TU-E2020

Advanced Operations Management

Responsible lecturer: Timo Seppälä, Aalto

Simulation exercises: Tea Tähtinen, Aalto

2 / 29

Today’s issues

• Introduction to Global Value and Supply

Chains

• Introduction to Production Planning and

Control within GVC’s and AOM

• Course objectives and contents

• Practical arrangements during the course

3

Why study Advanced Operations

Management?

• Manufacturing industries continue to be an important source of wealth and employment – look at the success of the Chinese economy during the last decennia!

• Manufacturing industries count for 20 percent of the Finnish national economy – and the most recent strong opinion is that it should be grown!

• Companies that know their planning and execution capabilities are better off than those that don’t know them – these capabilities are reflected in the way an industrial company runs its operations management

• Companies that know their operations management system and the possible choices in it are more agile to compete in changing markets

4

Operations system forms the transformation process between the inputs and the outputs of a manufacturing company.

Operations as a value creation process

In this course we concentrate on planning and control of factory production, i.e. production of physical goods.

Value creation

Operations system

Performance

Strategy Execution

1.

Components

2. Smart

components

3. Product

system

4. System of

systems

5. Network

of systems

Impact on

society

Impact on

industry

Sensors and

data

Data

collection and

analysis

Data sharing

and API’s

Internet scale

deep AI,

autonomy

Remote

control and

operation

Monitoring

Cross-system

optimization

Cross-system

impact

”Intranet”

”Extended

Intranet”

”Internet”

Impact on

work

Source: Ailisto, Mäntylä & Seppälä, 2015

From National Clusters to Global

Value Chains

October 26, 2015 7

Introduction to Global Value and

Supply Chains

Source: ETLA

October 26, 2015 8

Introduction to Global Value and

Supply Chains

From the 1st to the 2nd unbundling (Richard Baldwin, 2006)

October 26, 2015 9

Introduction to Global Value and

Supply Chains

From trading goods to trading tasks (Grossman & Rossi-Hansberg, 2008)

10

• ‘Coordination glue’ that kept job tasks in close proximity began to loosen.

• Competition has moved from industry level to the level of tasks.

• From trade of goods to trade in tasks.

• Communications costs have dropped

• Real-time communications

• Multinationals as major actors to diffuse know-how internationally

DRIVERS RESULTS

Introduction to Global Value and

Supply Chains

Processors, €34, 6%

Memories, €15, 3%

Integr.circuits, €32, 6%

Display, €22, 4%

Camera (5 mp), €17, 3%

Other parts, €59, 11%

Licenses, €21, 4%

Nokia’s operating profit, €89, 16%

Final assembly, €11, 2%

Distribution, €19, 4%

Value added in Nokia’s internal support fns, €169, 31%

(Excl. Operating profit & assembly listed below)

Retailing, €60, 11%

Breakdown

of the phone’s

€546 (+tax) retail

price circa 2007

Refers to unbundled & unsubsidized official retail price w/o taxes. Excluding discounts & other possibly purchased products/services.

Licenses include protocols, the operating system, pre-installed software etc. Nokia is a major IPR holder in this domain & it does not pay fees to itself; thus value of its own IP is not included here. Furthermore, non-monetary payments (e.g., cross-licensing) is not included here. For a firm without own its IP, licensing fees could have be manifold.

As compared to some other studies, the cost of final assembly may seem high. Some other estimates, however, only include direct labor costs and refer to simpler goods.

Nokia’s value added covers its innovation, advertising, design, marketing, financial, legal & management costs and depreciation & investment. It also includes some aspects of outsourcing, which we are unable to separate from Nokia’s internal functions: purchases of “billable hours”, some R&D and software sub-contracting, outbound logistics, and certain external warranty & other services.

Nokia’s profit is assigned to Finland.

Based on publicly available information.

October 26, 2015 12

Changing Geography and ownership of

Value cReation: Evidence form Mobile

Telecommunications

(Larsen, Seppälä & Ali-Yrkkö, forthcoming)

Introduction to Global Value and

Supply Chains

October 26, 2015 13

Introduction to Global Value and

Supply Chains

• How has the task level globalization

enhanced changed over time?

• How has the distribution of value add

changed over time?

• How has the geography of global value

added tasks changed over time?

October 26, 2015 14

Introduction to Global Value and

Supply Chains

Task:

Mapping out the whole global supply chain from

raw materials / idea generation to a consumer’s

final purchase of a 3310, 1100 and 1200 at a retail store

– All direct & indirect hard & soft inputs

– 1–8 stages before the final assembly & 2–4 after it

– For each, the loc. of innovation, direct labor & support (cap.)

Mapping out the geographical location of value

added tasks

– All direct & indirect work inputs

October 26, 2015 15

Introduction to Global Value and

Supply Chains

3310

October 26, 2015 16

Introduction to Global Value and

Supply Chains

1200

October 26, 2015 17

Introduction to Global Value and

Supply Chains

Components

54% Nokia 21%

Distribution

channel 25%

Engine mfg 1.9%

ATO 1.9%

Production OH 2.7%

Others+profit 14.6%

21%

Components

40%

Nokia

43%

Engine mfg 4.8%

ATO 4.6%

Production OH 2.8%

Others+profit 30.9%

43%

Distribution

channel 17%

Nokia 3310

Consumer

price 78e

(in 2003)

Nokia 1200

Consumer

price 27e

(in q4/2007)

Notes: The share of distribution channel includes warranty, outbound logistics, distributor and retailer. Consumer prices are global average prices without sales taxes.

October 26, 2015 18

Introduction to Global Value and

Supply Chains

October 26, 2015 19

Introduction to Global Value and

Supply Chains

• Knowledge transfer from arvanced

economies to emerging economies.

• The relocation of different types of tasks

has required competence transfer from

advanced economies to emerging economies

and particularly to China.

• Instead of sudden change, this process has

spread over several years.

20

Three time horizons of Production Planning and

Control in AOM

• Long term – Providing strategic resources and capacity to meet long-term demand

– Choice of strategic locations depending on the markets

– Development and utilization of production process technology

• Medium term – Matching supply with demand

• Short term – Scheduling of resources

– Tracking resource usage & status and labor utilization

– Tracking customer/production orders and materials usage

– Managing exceptions

21

Three tasks of Production Planning and

Control in AOM

• (Forecasting)

• Planning

• Scheduling

• Execution

• (Materials Planning)

These tasks are generic to all production environments,

but application is specific to particular company

conditions.

Main areas of the AOM course are

• Principle of value and supply chain management

• Product Life Cycle Management and ICT

• Advanced Forecasting techniques

• Advanced Demand/Supply management

• Sales and operations planning

Main areas of the AOM course are

• Principles of production networks management

• Principles of production management

• Production planning and control (PPC) systems

• Material, resources and capacity planning and scheduling

• Execution, control of production and ICT

• Digital Manufacturing

24

Learning objectives

• To provide capabilities to work in the fields of production planning and control, and system development in order to become professional in this field More concretely, we will talk about the production planning & control

framework as well as its constituent parts in great depth

• Focus in managing the production system Production system design was the content of Design of Production

Systems (DoPS) course. As some overlapping content cannot be avoided, it is called repetition which is pedagogically useful for learning.

• Calculation exercises Individual assignments - We work through problems that render

themselves to quantitative approach.

• Simulation exercises and Game Team assignments - We apply production planning and control knowledge

to models to be created using a simulation software Simul8 and thereby work on some issues related to analyzing performance of production processes and alternative scenarios to improve them.

25

After completion of this course

You are ready to take part in designing, implementing, operating and

developing Advanced Operations

– discuss and analyze global value and supply chain issues as part

of the business objectives of a firm

– discuss and analyze production management issues as part of the

business objectives of a firm

– participate in development projects

– set up appropriate control parameters

– appreciate production management system tools

– understand and exploit industry specific issues

– …and have an interest to continuously develop your expertise in

this field!

Course arrangements

What do you need to know and do in

order to complete the course

successfully?

27 / 29

Course contents

1. Lectures

2. Simulation exercises

3. Calculation exercises

4. Game

5. Final exam

28

Schedule for classes

26.10 Introduction to the Course / TS

27.10 Different models of Planning for Production and Supply Chain Management / TS

2.11 Product Life Cycle and Fleet Management in Operations / Tero Hurskainen

3.11 Demand management, Sales and operations planning and Master production scheduling / TS

3.11 Simul8 tool, and the 1st exercise given 14:15 – 15:00

9.11 Advanced Demand Planning and Capacity Management / JL

10.11 Sales and Operations Planning / Nina Tuomikangas

10.11 1st exercise and 2nd exercise given 14:15 – 15:00

10.11 1st Game Group (5 credits) 15:00 – 19:00

29

Schedule for classes

16.11 Materials requirements planning and distribution requirements planning / TS

16.11 2nd Game Group (5 credits) 12:00 – 16:00

17.11 Advanced Production Planning and Control with ICT tools and systems / Heikki Aalto

17.11 2nd exercise and 3rd exercise given 14:15 – 15:00

17.11 3rd Game Group (5 credits) 15:00 – 19:00

23.11 Capacity planning and management, and Production activity control / TS

24.11 Digital Manufacturing in Operations Management / Jan Holmström

24.11 3rd exercise and 4th exercise given 14:15 – 15:00

30.11

30.11 4th Game Group (5 credits) 12:00 – 16:00

1.12

1.12 4th exercise 14:15 – 15:00?

30

Simulation exercises, both 3 and 5

Credits • Exercises carried out using the Simul8 software to be downloaded on your own

computer or used in the computer classroom

• Group work; 2 -3 persons per group – The forming of groups must be done by November 3rdth at 14:00

– Send an e-mail to tea.tahtinen@aalto.fi, stating the names, student numbers and e-mail addresses of both group members

• Introductory session on the 3rd November 14:15-15:00 in Room TU1 about the objectives and the content of the simulation exercise. Participation in the session is strongly recommended, at least by one of the two group members.

• Exercises are due as follows – Ex1 on Nov 10th, Ex2 on Nov 17th, and Ex3 on Nov 24th and Ex4 on Dec 1st, always by 8:30

– The reports are sent by e-mail to tea.tahtinen@aalto.fi.

• A 2-4 page written report as a solution for each exercise. The questions to be answered in the report are given in the assignment instructions.

• Each group has to deliver and pass all four exercises.

• If a group fails to get an exercise approved, it can be compensated by completing extra exercises. Only one exercise can be compensated.

• Each exercise graded from 0 to 5. The average grade counts for 20 percent of the final grade for the course.

31

Instructions for downloading Simul8

1. Download the SIMUL8 Student Edition from: SIMUL8.com/student Username: timo.seppala@aalto.fi - Password: fRFVtp

2. Double click on your downloaded file. This will start the setup program for your student edition.

3. Enter your student details including your University's student license number: 1852-3898-4418.

4. This will run your student version of SIMUL8. For support please contact your course tutor or use the SIMUL8 user forum SIMUL8.com/cafe. This license does not include telephone support. --------------------------

Please note – This password will expire on April 10, 2016. – The SIMUL8 Student License software is licensed for academic use only. Use for

any other purpose will violate the license agreement and may result in civil or criminal prosecution.

– Details on how to run SIMUL8 on Macs can be found on the following link: http://www.simul8.com/products/apple.htm

– System specifications on the link: http://www.simul8.com/products/system_req.htm

GAME (E2E DSN GAME), only 5 credits

• End-to-end Demand Supply Network Game (E2E DSN game) is a hands-on simulation game, which demonstrates the supply chain typical to telecom industry. The game works as an introduction to production and delivery processes, and objectives used in measuring supply chain performance. It emphasizes factors, which are essential for a well-oiled supply chain. In the game, the players will build and deliver mobile phones, and develop the supply chain towards an efficient one.

• For passing the compulsory exercise, participants must o attend one of the two the game sessions o in their game groups write a short report, where the game results are analysed and a

reflection is done on the lessons learnt in the game.

• The reports should be sent to marja.blomqvist@qdc.fi within a week after the respective game session.

• The exercise graded from 0 to 5. The average grade counts for 20 percent of the final grade for the course.

33 / 29

Calculation exercises (1-2 Extra points)

• The objective of the calculation exercises is to illustrate the problems that are required to be solved for successfully passing calculations in the exam.

• Calculation exercises are voluntary, they are not graded, extra points available

• A 2-4 page written report as a solution for calculation exercise linking theory and calculation exercises

• Written report delivered to timo.seppala@aalto.fi by 12th December, 2015

• Group work; 2 -3 persons per group

• The problems are published on the course myCourses site before the exercise.

– The solutions are published on the course myCourses site.

• During the exercises the solutions to the problems will be worked out together with theory in tutoring session if needed

34

Textbook

• F. Robert Jacobs, William L. Berry, D. Clay Whybark and Thomas E.

Vollmann: Manufacturing Planning and Control for Supply Chain

Management, McGraw-Hill, 6th international edition, 2011.

• Articles

– Graham C. Stevens, (1989) "Integrating the Supply Chain", International Journal

of Physical Distribution & Materials Management, Vol. 19 Iss: 8, pp.3 – 8

– Mentzer et. Al. (2001) “Defining supply chain management”, Journal of Business

Logistics Vol. 22 Iss:2 pp. 1 - 25

35

Course examinations & grading • The requirements for the final exam are:

The whole content of the course textbook (3 and 5 credits) Lectures (3 and 5 credits) Calculation exercises E2E DSN GAME (3 and 5 credits)

• Fall term exam is held on 10th December 2015

• Spring term exams are held on 15th February and 7th April 2016

• One exam will be arranged during the fall 2016 term

• There will be 6 questions of 6 points (=36 pts)

• The exam result counts for 80% (3credits) and 60% (5credits) of the total grade for the course

• The average grade for the simulation exercises counts for 20% (3,and 5 credits)of the total grade for the course

• The grade for the game exercises counts for 20% (5 credits) of the total grade for the course

• The exam needs to be passed by the end of December 2016 for those who take the simulation exercises in 2015. If you pass the exam by that time you are free to raise your exam grade also during the later years.

36

Welcome to the AOM course!

Course homepage:

https://mycourses.aalto.fi/course/view.php?id=9298

Contact information:

• Responsible lecturer: timo.seppala@aalto.fi

• Simulation exercises: Tea Tähtinen, tea.tahtinen@aalto.fi