Aviation Preparatory Operations Management

Aviation Preparatory Operations Management, Strategic
Logistics & Effective Supply Chain
© www.asia-masters.com

Aviation Systems
• Aviation system is changing rapidly
– New technologies
– New business models
– Expanded environmental impact concerns
• Repetitive, recurrent common cause accidents essentially
eliminated
– Emerging threats are low frequency, hard to detect
– Need to move from reactive to proactive and prognostic
• Increase in system demand*
– The number, types and complexity of airplanes
– The amount of flights and passengers
• Continues evolution in application of system safety concepts in
the aviation system

Airport Operations

Overview
1. Airline Representation
2. Passenger Services
3. Ground Services.
4. Flight Operations.

1. Airline Representation
Contract negotiation and administration.
Supervision and evaluation of contract compliance.
Inventory management.
Financial responsibility.

Airline Representation:
Contract negotiation and administration.
• Airport use agreements.
– Ticket counters.
– Common use facilities and services.
– Gate and jet-way use.
– Incentives and fee waivers.
• Bulk purchase programs.
– Passenger services
– Catering supplies.
– Bag tags.
– Ramp services.
– Into-plane fueling.
• Bundled services.
– Outsourcing above and below wing services.

Contract Compliance
• Station Manuals.
– Preparation and maintenance of Stations Operations Manuals
implementing customer standards and requirements.
– Training of all airport contract personnel.
• Performance standards and daily monitoring.
– Ground handlers.
– Passenger services.
• Quality control.
– Periodic check rides to verify performance of vendors.
• Financial compliance
– Auditing of services and invoices.
– Budgetary controls.

Inventory Management
• Inventory controls, budgeting, purchasing and
warehousing:
– Boarding passes.
– Bag tags.
– Lost and damaged baggage claim forms.
– Catering and toiletry supplies.
– Alcoholic beverage controlled storage.
– Cabin supplies.
– In-flight magazines and related items.
– Portable equipment (laptops, printers, etc.).

Financial responsibility.
• Pre-payments and deposits.
– Budget and cash flow forecasting.
• Reconciliation of vendor invoices.
– Audit and verify ramp services invoiced per turn/flight.
– Audit and verify fuel uplifts and into-plane fees.
– Verify catering costs and services per enplaned passenger.
– Customer financial reporting for operational management
decisions and fiscal planning.
– Auditing of passenger fees, airport fees, & taxes.
• Escrow accounting services.
– Account reconciliation by flight.

2. Passenger Services
Airline branding and visibility.
Airport staffing
Delay Amenities.
International flights.
Catering.
Customer service.

Passenger Services:
Airline Branding & Visibility
• Airport signage.
– Arrival directional signage.
– Ticket Counter.
– Gate
• Airline attire for contract employees
– Provide attire with airline logo or other identification.
• FIDS
– Provide graphics for flight information data system for airport
operations.

Passenger Services:
Airport staffing
• Passenger check in/ticket counter.
– Reservation system compatible equipment.
– Boarding passes.
– Baggage – tags and excess baggage collections.
– Manifest reconciliation (show, no-show, go-show).
– Upgrade sales and add-collects as required.
– Operator-participant agreement compliance (charter requirement).
• Gate personnel.
– Boarding procedures and announcements.
– Passenger manifest reporting.

Passenger Services:
Coordination
• Delay amenities.
– Policy and procedure implementation.
• Meal vouchers.
• Hotel and transfer vouchers.
• Shuttle buses.
• Re-accommodation on other airlines.
• International flights.
– International departure/arrival procedures.
– Security compliance.

Passenger Services:
Catering
• Catering
– Budget and cost of goods by flight.
– Menu and vendor selection.
– Supplies and inventory control.
• Snacks and meals.
• Beverages.
• Alcohol sales.
• Flight by flight reconciliation.
– Arrange for crew meals as required.
– USDA regulatory conformance for international flights.

Passenger Services:
Customer Service
• Baggage service.
– Customer care for lost and damaged bag claims via toll free
number and e-mail.
– Coordination and delivery of misplaced bags.
• Reservations.
– On-line (web bookings).
– Call center operations.
– Software customized to customer requirements for yield, loads,
manifests, accounting and management.

3. Ground Services
Aircraft ramp services.
Baggage.
Push back and towing.
Ground support equipment.
Into-plane fueling.
De-icing.
Cleaning.
International flights.

Ground Services:
Aircraft Ramp Services
• Baggage.
– Loading and unloading of baggage into or from the
aircraft.
– Baggage handling and transfers.
– Assist in weight and balance issues.
• Aircraft push back and towing.
– Tugs and tow bars for customer aircraft.
– Aircraft marshalling.
– Aircraft parking: hard stand and RON.

Ground Services:
Aircraft Ramp Services, cont’d.
• Ground support equipment.
– Air conditioning
– Air-start
– Ground power unit (GPU).
• Into-plane fueling.
– Fuel release coordination.
– Tracking/auditing of uplift receipts.
– Price monitoring for competitive cost.
• De-icing.

Ground Services:
Aircraft Ramp Services, cont’d
• Cleaning
– Cabin cleaning.
– Lavatory servicing.
• International flights.
– Arrival/departure gates.
– Waste management.

4. Flight Operations
Flight Tracking
Communications
Support Services
Load Control

Flight Operations:
Flight Tracking
• Customer aircraft.
– Monitor all customer aircraft by satellite and station
reporting to determine down line decisions, delay
tactics and sub-service, if needed.
• Related aircraft
– Monitor aircraft of other airlines who are on the “call list”
for sub-service to determine best options quickly in the
event of a mechanical.

Flight Operations:
Communications
• Airline and station messaging.
– Establish procedures via SITA, e-mail, fax, phone and radio.
• Regulatory agency reporting.
– APIS.
– Passenger manifest.
• Schedules
– Issue airline operational schedule to ground handlers, passenger
services contractor and airport officials.
• FLIFO.
– Update flight information for reservation center and down-line
stations.

Flight Operations:
Support Services
• Landing Rights.
– Arrange and coordinate international landing rights and approvals
foreign governmental agencies, US Customs, US Department of
Agriculture (USDA) and Immigration and Naturalization Services
(INS).
• Route Planning.
– Assist airline dispatch with most cost effective options considering
crews, fuel, customs, etc.
• Crew Service.
– Crew accommodations and airport transportation.

Flight Operations:
Load Control
• Weight and balance.
– Participate in and/or make decisions regarding weight
and balance issues on flights.
– Arrange for transport and delivery of any passenger
baggage removed due to operational reasons.

26
The Role of Operations Strategy
• Provide a plan that makes best use of
resources which;
– Specifies the policies and plans for using
organizational resources
– Supports Business Strategy as shown on next slide

27
Business/Functional Strategy

28
Importance of Operations Strategy
• Companies often do not understand the
differences between operational efficiency
and strategy
– Operational efficiency is performing tasks well,
even better than competitors
– Strategy is a plan for competing in the
marketplace
• Operations strategy is to ensure all tasks
performed are the right tasks

29
Developing a Business Strategy
• A business strategy is developed after taking
into many factors and following some strategic
decisions such as;
– What business is the company in (mission)
– Analyzing and understanding the market
(environmental scanning)
– Identifying the companies strengths (core
competencies)

30
Three Inputs to a Business Strategy

31
Examples from Strategies
• Mission: Dell Computer- “to be the most
successful computer company in the world”
• Environmental Scanning: political trends, social
trends, economic trends, market place trends, global
trends
• Core Competencies: strength of workers, modern
facilities, market understanding, best technologies,
financial know-how, logistics

32
Example: Nokia
Nokia extended its already formidable dominance of the global
handset business on Jan. 24, announcing it had achieved 40%
market share in the fourth quarter of 2007. But perhaps the biggest
surprise was that the Finnish company achieved this long-promised
and psychologically important milestone while also becoming more
profitable.
http://www.businessweek.com/globalbiz/content/jan2008/gb20080124_974301.htm?chan=search

33
Developing an Operations Strategy
• Operations Strategy is a plan for the design
and management of operations functions
• Operation Strategy developed after the
business strategy
• Operations Strategy focuses on specific
capabilities which give it a competitive edge –
competitive priorities

34
Operations Strategy – Designing the
Operations Function

35
Competitive Priorities- The Edge
• Four Important Operations Questions: Will
you compete on –
Cost?
Quality?
Time?
Flexibility?
• All of the above? Some? Tradeoffs?

36
Competing on Cost?
• Offering product at a low price relative to competition
– Typically high volume products
– Often limit product range & offer little customization
– May invest in automation to reduce unit costs
– Can use lower skill labor
– Probably use product focused layouts
– Low cost does not mean low quality

37
Competing on Quality?
• Quality is often subjective
• Quality is defined differently depending on who is defining it
• Two major quality dimensions include
– High performance design:
• Superior features, high durability, & excellent customer service
– Product & service consistency:
• Meets design specifications
• Close tolerances
• Error free delivery
• Quality needs to address
– Product design quality – product/service meets requirements
– Process quality – error free products

38
Competing on Time?
• Time/speed one of most important competition priorities
• First that can deliver often wins the race
• Time related issues involve
– Rapid delivery:
• Focused on shorter time between order placement and delivery
– On-time delivery:
• Deliver product exactly when needed every time

39
Competing on Flexibility?
• Company environment changes rapidly
• Company must accommodate change by being flexible
– Product flexibility:
• Easily switch production from one item to another
• Easily customize product/service to meet specific requirements of a
customer
– Volume flexibility:
• Ability to ramp production up and down to match market demands

40
The Need for Trade-offs
• Decisions must emphasis priorities that support business strategy
• Decisions often required trade offs
• Decisions must focus on order qualifiers and order winners
– Which priorities are “Order Qualifiers”?
e.g. Must have excellent quality since everyone expects it
– Which priorities are “Order Winners”?
e.g. Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility

February 2012 (v3)
Threat and Error Management
(TEM) and Line Operations
Safety Assessment (LOSA)

42
Threat and Error Management

43
What is a Threat?
• Any condition that increases the complexity
of the operation.
• Threats, if not managed properly, can
decrease safety margins and can lead to
errors.
• “Threats should serve as a Red Flag.”
– Watch out!
– Something bad can happen!

44
• There are two types of threats
– External Threats – Those outside of your control
(e.g., weather, lack of equipment, hard to
understand documentation, system errors,
inadequate lighting)
– Internal (Human) Threats – Those within our
control (e.g., fatigue, loss of situation awareness,
stress, disregard for following procedures)
Types of Threats

45
What is an Error?
• The mistake that is made when threats are
mismanaged.
• There are 5 types of errors:
1. Intentional non-compliance errors
2. Procedural errors
3. Communication errors
4. Proficiency errors
5. Operational decision errors

46
Weather
New Agent
Cabin Crew
Passenger events
Late Bags
Time pressures
Heavy traffic
Unfamiliar gate
Flight Crew
Flight diversion
Distractions
Ramp slope
Late Cargo
Maintenance
System malfunction
Late Gate Change
Threats That Can Lead to Ramp Agent Error

47
CommunicationDocumentation
Lighting Temperature
Access
equipment
Tools
Noise
Hazardous
materials
Airplane/
parts design
Threats That Can Lead to Mechanic Error
Lack of Skill
Time pressure
Task distraction/
interruption

48
Example 1: Air Transat Flight 236
• August 24, 2001: TS 236, an Airbus
A330, departed from Toronto, Canada
bound for Lisbon, Portugal with 293
passengers and 13 crew members.
• Flight ran out of fuel over the Atlantic
Ocean
• Glided to emergency landing in the
Azores
• 0 fatalities; 18 injuries, most minor,
none life-threatening
• 8 of 12 tires are blown out

49
• The fuel leak was caused by an incorrect part installed in the hydraulics
system.
• The replacement engine was supposed to be in the same configuration
as the one removed.
• Initially the mx technicians left both the fuel line and the hydraulic line
attached to the airplane. Due to differences in the configuration, the
rigid fuel line had to be replaced but the flexible hydraulic line was
retained.
• A mismatch between the fuel and hydraulic tubes resulted from the
installation of the post-mod hydraulic pump and fuel tube assembly with
the pre-mod hydraulic tube.
• Over time, chafing from vibration in the hydraulic line degraded the fuel
line and caused the leak.
Air Transat Flight 236 Investigation

50
Right Engine Pipe Contact
Fuel Pipe Crack and Scratches
Photo Courtesy of Aviation Accidents Prevention and
Investigation Department, Government of Portugal

51
Threats of Flight 236
• Maintenance Related
– No requirements for conducting a pre-installation,
configuration parity check.
– Time pressure to complete the work in time for a scheduled
flight and to clear the hangar for an upcoming event.
– Due to the ill-fit hydraulic pump, the lead technician realized
existence of both pre- and post-Service Bulletin (SB)
configurations through searching Airbus Illustrated Parts
Catalogue (IPC). However, the computer system used to
access technical information was inoperative creating
difficulty in accessing the Trent 772B and related SB’s.

52
Threats of Flight 236 (cont’d)
– No readily available, effective, commonly accepted
method to compare the SB (configuration) status of
engines, placing reliance on other processes to detect
configuration differences.
– The post-installation quality control checks following
the engine change did not specify checking the
installation of the hydraulic pump, hydraulic tube, and
fuel tube.

53
– Neither the engine-receipt nor the engine-change
planning process identified the differences in
configuration between the removed and installed
engine.

54
– The lead technician was unaware of the availability of
standalone IPC CDs in the MCC.
– A mismatch resulted from the installation of the post-
mod hydraulic pump and the post-mod fuel tube with
the pre-mod hydraulic tube assembly.

55
– Fuel tube and hydraulic tube contacted with each other
due to the mismatch. The fuel tube sustained a 3-by-
1/8-inch fracture, which caused fuel leak and eventually
fuel exhaustion.
– Despite the knowledge of the optional Rolls-Royce SB
RB.211-29-C625, the SB was not reviewed during or
following the installation of the hydraulic pump.

56
– The logbook entry detailing the installation of the fuel
line from the replaced engine was not recorded.
– The technicians were not trained on the risk
associated with the application of force while installing
mixed-construction (including both rigid and flexible
sections) lines.

57
Threat and Error
Management Model

58
What is Threat Management?
• Threat Management – There are two aspects
to Threat Management:
1. Recognizing that a threat exists
2. Coming up with a strategy to deal with the threat,
so that it does not reduce safety margins or
contribute to an error

59
What is Error Management?
• Error Management – The mitigation or
reduction in seriousness of the outcome.
1. The resist and resolve filters or defense
mechanisms may be applied to an existing error
before it becomes consequential to safety.
2. By applying the resist and resolve filters in the
analysis of an error, you may:
 Improve strategies or counter-measures to identify and
manage both internal and external threats, like fatigue,
condition of ground equipment, etc.

60
RESIST
Things that already exist
within the system to protect
against errors.
The human corrects
the error before it
leads to an
unwanted
consequence.
RESOLVE
Error Management

61
Error Outcome
• There are three types of error outcomes:
1. Inconsequential – The error has no immediate
effect on safety.
2. Undesired State – Risk or unsafe operational
conditions are increased.
3. Additional Error – The error causes another
error(s).

62
Threat & Error Management Model
RESIST
Things that already exist
within the system to protect
against errors.
The human corrects
the error before it
leads to an
unwanted
consequence.
RESOLVE

63
RESIST
RESOLVE
Threat & Error Management Model

64
Requirements of TEM Analysis
• Be Specific
• Use TEM language in reporting
• Identify Threats, Errors and Error Outcomes
• Identify “Resolve and Resist”
Strategies/Counter Measures already in place
• Recognize Human Factors affecting behavior
choices and decision making
• Recommend solutions for changes that lead
to a higher level of safety awareness

65
Resist
Strategies
Resolve
Analyze the Failures

66
Conclusions
• Become a better Threat Manager
– Learn to actively identify threats in your operation
– Learn strategies for managing threats
• Become a better Error Manager
– Learn to look for errors that you have made and correct them
before they lead to unwanted consequences
– Understand why the Resist and Resolve aspects of Error
Management did not work, and…
 Find better strategies to deal with the threats that lead to the
error, or
 Fix threats (like broken equipment) that lead to the error
• Continue building a Safety Culture by encouraging
open, honest communications

67
Late arriving aircraft
A
B
C
D
Quiz – Question #1
Dark Night
Which is an internal threat?
Fatigue
Stormy Weather

• That is correct, fatigue is one of the many
internal threats. Other examples are
distractions, lack of knowledge, and
complacency
• Stormy weather, dark night, and late
arriving aircraft are examples of external
threats.
Back to Question Next Question
Quiz – Answer #1
35

• That is incorrect, stormy weather is an
external threat. The correct answer would be
fatigue.
• Example of internal threats would be fatigue,
complacency.
• Examples of external threats would be stormy
weather, lack of communication, poor lighting
conditions, and delayed aircraft.
Quiz – Answer #1
36

• That is incorrect, dark night is an external
threat. The correct answer would be fatigue.
complacency.
Quiz – Answer #1
37

• That is incorrect, late arriving aircraft is an
external threat. The correct answer would be
fatigue.
complacency.
Quiz – Answer #1
38

A threat is anything that increases operational
complexity and, if not managed properly, can
decrease safety margins and can lead to errors.
A
B
False
True
39

• That is correct, a threat is anything that
increases operation complexity and, if not
managed properly, can decrease the safety
margins.
• These could be External Threats (weather,
system errors, working environment) or
Internal (human) Threats (fatigue,
preoccupation, disregard for procedures)
Quiz – Answer #2
40

• That is incorrect, a threat is anything that
increases operation complexity and, if not
managed properly, can decrease the safety
margins.
• These could be External Threats (weather,
system errors, working environment) or
Internal (human) Threats (fatigue,
preoccupation, disregard for procedures)
Quiz – Answer #2
41

75
Errors are mistakes that are made when
threats are managed incorrectly.
A
B
False
True

• That is correct, errors are mistakes that are
made when threats are mismanaged.
• There are 5 types of errors
– Intentional non-compliance errors
– Procedural errors
– Communication errors
– Proficiency errors
– Operational decision errors
Quiz – Answer #3
43

• That is incorrect, errors are mistakes that
are made when threats are mismanaged. If
threats are correctly managed they would
not turn into errors.
• There are 5 types of errors
– Intentional non-compliance errors
– Procedural errors
– Communication errors
– Proficiency errors
– Operational decision errors
Quiz – Answer #3
44

78
Which is an error outcome?
A
B
C
D
Inconsequential
Undesired State
Additional Error
All of the above

• That is correct, all of the above are possible
outcomes to an error.
• The three types of error outcomes are:
Inconsequential, Undesired State, and
Additional Errors.
Back to Question Continue
Quiz – Answer #4
36

• That is incorrect, because it is incomplete.
Inconsequential is only one of the possible
outcomes. The correct answer would be all
the above, because inconsequential,
undesired state, and additional error are all
possible outcomes to an error.
Quiz – Answer #4
37

Undesired state is only one of the possible
Quiz – Answer #4
38

Additional error is only one of the possible
Quiz – Answer #4
39

83
Line Operation Safety Assessment
(LOSA)

84
Learning Objectives
• After this training you will be able to:
– Define LOSA
– Describe the characteristics and benefits of LOSA
– Identify the goals of LOSA
– Outline the steps necessary to integrate LOSA
into your organization
– Understand how LOSA fits into a SMS

85
LOSA Background

86
What is LOSA?
• Line Operations Safety Assessment
– A tool for collecting safety data
– Organizational self-assessment
– Observing routine operations for both safe and at
risk behaviors
– Voluntary, non-threatening, non-punitive
observation

87
Threat and Error Management & LOSA?
– LOSA is grounded within the
threat and error management
(TEM) framework.
 Threats increase the complexity
and can decrease the safety
margins.
 Errors reduce the safety margin
and increase the chances of
adverse events.

88
Inform
Workforce
LOSA
Characteristics
Peer-to-Peer
Observations
Systematic
Observations
Management &
Labor Agreement
Secure &
Private
Targeted
Enhancements Volunteers
Trusted &
Trained
Observers
Non-punitive

89
Benefits
of LOSA
Identify and
Manage
Threats
Assess
Training
Effectiveness
Check Quality
& Usability of
Procedures
Involve
Employee
Groups
Complements
Existing
Safety & QA
Programs
Assess
Safety
Margins
Identify and
Manage
Errors
Baseline for
Org. Change
Understanding
Shortcuts
Identify Design
Problems

90
Goals/Intent of LOSA
• Observe day-to-day work behaviors during
normal operations
• Discover procedural and systemic threats
and errors
• Reduce injuries & equipment and A/C
damage
• Generate baseline data, implement new
changes, and generate follow-up data to
assess effectiveness

91
Example 2: Alaska Airlines Flight 536
• December 26, 2005: Alaska Airlines
Flight 536 departed from Seattle, WA
bound for Burbank, CA with 136
passengers and 5 crew members.
• Probable Cause discovered by the
NTSB: At Sea-Tac earlier that day,
ramp worker hit A/C with a baggage
loader.
• The contact from the above
unreported incident caused a 12 by 6
inch hole in the A/C, which caused a
decompression during the climb to
cruise.

92
Alaska Airlines Flight 536 (cont’d)
• A/C did pressurize on climb out
because baggage that got stuffed into
the tear helped hold pressure.
• A/C experienced a rapid cabin
depressurization during climb out at
approximately 26,000 feet.
• Returned to airport with no injuries

93
• Post landing examination of the fuselage revealed a 12 by 6
inch hole between the middle and forward cargo doors on the
right side of the airplane.
• Ramp worker said he did not know he had hit the A/C;
however, after the occurrence, he confessed that he had
“grazed the airplane” with a tug, while attempting to depart
the vicinity of the airplane.
Alaska Airlines Flight 536
Investigation

94
• T/B. Ground Equipment
– T/B 5.1 Motorized equipment: Bag tug
• T/E Ground Based
– T/E 6.1 Congestion: Equipment Parking
• T/F Human Factors
– T/F 8 Knowledge/skills/experience level
– T/F 16 Situational Awareness
Threats of Alaska Airlines
Flight 536

95
• T/I Environmental Threats
– T/I 6 Rain
• T/G Operational
– T/G 16 Perceived time pressure
Threats of Alaska Airlines
Flight 536 (cont’d)

96
Errors of Alaska Airlines Flight 536
• E/A General Safety
– E/A 8 Equipment contacting other equipment
– E/A 38 Communication procedures not followed

97
How does LOSA fit into a SMS?
MEDA/
REDA
FOQA ASAP
CASS
Your Safety
Programs
LOSA

98
Safety Culture Shift for
Hazard Identification
Reactive
MEDA
REDA
Proactive
QA Audits
Hazard
Reporting
ASAP
Predictive
LOSA

Steps to
Implement
LOSA
Steering
Committee
Marketing
Union
Involvement
Learn
Train
Schedule
Select
Observers
Observe
Data
Verification
Analyze
Data
Report
Enhance
60

What to expect of LOSA observers?
• Observers will record and code:
– Threats
– Whether the threats were managed or
mismanaged
– Errors
– Identify the outcomes of the errors
• Observers do not intervene unless
there is an imminent safety issue or
if an aircraft would be flown in a
non-airworthy condition.
51© www.asia-masters.com

101
What is expected of those being
observed during a LOSA?
• During a LOSA observation you should:
– Continue normal duties and behaviors
– Not be interrupted by the observer in the middle
of a task
– Answer a few demographics questions after
being observed (optional)

What makes LOSA successful?
• Involvement from Management & Labor to
frontline employees
• Observer being a fly-on-the-wall
• Trusted/trained co-workers as observers
• Anonymity and non-punitive actions for those
being observed (e.g., no tattletale)
• Feedback to employees
53

103
False
True
A
B
LOSA observations should take place during
normal operations.

Quiz – Answer #1
• That is correct, LOSA observations should
take place during normal operations.
Back to Question To Next Question
55

Quiz – Answer #1
• That is incorrect, LOSA observations should
take place during normal operations.
56

106
Use trained company personnel as LOSA observers
Follow any unsafe findings with disciplinary action
Ensure top management support
Protect anonymity of those observed
A
C
D
B
Which of the following is not a LOSA
characteristic?

Quiz – Answer #2
• That is correct, following any unsafe findings with punitive
action is NOT one of the characteristics of a LOSA program.
• The characteristics are: peer-to-peer observations,
systematic observation instrument based on Threat and
Error Management, anonymous, confidential, and non-
punitive, secure data collection repository, trusted and
trained observers, voluntary participation, joint
management/labor sponsorship, data-derived targets for
enhancement, data verification, feedback of results.
58

Quiz – Answer #2
• That is incorrect, using trained company personnel as a
LOSA observer is one of the characteristics of a LOSA. The
correct answer would be follow any unsafe findings with
punitive action; this is NOT one of the characteristics of a
LOSA program.
59

Quiz – Answer #2
• That is incorrect, ensuring top management support is
one of the characteristics of a LOSA. The correct answer
would be follow any unsafe findings with punitive action;
this is NOT one of the characteristics of a LOSA program.
60

Quiz – Answer #2
• That is incorrect, protecting anonymity of those observed
is one of the characteristics of a LOSA. The correct answer
would be follow any unsafe findings with punitive action;
this is NOT one of the characteristics of a LOSA program.
61

111
Identify and manage threats
Collect field data for safety management system
Identify strengths and weaknesses of operation
Provide a mechanism to check procedural compliance
All of the above
A
B
C
D
E
How is LOSA beneficial?

Quiz – Answer #3
• That is correct, all the above are benefits to LOSA.
• The benefits are: identify threats in the operating
environment, identify threats from within the operations,
assess the degree of effectiveness of training, check the
quality and usability of procedures, identify design
problems in the human/machine interface, understand
shortcuts and workarounds, assess safety margins,
provide a baseline for organizational change, provide a
rationale for allocation of resources.
63

Quiz – Answer #3
• That is incorrect, because it is incomplete. Identifying and
managing threats is just one of the benefits of a LOSA.
The correct answer would be all of the above.
64

Quiz – Answer #3
• That is incorrect, because it is incomplete. Collecting field
data for safety management system is just one of the
benefits of a LOSA. The correct answer would be all of the
above.
65

Quiz – Answer #3
• That is incorrect, because it is incomplete. Identifying
strengths and weaknesses of the operation is just one of
the benefits of a LOSA. The correct answer would be all of
the above.
66

Quiz – Answer #3
• That is incorrect, because it is incomplete. Providing a
mechanism to check procedural compliance is just one of
the benefits of a LOSA. The correct answer would be all of
the above.
67

117
Conclusions
• LOSA provides a means for your
organization to identify external (outside our
control) and internal (within our control)
threats.
• It should be conducted during routine
operations.
• LOSA should use trained volunteers from the
organization to do the observations.

118
Conclusions (cont’d)
• No punitive action will be taken as a result of
LOSA findings.
• LOSA is a predictive hazard identification
system for your SMS that can
– Reduce your costs,
– Improve safety, and
– Improve efficiency.

WAREHOUSE MANAGEMENT

Understanding Warehouse Concept
• Part of firms logistics system that stores products at and
between point of origin and point of consumption.
• Term “Warehousing” is referred as transportation at zero
miles per hour
• Warehousing provides time and place utility for raw
materials, industrial goods, and finished products, allowing
firms to use customer service as a dynamic value-adding
competitive tool.

• A warehouse is a planned space for the
storage and handling of goods and
material. Inventory represents a large cost to
the humanitarian supply chain. One of the
primary differences between
inventory management and warehouse
management is in the complexity of each type
of inventory system.

Warehouse Management Process

THE ROLE OF THE WAREHOUSE IN THE
LOGISTICS SYSTEM
The warehouse is where the supply chain holds or stores goods.
• Functions of warehousing include:
– Transportation consolidation
– Product mixing
– Docking
– Service
– Protection against contingencies

DESIGN CONSIDERATION
Ideal Facility for Pure Supplier
Consolidation
(Full Pallet Movement)
Warehouse Space
Requirements

PRINCIPLES OF WAREHOUSE LAYOUT DESIGN
Use one-story facilities
Move goods in a
straight line
Use efficient materials-
handling equipment
Use an effective
storage plan
Minimize aisle space
Use maximum height
of the building

WAREHOUSE PROCESS
Put-away
•Identify Product
•Identify Product Location
•Move Products
•Update Records
Storage
•Equipment
•Stock Location
– Popularity
– Unit Size
– Cube
Shipping Preparation
•Packing
•Labeling
•Stacking
Order Picking
•Information
•Walk & Pick
•Batch Picking
Shipping
•Schedule Carrier
•Load Vehicle
•Bill of Loading
•Record Update
RECEIVING
•Schedule Carrier
•Unload Vehicle
•Inspect for damage
INP
UT
OUT
PUT

OBJECTIVES OF EFFICIENT WAREHOUSE OPERATIONS
• Provide timely customer service.
• Keep track of items so they can be found readily & correctly.
• Minimize the total physical effort & thus the cost of moving
goods into & out of storage.
• Provide communication links with customers

Benefits of Warehouse Management
– Provide a place to store & protect
inventory
– Reduce transportation costs
– Improve customer service levels
• Complexity of warehouse operation
depends on the number of SKUs
handled & the number of orders
received & filled.
• Most activity in a warehouse is
material handling.

• Capital costs
— Costs of space & materials handling equipment
• Operating costs
— Cost of labor
— Measure of labor productivity is the number of
units that an operator can move in a day
COSTS OF OPERATING A WAREHOUSE

WAREHOUSE ACTIVITIES
• Receive goods
• Identify the goods
• Dispatch goods to storage
• Hold goods
• Pick goods
• Marshal shipment
• Dispatch shipment
• Operate an information
system

Benefits of Warehousing
Consolidation
 Shipment consolidation is an economic benefit of
warehousing.
 With this arrangement, the consolidating warehouse
receives and consolidated materials from a number of
manufacturing plants destined to a specific customer on a
single transportation shipment.
 The benefits are the realization of the lowest possible
transportation rate and reduced congestion at a
customer's receiving dock.

Modern Warehouse

• With enough time and space to properly prepare
inventory for delivery the number of customer
service issues has dropped by 60%. A concurrent
reduction in customer service calls allowed this
retailer to cut customer service staff by half.
• The improvement in prep and assembly
permitted the repair shop staff to be reduced
from four to three, and the number of field
service technicians to be halved from four to two.
Modern Warehouse

The warehouse now uses the latest version of a furniture
industry specific computer system that has enabled the store
to reduce the office headcount by three people. This staff
reduction was accomplished even though sales volume has
doubled since the installation of the system.
With accurate inventory, two people who spent their days
doing inventory checks for sales staff and researching “not in
location” items now do quality control work on the dock.
The new computer and quality control efforts have reduced
the number of merchandise items returned as wrong or
incomplete by 80%, resulting in more successful first time
deliveries and more satisfied customers.
Modern Warehouse

The Warehousing Cycle

FIVE COMMON WAREHOUSE MANAGEMENT
PROBLEMS AND THEIR POTENTIAL SOLUTIONS
Redundancy – Nothing is less efficient than having to do
the same thing twice… or three or four times. Many
times, one warehouse worker will pass a ticket on to
another, and another, and another, and so on. You can
easily eliminate redundancy in your warehouse
operations by implementing a good barcoding system.
The best automated systems will just about completely
eliminate redundancy. If you already have an automated
system in place and are still seeing too much repetition in
your processes, then it’s time to switch systems. Staying
stagnant while useful technology passes you by is a good
way to fall behind your competition.

• Picking efficiencies – Another argument to be
made for automated systems is that it
streamlines picking efficiency. If there is no
automation in place, pickers don’t always take
the most efficient route to the inventory, which
causes a serious process inefficiency. The trickle-
down effect is increased order time and added
stress on your equipment and workers. In the
end, it all amounts to poor customer service,
which is not way to stay in business.

• Poor facility layout – Optimizing the layout of
your warehouse will make much more effective
use of your space. In other words, if your storage
systems, racking, and pallet patterns are most
efficiently laid out, you may find that you can
actually use a much smaller space. One way to
optimize the layout of your facility is by ensuring
the highest-selling inventory is at the most
accessible area for your pickers. By contrast,
make sure that the least-selling inventory is in the
least accessible area. This solution alone should
cause a big increase in productivity.

• Inventory awareness – If pickers aren’t aware of
the location of key inventory, the whole
warehouse operation will be slowed dramatically.
Make sure there is a system in place that allows
pickers to be constantly aware of inventory,
especially the high-selling items. Also, keep them
aware of any changes in location; avoid having to
temporarily halt operations so the picker can seek
out information on the location of an item
needed to fill an order.

• Accuracy – Of course, accuracy is really the key to
almost any efficient operation. If you don’t have
an automated system in place that keeps an
extremely accurate check on inventory, an entire
list of things can go wrong. If nobody is sure
what’s actually in stock, unnecessary build-ups of
the wrong items can occur and consequently,
shortages of heavily demanded items can drive
customer dissatisfaction. Nothing can hurt a
business like a large amount of orders that can’t
be filled due to poor inventory accuracy.

Inventory Cost Method
Average Cost Method
The average cost method assigns inventory costs by calculating a moving average of all inventory
purchase costs. This method can be ideal for companies that sell non-perishable inventory in a
non-sequential manner, such as video game retailers. The average cost method can also provide a
more steady, reliable cost recognition structure than other methods, assuming costs do not swing
wildly up and down for inventory items. To continue the example above under the average cost
method, a company would assign an average cost of $19.50 -- the sum of 20 and 19 divided by 2 -
- to all 20 widgets sold.
Specific Identification Method
The specific identification method perfectly matches inventory costs with units sold, assigning the
exact cost of each sold inventory item when the specific item is sold. This method is not suited for
businesses that sell high volumes of relatively homogenous products, such as food producers, but
it can be ideal for companies that sell high-dollar items with relatively low volume, such as
automobiles or yachts. Consider a car lot, for example. When a salesperson sells a car, he can
forward the exact VIN or invoice number of the car to the accounting department along with the
sales information, allowing accountants to look up exactly how much the dealership paid for the
car.

 A system to keep track of inventory
 A reliable forecast of demand
 Knowledge of lead times
 Reasonable estimates of
 Holding costs
 Ordering costs
 Shortage costs
 A classification system
Effective Inventory Management

Inventory Counting Systems
 Periodic System
Physical count of items made at periodic
intervals
 Perpetual Inventory System
System that keeps track
of removals from inventory
continuously, thus
monitoring
current levels of
each item

Inventory Counting Systems (Cont’d)
 Two-Bin System - Two containers of
inventory; reorder when the first is empty
 Universal Bar Code - Bar code
printed on a label that has
information about the item
to which it is attached

 Lead time: time interval between ordering
and receiving the order
 Holding (carrying) costs: cost to carry an
item in inventory for a length of time,
usually a year
 Ordering costs: costs of ordering and
receiving inventory
 Shortage costs: costs when demand
exceeds supply
Key Inventory Terms

Types of Inventories
 Raw materials & purchased parts
 Partially completed goods called
work in progress
 Finished-goods inventories
 (manufacturing firms)
or merchandise
(retail stores)

Types of Inventories (Cont’d)
 Replacement parts, tools, & supplies
 Goods-in-transit to warehouses or customers

THE ABC CLASSIFICATION
In materials management, the ABC analysis (or Selective
Inventory Control) is an inventory categorization technique.
ABC analysis divides an inventory into three categories- "A
items" with very tight control and accurate records, "B items"
with less tightly controlled and good records, and "C items"
with the simplest controls possible and minimal records.
The ABC analysis provides a mechanism for identifying items
that will have a significant impact on overall inventory cost,
while also providing a mechanism for identifying different
categories of stock that will require different management
and controls.

THE ABC CLASSIFICATION (cont’d)
The ABC analysis suggests that inventories of an organization
are not of equal value. Thus, the inventory is grouped into
three categories (A, B, and C) in order of their estimated
importance.
'A' items are very important for an organization. Because of
the high value of these 'A' items, frequent value analysis is
required. In addition to that, an organization needs to choose
an appropriate order pattern (e.g. ‘Just- in- time’) to avoid
excess capacity. 'B' items are important, but of course less
important than 'A' items and more important than 'C' items.
Therefore, 'B' items are intergroup items. 'C' items are
marginally important.

ABC Analysis Category
There are no fixed threshold for each class, different proportion can be
applied based on objective and criteria. ABC Analysis is similar to the Pareto
Principle in that the 'A' items will typically account for a large proportion of
the overall value but a small percentage of number of items.
Example of ABC class are
• ‘A’ items – 20% of the items accounts for 70% of the annual consumption
value of the items.
• ‘B’ items - 30% of the items accounts for 25% of the annual consumption
value of the items.
• ‘C’ items - 50% of the items accounts for 5% of the annual consumption
value of the items.
Another recommended breakdown of ABC classes:
• "A" approximately 10% of items or 66.6% of value
• "B" approximately 20% of items or 23.3% of value
• "C" approximately 70% of items or 10.1% of value

The Use of ABC Classification
The ABC concept is based on Pareto's law. If too much inventory is kept, the ABC
analysis can be performed on a sample. After obtaining the random sample the
following steps are carried out for the ABC analysis.
Step 1: Compute the annual usage value for every item in the sample by multiplying
the annual requirements by the cost per unit.
Step 2: Arrange the items in descending order of the usage value calculated above.
Step 3: Make a cumulative total of the number of items and the usage value.
Step 4: Convert the cumulative total of the number of items and usage values into a
percentage of their grand totals.
Step 5: Draw a graph connecting cumulative % items and cumulative % usage value.
The graph is divided approximately into three segments, where the curve sharply
changes its shape. This indicates the three segments A, B and C.

Inventory Record Accuracy
Inventory Record Accuracy (IRA) is a measure of how closely official inventory records
match the physical inventory. Many managers equate Inventory Record Accuracy with
cycle counting, but there is a lot more to it than just counting.
The units of measurement are either dollar based or count based. These two bases
have different purposes and may give widely differing results.
Accountants and financial auditors prefer dollar-based measurements of
accuracy. Their concern is to ensure that the inventory value stated on books and tax
returns is accurate at an aggregate level. Discrepancies on individual items hold little
concern provided that positive and negative discrepancies are roughly equal and the
total value is the same.
Operations and material management people have a stronger interest in the accuracy
of individual SKUs. If one SKU is short, they can rarely substitute some other part or
item that happens to be long

Methods For Improving Accuracy
To improve inventory record accuracy, the error
creation rate (i.e. errors per week, month, etc.)
must be less than the error removal rate. to
increase accuracy we can decrease errors
flowing in or increase the removal rate.

Methods For Improving Accuracy (Cont’d)

Methods For Improving Accuracy (Cont’d)
Methods to improve accuracy include Cycle Counting, Physical Inventory, Transaction
Reduction and Process Improvement. An optimal approach uses them all.
• Physical Inventory-- In a physical inventory, normal operations cease while a
physical count of every item is conducted. The counts are compared to inventory
records and, when necessary, the records are corrected.
• Cycle Counting-- A small number of items are physically counted, daily, on a
random or semi-random basis. The physical count is compared to the inventory
record. When necessary, the records are corrected.
• Process Improvement-- Process Improvement examines the transaction processes.
Changes are identified that reduce the probability of error.
• Transaction Reduction-- The most effective way to reduce errors is to reduce the
number of transactions. Fewer transactions introduce fewer errors. Kanban, BOM
simplification, cellular manufacturing and other elements of Lean make this
feasible.

Reasons For Poor Accuracy
There are many causes for inaccurate records. People may enter data
inaccurately or not at all. Confusing location codes cause discrepancies
between recorded and actual locations. Occasionally, software bugs introduce
errors. The thousands of possible causes are either process-related or
volume-related.
Process Related Errors-- Each step in a transaction process introduces some
probability for error, even if that probability is small. To reduce process-
related errors, we must change the process.
Volume-Related Errors-- Every transaction process has an inherent error rate
or probability of error resulting from the structure and execution of the
process. Over time, and with many transactions, the number of new errors
per week or per thousand transactions is relatively constant, if the process
remains unchanged. The more transactions, the more errors. If transaction
volume is reduced through kanban, backflushing, Cellular Manufacturing or
other simplification, errors drop proportionately.

Cycle Counting In The Warehouse
Types Of Cycle Counting
There are a number of types of cycle counting
that can be used:
• Control Group
• Random Sample

Control Group Cycle Counting
When a company starts using cycle counting
they may use a control group to test that the
method they are using to count items will give
the best results. The process usually focuses on
a small group of items that are counted many
times in a short period. This repeated count
process will show any errors in the count
technique which can then be corrected. The
process is continued until the technique has
been confirmed to be accurate.

Random Sample Cycle Counting
When a number of items to be counted are chosen at random, this is process known
as random sample cycle counting. When a company’s warehouse has a large quantity
of similar items, they can randomly select a certain number of items to be counted.
The count can be performed each day or workday so that a large percentage of the
items in the warehouse are counted in a reasonable period.
Two techniques can be used in random sample cycle counting; constant population
counting and diminished population counting:
Constant population counting is where the same number of items are counted each
time a count is performed. This can mean that certain items are counted frequently
and some items are not counted, as the selection of items to be counted is random.
Diminished population counting is a technique where a number of warehouse items
are counted and then excluded from being counted again until all of the items in the
warehouse are counted. Each count selects items from an ever-decreasing number of
eligible items to be counted.

3 Steps to Conducting a Cycle Counting
Identify and prioritize types of materials that need to be counted and
establish a method for counting, such as random sampling or using a
control group.
An inventory count may depend on whether a company has a reliable
WMS, enterprise resource planning (ERP) and/or work process system
that can deplete inventory as it is being used for work in progress
(WIP), finished or sold.
Based on materiality of the inventory, determine appropriate
frequency. Schedule counts during non-peak days/hours if possible.
Communicate the plan for the count to employees impacted.

Storage & Material Handling System
Material handling involves short-distance movement within the
confines of a building or between a building and a transportation
vehicle.
It utilizes a wide range of manual, semi-automated, and automated
equipment and includes consideration of the protection, storage, and
control of materials throughout their manufacturing, warehousing,
distribution, consumption, and disposal.
Material handling can be used to create time and place utility through
the handling, storage, and control of material, as distinct from
manufacturing, which creates form utility by changing the shape, form,
and makeup of material.

Design of Material Handling Systems

Design of Material Handling Systems
Material handling is integral to the design of most production systems
since the efficient flow of material between the activities of a
production system is heavily dependent on the arrangement
(or layout) of the activities. If two activities are adjacent to each other,
then material might easily be handed from one activity to another.
If activities are in sequence, a conveyor can move the material at low
cost. If activities are separated, more expensive industrial trucks or
overhead conveyors are required for transport.
The high cost of using an industrial truck for material transport is due
to both the labor costs of the operator and the negative impact on the
performance of a production system (e.g., increased work in process)
when multiple units of material are combined into a single transfer
batch in order to reduce the number of trips required for transport.

Improving the Layout of Warehouse
An inefficient layout of your warehouse can have a negative effect
on your business. Decreasing productivity, creating inventory control
issues, errors in shipping and posing safety risks.
When it comes to laying out your warehouse, it is important to
exploit its full space. Everything should be accessible and in the right
location, allowing staff to carry out their duties in the most efficient
way.
Ensuring every square foot of space is properly utilised, within your
warehouse, will keep overhead costs to a minimum and increase
productivity.

Super-Size the Receiving Area
Receiving is arguably the
most critical function of the
warehouse. It is important
to ensure you have enough
room for your staff to carry
out all of the necessary
activities from breaking
down pallets to counting
items. The more space
there is in the receiving
area, then the easier it is for
your staff to complete the
job efficiently.

Segmentation
Warehouse activity can be fast and
dynamic which is why it is necessary
to create segments in the
warehouse that are well defined.
For example, your returned
products area should be in a
separate part of your warehouse
that is enclosed by a fence and
clearly marked. This ensures that
returned products are not mistaken
for stock.
It is also important to keep shipping
and receiving areas separate and
located in different areas of the
warehouse to avoid improper
staging of freight merchandise.

Set Up Bin Locations & Pick Path
In order to provide your pickers with
the best possible chance at filling
their order right the first time, make
sure they have adequate
instructions. The pick path refers to
the direction that you want your
pickers to move down the aisle. It
should start at the farthest point
away from the shipping area and
dump the picker in front of the
shipping prep area.
Sketch out the pick paths on paper
ahead of time. The idea is that
pickers will make one pass through
the facility in the most efficient way
possible.

Inventory
Design your warehouse
so that inventory does
not need to be moved
more than once. It
usually does not make
sense to store items in
one place and then
move them to another
place later.

Special Packaging Area
Certain products need a value
add or special packaging area.
This needs to be adjacent to
the shipping area, because
the product will move directly
from the value add area to
the shipping area.
This area is difficult to cube
out and takes up a lot of
valuable warehouse space.
Therefore, the value adds
area should be kept as small
as possible.

Random Location Strategy
A random location strategy is the
idea that a warehouse is laid out
according to product accessibility
other than popularity.
This is because product popularity
changes based upon buying cycles
and company advertising. It is
therefore best to arrange products in
another manner.
As long as easy access to products is
maintained, the random location
strategy is generally one of the more
effective ways to lay out a
warehouse.

Aisles
Ensure quick product availability
by having a system of aisles and
cross aisles that make it easier to
move around your warehouse.
Long and continuous aisles can
make it difficult in getting from
one part of the warehouse to
another.
However, cross aisles that allow
access to the main aisles, help
create a grid that is more efficient
and easier to navigate.

Supply Chain Management

Supply Chain – an Overview
A supply chain is a system of organizations, people,
activities, information, and resources involved in moving a
product or service from supplier to customer.
Supply chain activities involve the transformation of
natural resources, raw materials, and components into a
finished product that is delivered to the end customer.
In sophisticated supply chain systems, used products may
re-enter the supply chain at any point where residual value
is recyclable. Supply chains link value chains.

Traditional View: Supply Chains in
the Economy (1990, 1996)
• Freight Transportation $352, $455 B
– Transportation manager in charge
– Transportation software
• Inventory Expense $221, $311 B
– Inventory manager in charge
– Inventory software
• Administrative Expense $27, $31 B
• Logistics related activity 11%, 10.5% of GNP
 $898 B spent domestically for SC activities in 1998.
 $1,160 B of inventory in the US economy in the early 2000s.
Transportation and inventory managers

Traditional View: Cost breakdown of
a manufactured good
• Profit 10%
• Supply Chain Cost 20%
• Marketing Cost 25%
• Manufacturing Cost 45%
Profit
Supply Chain
Cost
Marketing
Cost
Manufacturing
Cost
Effort spent for supply chain activities are invisible to the customers.

What Is a Supply Chain?
Flow of products and services from:
– Raw materials manufacturers
– Intermediate products manufacturers
– End product manufacturers
– Wholesalers and distributors and
– Retailers
• Connected by transportation and storage
activities
• Integrated through information, planning, and
integration activities
• Cost and service levels

1.1 What Is Supply Chain Management?
• Supply chain management is a set of
approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses, and
stores, so that merchandise is produced and
distributed at the right quantities, to the right
locations, and at the right time, in order to
minimize system wide costs while satisfying
service level requirements.

Two Other Formal Definitions
The design and management of seamless, value-added
process across organizational boundaries to meet the
real needs of the end customer
Institute for Supply Management
Managing supply and demand, sourcing raw materials
and parts, manufacturing and assembly, warehousing
and inventory tracking, order entry and order
management, distribution across all channels, and
delivery to the customer
The Supply Chain Council

PC Industry Supply Chain
Tracing back the screen you stare at for the bulk of your time.

Source
Supplier
Supplier
Distributor
Distributor
Retailer
End-User
Converter
Converter Consumers
Information Flow
Funds/Demand Flow
Value-Added Services
Material Flow
Reuse/Maintenance/After Sales Service Flow
SCM Definition

The SCM Network
FIGURE 1.1: The logistics network

Key Observations
• Every facility that impacts costs need to be
considered
– Suppliers’ suppliers
– Customers’ customers
• Efficiency and cost-effectiveness throughout the
system is required
– System level approach
• Multiple levels of activities
– Strategic – Tactical – Operational

Other Related Observations
• Supply chain strategy linked to the
Development Chain
• Challenging to minimize system costs and
maximize system service levels
• Inherent presence of uncertainty and risk

3 Core Supply Chain Management
Trends
Trend #1: Supply Chain Visibility
Transparent supply chain management and effective supply
chain visibility is a critical tool in a company’s continued
growth and successful brand image.
Connected supply chains provide additional opportunity link
supply chains and receive more data. Data can indicate issues
with procurement, product quality, and delivery. Companies
that can collect, analyse and respond quickly to issues are one
step ahead of their competition.
A trend in dual/multi-sources helps to provide additional
supplier sources in the case of any concerns.

Trend #2: The Manufacturing Factory
Smarter, more opinionated, and involved consumers are driving
economy. Time is precious to them and experience is everything,
which is causing brands to shuffle in response to their needs.
Rapid advances in the manufacturing sector are making it possible to
build out an on-demand distributed manufacturing platform that will
allow for a more effective and iterative product development life cycle.
Increased technology adoption will lead to cheaper, faster, and more
accessible manufacturing in turn driving the potential for increased
product line diversity and turnaround.

Supply Chain Functions within the
Organization
Supply chain management is a cross-functional
approach that includes managing the movement of
raw materials into an organization, certain aspects
of the internal processing of materials into finished
goods, and the movement of finished goods out of
the organization and toward the end consumer.
As organizations strive to focus on core
competencies and become more flexible, they
reduce their ownership of raw materials sources and
distribution channels.
The effect is to increase the number of organizations
involved in satisfying customer demand, while
reducing managerial control of daily logistics
operations.
The purpose of supply chain management is to
improve trust and collaboration among supply chain
partners, thus improving inventory visibility and the
velocity of inventory movement.

Uncertainty and Risk Factors
Matching Supply and Demand a Major Challenge
REASONS EXAMPLES
•Raw material shortages
•Internal and supplier parts
shortages
•Productivity inefficiencies
Boeing Aircraft’s inventory write-
down of $2.6 billion
•Sales and earnings shortfall
•Larger than anticipated inventories
Sales at U.S. Surgical Corporation
declined 25 percent, resulting in a
loss of $22 million
•Stiff competition
•General slowdown in the PC
market
Intel reported a 38 percent decline
in quarterly profit
•Higher than expected orders for
new products over existing
products
EMC Corp. missed its revenue
guidance of $2.66 billion for the
second quarter of 2006 by around
$100 million

Fluctuations of Inventory and Backorders
throughout the Supply Chain
FIGURE 1-3: Order variations in the supply chain

• Forecasting is not a solution
• Demand is not the only source of uncertainty
• Recent trends make things more uncertain
– Lean manufacturing
– Outsourcing
– Off-shoring

• August 2005 – Hurricane Katrina
– P&G coffee supplies from sites around New Orleans
– Six month impact
• 2002 West Coast port strike
– Losses of $1B/day
– Store stock-outs, factory shutdowns
• 1999 Taiwan earthquake
– Supply interruptions of HP, Dell
• 2001 India (Gujarat state) earthquake
– Supply interruptions for apparel manufacturers

Evolution of Supply Chain Management
1950s 1960s 1970s 1980s 1990s 2000s Beyond
Traditional Mass Manufacturing
Inventory Management/Cost
Optimization
JIT, TQM, BPR,
Alliances
SCM Formation/
Extensions
Further Refinement
of
SCM Capabilities

Progression of Logistics Costs
FIGURE 1-4: Logistics costs’ share of the U.S. economy

Composition of Logistics Costs
FIGURE 1-5: Total U.S. logistics costs between 1984 and 2005

Mission-Strategy-Tactics-Decisions
• Mission, Mission statement
– The reason for existence of an organization
• Strategy
– A plan for achieving organizational goals
• Tactics
– The actions taken to accomplish strategies
• Operational decisions
– Day to day decisions to support tactics

Life Strategy for Ted
Ted is an undergrad. He would like to have a career in business, have a
good job, and earn enough income to live comfortably
Mission: Live a good life
• Goal: Successful career, good income
• Strategy: Obtain a master’s degree
• Tactics: Select a college and a
concentration
• Operations: Register, buy books, take
courses, study, graduate,
get a job

Linking SC and Business Strategy
New
Product
Development
Marketing
and
Sales
Operations Distribution Service
Finance, Accounting, Information Technology, Human Resources
Competitive (Business) Strategy
Product Development Strategy
-Portfolio of products
-Timing of product introductions
Marketing Strategy
-Frequent discounts
-Coupons
Supply Chain Strategy

Strategies:
Product
Development
It relates to Technologies for future
operations (via patents) and Set
of products/services
• Be the technology leader
IBM workstations
• Offer many products
Dell computers
• Offer products for locals
Tata’s Nano at $2500=100000 rupees
Production at Singur, West Bengal, India;
l x w x h=3.1 x 1.5 x 1.6 meters;
Top speed: 105km/hr;
Engine volume 623 cc;
Mileage 50 miles/gallon;
Annual sales target 200,000.

Strategies
• Marketing and sales strategy relates to positioning, pricing and
promotion of products/services
– e.g. Never offer more than 40% discount
– e.g. EDLP = every day low price
• At Wal-Mart
– e.g. Demand smoothing via coupons
• BestBuy
• Supply chain management strategy relates to procurement,
transportation, storage and delivery
– e.g. Never use more than 1 supplier for every input
– e.g. Never expedite orders just because they are late
– e.g. Always use domestic suppliers within the sales season not in advance.

Fitting the SC to the customer or vice versa?
• Understand the customer Wishes
• Understand the Capabilities of your SC
• Match the Wishes with the Capabilities
• Challenge: How to meet extensive Wishes
with limited Capabilities?

Achieving Strategic Fit: Consistent SCM
and Competitive strategies
• Fit SC to the customer
• Understanding the Customer
– Range of demand, pizza hut stable
– Production lot size, seasonal products
– Response time, organ transplantation
– Service level, product availability
– Product variety
– Innovation
– Accommodating
poor quality
Implied (Demand)
Uncertainty for SC
Implied trouble
for SC

Contributors to Implied Demand
Uncertainty
Low High
Price ResponsivenessCustomer Need
Implied Demand Uncertainty
Commodities
Detergent
Long lead time steel
Customized products
High Fashion Clothing
Emergency steel,
for maintenance/replacement
Short lead times, product variety,
distribution channel variety, high rate of innovation and
high customer service levels all increase
the Implied Demand Uncertainty

Understanding the Supply Chain:
Cost-Responsiveness Tradeoff
High Low
Low
High
Responsiveness (in time, high service level and product variety)
Cost in $
Efficiency frontier
InefficientFix responsiveness Impossible
Inefficiency Region
Why decreasing slope (concave) for the efficiency frontier?

Achieving Strategic Fit: Wishes vs. Capabilities
Implied
uncertainty
spectrum
Responsive
(high cost)
supply chain
Efficient
(low cost)
supply chain
Certain
demand
Uncertain
demand
Responsivenes
spectrum
Lunch buffet
<Low margin>
Gourmet dinner
<High margin>

Loosing the strategic fit: Webvan
• Webvan started a merger with HomeGrocer in Sept 2000 and
completed in May 2001.
• Declared bankruptcy in July 2001. Why?
– “Webvan was so behemoth that could deliver anything to anyone anywhere
that it lost sight of a more mundane task: pleasing grocery customers day
after day”.
– Short to midterm cash mismanagement. Venture capital of $1.2 B run out.
– Merger costs: duplicated work force, integration of technology, realignment
of facilities.
• Peapod has the same business model but more focused in terms of
service and locations. It actually survives with its parent company
Royal Ahold’s (Dutch Retailer) cash.
– Delivers now at a fee of $6.95 within a day.

Big retailers’ Strategy
• Wal-Mart: Efficiency
• Target: More quality and service
• Carrefour: International, ambiance
• K-Mart: Confused.
– Squeezed between Target and Wal-Mart
– Reliance on coupon sales
– Do coupons stabilize or destabilize a Supply chain?
• K-Mart and Sears merged in November 2004.
Now called Sears Holdings.
• K-Mart gets cash
• Sears gets presence outside malls

Other Factors
• Multiple products in a SC. Multiple customers for a given product
– Separate supply chains or Tailored supply chains
• e.g. Barnes and Noble: Retailing and/or e-tailing
– Product and/or customer classes
• e.g. UTD library loans books for 6 months (2 weeks) to faculty (students)
• Customer segmentation by pricing
• Competitors: more, faster and global
• UTD online programs compete globally
• Product life cycle (shortening)
– SCM strategy moves toward efficiency and low implied uncertainty as products age
• e.g. Air travel is becoming more efficient
– e.g. Southwest airlines lead the drive for efficiency
– e.g. Airbus announced A380 accommodating 555-800 people on Jan 17, 2005.
• e.g. Flat screen TV producer of AU Optronics of Taiwan was looking for ways to make its SC
more efficient in June 2004.
– Replacement sales
• Selling to replace broken units.
– e.g. AC replacement is about 50% of the market.
– Macroeconomic factors for visibility
• Forecasting Home Depot sales from S&P 500 price index.
– Positive correlation is detected.

Achieving Strategic Fit over a Lifecycle
Responsive
(high cost)
supply chain
Efficient
(low cost)
supply chain
Certain
demand
Uncertain
demand

Integration
• Integration is the central theme in SCM
• Building synergies by integrating business
functions, departments and companies

Strategic Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy

Supply Chain Structures & Reporting

Reporting
Reporting in the broadest sense covers all the
tasks that serve the information supply of
information users inside and outside the
company. Reporting in the narrower sense is
usually understood to mean the provision of
information to corporate addressees. In a further
limitation, the information supply to addressees
can be restricted to management tasks within
the company.
This sub-task is referred to as "management
reporting" and is the central tool for the
information supply of organizational members
(management, department and department,
project or product managers, etc.) entrusted
with management tasks.

Stakeholders Engagement
Stakeholder engagement is the process by which an organisation involves
people who may be affected by the decisions it makes or can influence the
implementation of its decisions. They may support or oppose the decisions,
be influential in the organization or within the community in which it
operates, hold relevant official positions or be affected in the long term.
Stakeholder engagement is a key part of Corporate Social Responsibility (CSR)
and achieving the triple bottom line. Companies engage their stakeholders in
dialogue to find out what social and environmental issues matter most to
them about their performance in order to improve decision-making and
accountability.
Engaging stakeholders is a requirement of the Global Reporting Initiative, a
network-based organisation with sustainability reporting framework that is
widely used around the world. The International Organisation for
Standardization (ISO) requires stakeholder engagement for all their new
standards.

Procurement
Procurement is the act of finding, acquiring,
buying goods, services or works from an
external source, often via a tendering or
competitive bidding process.
The process is used to ensure the buyer
receives goods, services or works the best
possible price, when aspects such as quality,
quantity, time, and location are compared.
Corporations and public bodies often define
processes intended to promote fair and
open competition for their business while
minimizing risk, such as exposure to fraud
and collusion.

5 Roles for Procurement in the
Supply Chain
Being a Trusted Advisor to the Business
World-class procurement organizations are much more likely than
typical ones to be considered valued partners by the business, not
gatekeepers or administrators. Hackett’s research shows that they
have a high level of involvement in planning and budgeting half the
time, nearly 4x more often than at typical companies.
To achieve this status, world-class procurement organizations make
certain to proactively understand what drives the requirements of the
business as opposed to simply facilitating the buying process. This
makes it possible to reverse-engineer costs and explore potentially less
expensive and/or higher-quality alternatives.

Driving Suppliers to Innovate
World-class procurement groups are very effective at
building strong business relationships with key
suppliers, enabling them to work collaboratively to
reduce costs and sometimes even create customized
and unique breakthrough solutions.
Procurement organizations have seen positive results
from investing in formalizing the innovation life cycle,
from idea formation and evaluation to development,
productization and continuous improvement. In fact,
the research found that top-quartile companies now
drive more than twice as much incremental revenue as
typical companies through supplier innovation efforts,
demonstrating the value of this supply chain strategy.

Providing Analytics-Backed Insights
World-class procurement works closely with the business during operational planning
and budgeting periods to provide predictive insights on supply markets. This requires
having the tools and expertise to turn data into actionable knowledge.
The ability to view spend data by suppliers on a global basis is a building block of more
predictive analytics. World-class organizations have a significant level of information
available nearly 90 percent of the time, more than twice as often as typical companies,
the research found. They have also mastered this competency to the point that
analytics, market intelligence and benchmarking are offered on demand as a service to
key stakeholders.

Protecting the Business from Risk
World-class procurement
organizations have formal risk
management programs to ensure
supply continuity and regulatory
compliance.
Organizations with a formal and
broadly-applied strategy for assessing
risk have nearly 25 percent greater
procurement ROI than those without
them, the research found. This
includes completing supplier risk
assessments and working with finance
and other stakeholders to determine
the best mitigation strategy when risk
exposure is identified.

Employing an Agile Approach to Staffing
World-class procurement organizations are
distinguished by the way they attract, develop and
retain talent. Their efforts are not limited by
geographical borders, as they hire globally and
from other parts of the business, opening the door
to new sources of skills and fresh thinking.
Many are utilizing global business services, or more
traditional shared services organizations, and have
also established relationships with external entities
such as business process outsourcers to support
activities such as providing supply-market
intelligence. They also provide greater training
hours per associate, invest more in retention
planning, and pay higher salaries.

Spend Analysis
Technically, spend analysis is the process of aggregating, classifying,
and leveraging spend data for the purpose of gaining visibility into cost
reduction, performance improvement, and contract compliance
opportunities. It is part of an overall spend management and visibility
process that includes the analysis, award, and monitoring of corporate
spend. Additionally, it is the first and last step of the strategic sourcing
process that drives total value.
Generic spend analysis enables one to answer the following questions:
• Who is buying
• What
• From whom
• When
• (optionally) Where
• At what price

Spend Analysis – Function

Whole-Life Cost Analysis
Whole-life cost, or Life-cycle cost (LCC), refers to the total cost
of ownership over the life of an asset. Also commonly referred
to as "cradle to grave" or "womb to tomb" costs. Costs
considered include the financial cost which is relatively simple
to calculate and also the environmental and social costs which
are more difficult to quantify and assign numerical values.
Typical areas of expenditure which are included in calculating
the whole-life cost include, planning, design, construction and
acquisition, operations, maintenance, renewal and
rehabilitation, depreciation and cost of finance and
replacement or disposal.

Whole-life cost analysis is often used for option evaluation when procuring
new assets and for decision-making to minimize whole-life costs throughout
the life of an asset. It is also applied to comparisons of actual costs for similar
asset types and as feedback into future design and acquisition decisions.
The primary benefit is that costs which occur after an asset has been
constructed or acquired, such as maintenance, operation, disposal, become
an important consideration in decision-making. Previously, the focus has been
on the up-front capital costs of creation or acquisition, and organisations may
have failed to take account of the longer-term costs of an asset. It also allows
an analysis of business function interrelationships.
Low development costs may lead to high maintenance or customer service
costs in the future. When making this calculation, the depreciation cost on
the capital expense should not be included
Whole-Life Cost Analysis (Cont’d)

Whole-Life Cost Analysis

RFID
Radio-frequency identification (RFID) uses electromagnetic
fields to automatically identify and track tags attached to
objects. The tags contain electronically stored information.
Passive tags collect energy from a nearby RFID reader's
interrogating radio waves.
Active tags have a local power source such as a battery and may
operate at hundreds of meters from the RFID reader.
Unlike a barcode, the tag need not be within the line of sight of
the reader, so it may be embedded in the tracked object. RFID is
one method for Automatic Identification and Data Capture
(AIDC).

RFID in Supply Chain Efficiency
Commerce
Sewn-in RFID label in garment manufactured by the French sports supplier
Decathlon. Front, back, and transparency scan.
• RFID provides a way for organizations to identify and manage tools and
equipment asset tracking, without manual data entry. RFID is being
adopted for item level tagging in retail stores. This provides Electronic
Article Surveillance (EAS), and a Self Checkout process for consumers.
Automatic identification with RFID can be used for inventory systems.
Manufactured products such as automobiles or garments can be tracked
through the factory and through shipping to the customer.
• Casinos can use RFID to authenticate poker chips, and can selectively
invalidate any chips known to be stolen.

Access control
RFID antenna for vehicular access control
RFID tags are widely used in identification badges, replacing earlier
magnetic stripe cards. These badges need only be held within a certain
distance of the reader to authenticate the holder.
Tags can also be placed on vehicles, which can be read at a distance, to
allow entrance to controlled areas without having to stop the vehicle
and present a card or enter an access code.

Promotion tracking
To prevent retailers diverting products, manufacturers
are exploring the use of RFID tags on promoted
merchandise so that they can track exactly which
product has sold through the supply chain at fully
discounted prices.

RFID in warehouse processes offers:
• visibility of accurate real-time information
• fast locating of products
• possibility to record losses
• ability to plan product locations strategically

RFID in manufacturing processes means:
• less manual work
• less costs
• improved visibility
• improved planning

RFID in container management and tracking:
• offers visibility of real-time cargo movement
• improves efficiency
• increase accuracy

RFID in distribution processes:
• accelerates the speed of delivery
• improves efficiency
• increases accuracy
• reduces distribution costs

Supplier Contract Management

Contract Management Life Cycle
Contract Management Life Cycle
The Life Cycle consist of all steps necessary to create a
fully executed contract. The steps include:
• Contract Creation
• Contract Collaboration (internal and external)
• Contract Approval
• Contract Execution (or signature)

Definition Contract Life Cycle Management “is the process
of systematically and efficiently managing contract creation,
execution and analysis for maximising operational and
financial performance and minimising risk”.
There are a number of other definitions of contract
management, the majority of which refer to post-award
activities. Successful contract management, however, is most
effective if upstream or pre-award activities are properly
carried out.

Supplier Appraisal
Supplier appraisal establishes (or
otherwise) a potential supplier’s
capability and capacity to deliver
goods and services to your
organisation now and in the future.
The assessment process should
establish the supplier’s capability to
control quality, delivery, quantity, price
and all the other factors contained in
the contract.
Following a successful appraisal, the
supplier is placed on an approved list
of suppliers.

The Importance of Standards in Global
Supply Chain

Sourcing in Procurement & Supply

THANK YOU!

Aviation Preparatory Operations Management

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