsiveness. The basic rule of supply chain management is to be close to either the suppliers or the market. This is especially important when a company has a global supplier and customer base. The parameters based on which facility location decisions are done are typically: Demand patterns Volume patterns Location of suppliers Location of customers Transportation Facility location decisions can be reached through a variety of methods, such as Center of Gravity, which is the easiest method and lends itself well to a variety of parameters. Companies usually determine the optimal location for facilities using software such as excel or supply chain design software from specialized vendors to build facility location models which incorporate all necessary parameters.

Logistics
Logistics is that part of the supply chain process that plans, implements and controls the efficient, effective forward and reverses flow, and storage of goods, services, and related

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Trends in Operation Management information between the point of origin and the point of consumption in order to meet customers' requirements. With companies competing on a global basic, logistics and its proper strategic planning have become especially critical when considering the complex interplay of locations, plants, warehouses, vendors and customers situated in different parts of the world. The development of a sound global logistics strategy requires a solid understanding of basic logistics, industry business dynamics, current and emerging technologies and initiatives, and most importantly, an understanding of the firm's current and future goals within the marketplace. In addition, the component areas of the supply chain and operations must be analyzed and incorporated where appropriate, to harness the greatest potential for cost benefits, competitive advantage and customer service. Selection of a Logistics Model Firms that have international operations have a number of options to select from in terms of options to move goods across the supply chain. These broad options have been listed and analyzed in terms of feasibility for global operations. 1. In-House, Asset Owning Logistics A global operation where the firm manages its own logistics operations and also owns the assets (transportation, warehouses, etc.) is not commonly practiced. The reasons for this are that such a network requires a huge amount of capital investment in a country. Firms that are beginning operations in a new and unfamiliar territory might not want to take the risk in this heavy investment. Also, they might not possess the critical mass in terms of volume. 2. In-House, Non-Asset Owning Network (Standalone Logistics Providers) This is an option that can be taken up by firms that have strong in-house logistics competency and also sufficient financial muscle power to launch operations. However, an intimate knowledge of the laws, regulations and culture of the country is a must for such 18

Trends in Operation Management a venture to succeed. There are logistics service providers who provide specific services to companies such as forwarding, trucking and warehousing. This has been the traditional way in which companies have outsourced logistics requirements. This industry is typically highly fragmented and there have been numerous small players who are operating in this industry. 3. Outsourced, Third Party Logistics (3PL) Most companies tend to outsource the logistics function to competent forwarders or 3PLs (3rd Party Logistics) that have a global network or regional specialization. Carriers or even 3PLs are selected on the basis of expertise, market and geographic presence, reputation, networks, multitude of services offered, excellent information systems, ability to provide customization, warehouse and inventory management capability, miscellaneous services such as customs clearance, well-developed infrastructure, a variety of transportation methods, well-qualified personnel and financial clout. Formal contracts are signed between companies and the logistics providers that stipulate performance metrics and other service functionalities. 4. Outsourced, Fourth Party Logistics (4PL) A 4PL is an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, build and run comprehensive supply chain solutions. The 4PL is a Business Process Outsourcing (BPO) provider. This lead logistics provider will bring value and a reengineered approach to the customer's need. A 4PL is neutral and will manage the logistics process, regardless of what carriers, forwarders or warehouses are used. The 4PL can and will even manage 3PLs that a customer uses.

Enabling a Global Supply Chain

Enabling a global supply chain is essentially the integration and management of the flows of materials, finance and information. It is important for the efficient operations of a supply chain that the flows in the supply chain are visible to all participants in the supply 19

Trends in Operation Management chain. It is also important to have measures in place to facilitate the creation of a global supply chain and satisfy the three main criteria of managing flows of capital, information and material.

Figure 3: Information, Financial & Material Flows 1. Material Flow Material flow is the main objective of the supply chain. The material flow in a global supply chain is from the suppliers, who provide materials and sub-assemblies, to the manufacturers, who build, assemble, convert, or furnish a product or service. The finished products then pass to distributors, who transport and deliver the finished product to the customers. 2. Information Flow Information flow in a supply chain is typically upstream where the customers order from the distributors, who then order from the manufacturers and so on through the supply chain. However, downstream flows also occur in a supply chain, where suppliers and manufacturers inform each other of status of goods being transported, inventory levels, price and so on. The information flows that typically happen across the global supply chain corresponding to the different stages are: -

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The proliferation of the Internet has made communication and managing the information flow very easy. The low cost of information transmission, easy accessibility, and the prevalence of both open system and closed architecture systems enables companies to communicate easily with "real time" information across the supply chain. 3. Financial Flow To facilitate the management of financial flows within the supply chain, appropriate and uniform financial measures and accounting methods should be incorporated throughout the company. There are issues which a company has to address when managing a global supply chain as different countries follow different accounting methods; and it has been found that subsidiaries of the same company, be it in the same country or different countries, sometimes follow different accounting measures. A uniform accounting measurement and financial documentation helps increase both visibility and control, while enhancing accountability and responsibility. Activity based costing also helps to track costs and efficiently manage them.

SIX SIGMA
In the olden times there was the concept of "Zero Defect" but it was considered more as a hypothetical term rather than having a more practical aspect because though the companies propagated that their processes or services were of Zero Defect but very few customers relied on them because defects were always there. A "Defect" can be defined as any product or service that does not conform to the set standards or satisfaction of the 21

Trends in Operation Management customer. Now, Six Sigma is a concept that tries to achieve a near zero defect with 3.4 defects in a million events. Six Sigma is a methodology used to improve any business process by constantly reviewing, updating and re-tuning the existing process. Six Sigma provides the tools to improve the capability of any business process. Six Sigma professionals evaluate a business process and determine ways to improve upon the existing process. Six Sigma incorporates the same principles and techniques used in Business, Statistics, and Engineering. Six Sigma improves the process performance, decreases variation and maintains consistent quality of the process output. This leads to defect reduction and improvement in profits, employee morale, product quality and finally customer satisfaction. Six Sigma Strives for perfection. It allows for only 3.4 defects per million opportunities for each product or service transaction. Six Sigma relies heavily on statistical techniques to reduce defects and measure quality.

Six Sigma Implementation

Implementation of Six Sigma begins with education and training within an organization. The beauty of this Quality Management Concept is that it has various levels of Six Sigma training which are: Six Sigma Champion: Champions undergo five days of training and are taught how to manage projects and act as advisors to various project teams.

Green Belts: They undergo two weeks of training that includes project-oriented tasks. They act as team members to the Six Sigma project team. Their cooperation and involvement is necessary for projects success. Black belts: They receive four weeks of trainings and are directly involved in the implementation of Six Sigma Projects. They are the project leaders and go through indepth training on Six Sigma approach and tools and work full time on the project. 22

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Master Black Belts: These are the people who conduct Six Sigma Training and also have on the job training and experience. The Six Sigma implementation can be done by following the steps in the given model: -

Step 1: In order for Six Sigma to be successful, top level management and everyone below them must fundamentally believe in the strength of it. Managers need to support all individuals and teams involved in improving the quality of the product or service or process. Step 2: In this step information gathering through intensive communication with customers, suppliers, and employees takes place. Information about the conditions of the processes, products and services that can be improved, are found and analyzed. Step 3: Training this is the most important step and the organizations should strive to have all of its employees trained on Six Sigma on various levels. An organization should have a mix of Black Belts and Green Belts for effectively implementing a Six Sigma project. Black Belts are the all day problem solvers who also operate as team leaders in Six Sigma projects. Green Belts are the team members in Six Sigma projects.

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Step 4: In this step we develop a monitoring system that can be both internal and external. Internal like the amount of wastages and external like the customer satisfaction. Step 5: In this step the business processes that are to be improved are chosen the problems that were identified are removed and valueless activities and sub processes are terminated. Here the Six Sigma project is at a critical stage. Before improvements it is necessary that a plan is made and the changes are communicated throughout the organization. Documentation of the improvements is very necessary so that these improvements can be replicated everywhere in the organization. Step 6: In this step the Six Sigma project is at its mature stage and the changes and improvements are made and analyzed by simulations and statistical methods and if any discrepancies are found then again the cycle is repeated. Six Sigma is a powerful approach to achieve breakthrough improvements in manufacturing, engineering and business processes. This approach relies heavily on advanced statistical methods that complement and reduce the process and product variations. It is a new way of doing business that would eliminate the existing defects efficiently and would prevent defects from occurring. In a country like India where high quality standards are still to be achieved Six Sigma has a very bright future.

LEAN MANUFACTURING Lean manufacturing or lean production, which is often known simply as "Lean", is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. Lean manufacturing is a generic process management philosophy derived mostly from the Toyota Production System (TPS) and identified as "Lean" only in the 24

Trends in Operation Management 1990s. It is renowned for its focus on reduction of the original Toyota seven wastes in order to improve overall customer value, but there are varying perspectives on how this is best achieved. The steady growth of Toyota, from a small company to the world's largest automaker, has focused attention on how it has achieved this. First of all, 'lean' is defined as the elimination of waste and things that don't add value as defined by the customer. A maintenance department can become more planned, even predictable, by eliminating waste and applying lean principles and tools. Lean also requires a good understanding of why previous improvement initiatives succeeded or failed, and how to apply appropriate change-management principles to this one.

INTERNET OPERATIONS MANAGEMENT

Since the mid-1990s, many changes have come to the Internet operations arena. Among them competition for co-location business among ISPs has increased, despite overall growth in this segment. With increased IT deployment across most industries has come a severe shortage of qualified operations professionals a shortage so severe that Internet operations staffing has effectively become a zero-sum game, with each operations professional hired perceived as a reduction in the pool of talent available to other companies. As a result, there has been a high-stakes land grab for technical talent, since the more them to be providers of commodity services, with the differentiating factor being the level and quality of fully managed services available within their facilities. Companies are starting to separate mission-critical activities from strategic activities; many have outsourced or are thinking of outsourcing the mission critical operations activities, since attracting and retaining trained operations professionals is difficult in absolute terms, and particularly difficult for companies whose core business is not IT. Software vendors have increased the rate at which new versions of applications, operating systems, databases, and related technologies are released, yielding an evergrowing n-dimensional compatibility matrix which, like the just make it work culture, is at odds with stable operations.

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Trends in Operation Management Many of the operations professionals are young, hail from the just make it work arena, and arent accustomed to designing and implementing scalable environments. Some have invited operations companies to lease space and bandwidth at bulk rates; they, in turn, resell these offerings and supplement them with operations services. Some have elected to provide end-to-end service, and have acquired operations and/or consulting companies to help them do so. Others have chosen to partner with operations companies, but still own the relationship with the end-client. The relationship between ISP/co-location companies and operations companies is a marriage of necessity, driven by the demand for fully managed services. An uneasy partnership by definition, it touches on client ownership and brings to the surface the cultural differences between pure ISP/co-location companies and pure consulting/operations companies. The consulting and operations companies also take various approaches. Some provide OS and networking support only. Others provide consulting and operations support. Still others have fixed architectures into which they expect prospective clients to place their content. Some insist that the environment be cleaned before taking over operations responsibility. Some have security offerings, and some dont. Some lease hardware and/or software, and some dont. Some resell hardware and/or software, and some are vendor-agnostic. Some have partnered with one or two ISP/co-location companies while others are prepared to provide service in any facility. Some have fixed monthly fees, others charge by the hour. With some, its possible to purchase a block of hours per month at a reduced rate; with others, this is not an option. Some do consulting and/or modification work on an hourly basis, while others have a fixed-rate offering. The many choices available in Internet operations services today stem from the immaturity of the industry (which is after all only a few years old), coupled with the high rate of technological change and a wide spectrum of requirements from potential consumers of these services.

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Trends in Operation Management As the Internet operations industry matures, there will obviously be further changes in technology and in the corresponding best practices accepted in the operations arena. Up to now, each site has been to a great extent a unique creation. Although there have clearly been good reasons for this, its also clear that this is not the most efficient way to construct a site. Indeed, when we examine mature industries, we find there are accepted good engineering and operations practices. While the Internet and the industry that has grown up around it have evolved with unparalleled speed, there is still something to be learned from these other industries, all of which have eventually gravitated to a set of generally accepted standards and practices. Companies are now demanding allinclusive service offerings, and it is likely that in the future, theyll get what theyre demanding. We expect to see ISP/co-location providers who either do it all themselves or establish healthy partnerships with companies that can help them provide the services they lack. More likely than not, spending on the operations component will far outweigh co-location and bandwidth costs. ISP/co-location providers will primarily be differentiated by their ability to provide Internet operations services, not merely by the stability of their physical infrastructures and networks. As a result, Internet operations are likely to be the next big wave in the Internet technical-service industry. If the Internet operations industry is successful in convincing companies that using standardized service offerings is in the long run cheaper and more reliable, there will be more and more sites engineered with a view to handing operations over to a specific operations company or group of companies. Operations would then no longer be an afterthought, but rather the starting point for engineering activities. There will likely be standards (possibly de facto product/configuration standards) to which engineering solutions must adhere; otherwise the operations costs will be prohibitive. We can expect to see plenty of standards are good marketing. Given a continued shortage of trained operations professionals, it is virtually certain that future solutions will be constructed to minimize the amount of ongoing human intervention, and perhaps even the amount of up-front development and engineering time. In this vein, the META Group has been referring to sledge-hammer engineering for several years already. 27

Trends in Operation Management Operations professionals have already begun to congregate within companies where IT is the business, much as large consulting firms attract many of the best and the brightest in the arenas where they participate. It could very well be that, if some semblance of standards does not emerge before non-IT companies hit the Internet operations recruiting wall, Big Five-style Internet operations companies will emerge to run the majority of Internet sites. It would then be virtually impossible for a non-IT company to find the talent required to run its own site. If these large Internet operations companies were to partner with the large consulting firms, the market would become virtually impenetrable to smaller players, much like the hold large consulting firms currently enjoy in their own markets. As in other industries, a phase of standardization and consolidation will likely follow the wave of innovation sweeping in the Internet space today.

OPERATIONS MANAGEMENT AND ETHICS

As technology and innovation moves forward, evolving strategies for management can pose ethical challenges to business and to operations managers, specifically. It is only sound business strategy to create long-lasting competitive advantage, however many times business is short-sighted in making determinations of what is best for business. One of the things often lost in the rush toward profit is ethics. Ethics involve the balancing of the needs of the owners/shareholders against those of the other parties involved, directly and indirectly, with the business. These are often competing and contrary needs, especially when profitability is at stake. Often the conflicts between ethical action and profit are ignored or downplayed within the business community. Business must act within the acceptable rules and norms of society, as well as within the legal framework; however, sometimes the norms of a given society can be unjust or perceived as unethical. Operations Management (OM) is mainly about getting the day-to-day operations of a business done. As simple as that sounds, it means coordinating suppliers, shipping, production, and delivery in ways that are profitable for the business, ethical, fair for employees and efficient for the consumer. Operations Management touches on every aspect of the business in ways that can propel 28

Trends in Operation Management a modestly performing company into an industry leader or mire a strong performer in costly errors, backlogs and worker dissatisfaction. This is a thin tightrope Operations Managers must walk in order to ensure their company's success. With careful management of resources, supply chain and a close eye on market trends, it is possible for an ethical manager to produce a good work every time.

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