Reference no: EM133408042
Operating Models in Operations and Supply Chain Management (OSCM)
The decision of the appropriate Operating Model in OSCM is crucial as it indicates the point where the pull from demand couples with the push from the supply. This couple-decouple point is very important in OSCM as it determines the amount and use of inventory, responsiveness to customers, total cost, speed of service, and most importantly, the amount of flexibility in response. In this memo, we will discuss the different types of Operating Models in OSCM and their impact on the supply chain.
There are four types of Operating Models in OSCM, namely, Make/Build to Forecast (MTF/BTF), Assemble/Configure to Order (ATO/CTO), Make/Build to Order (MTO/BTO), and Engineer to Order (ETO). These designs determine the plans and activities of the execution processes.
Make/Build to Forecast (MTF/BTF) also known as Make/Build to Stock (BTS/MTS) is best suited for a highly efficient OSCM strategy as it can produce large amounts of a few products at a very low cost. To execute this design, purchasing, production, and logistics process execution all have to be designed and executed to handle a large capacity at the lowest total systems cost. Service will be slow and flexibility diminished, but the delivered cost will be the lowest possible of any OSCM design.
Assemble/Configure to Order (ATO/CTO) is best suited for a product or service that requires minimal customization and is pre-configured. This design allows for a quicker response time and better service but at a higher cost.
Make/Build to Order (MTO/BTO) is best suited for a product or service that requires significant customization. This design allows for the highest level of flexibility but at the highest cost and the longest lead time.
Engineer to Order (ETO) is best suited for a product or service that is entirely customized. This design allows for the highest level of flexibility and service but at the highest cost and the longest lead time.
In conclusion, the decision of the appropriate Operating Model in OSCM is crucial as it determines the amount and use of inventory, responsiveness to customers, total cost, speed of service, and flexibility in response. Each of the four types of Operating Models in OSCM (Make/Build to Forecast, Assemble/Configure to Order, Make/Build to Order, and Engineer to Order) has its own advantages and disadvantages and should be chosen based on the unique strategy of the organization. The goal of all Operating Models is the same- maximum value creation.
Question(s)
1. How do organizations determine the appropriate Operating Model for their unique strategy?
2. How do the different Operating Models impact the supply chain in terms of inventory, responsiveness to customers, total cost, speed of service, and flexibility in response?
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