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Value creation through supply chain integrations: relationship management & technology issues Prof. Xiande Zhao Director, Center for Supply Chain Management & Logistics Li & Fung Institute of Supply Chain Management/ Logistics Chinese University of Hong Kong http://lf-scml.baf.cuhk.edu.hk/index/
Enhancing competitive advantages through supply chain integration
How LI & FUNG Adds Value? Li & Fung does the high-value-added front-and back-end tasks front end back end design quality control engineering testing production planning logistics it organizes the lower-value-added middle stages through its network of 7,500 suppliers, 2,500 of which are active at any one time. raw material and component sourcing managing production
What are some of the major types of integrations?
Focus on core competencies
Outsource other activities
Leverage over the strength of the strategic partners to gain competitive advantages
Jointly develop strategies with partners
structure the strategic goals and objectives into consensus and contractual agreements
share resources, rewards and risks across organizations in order to achieve competitiveness.
Linking the internally performed work by different functional units into a seamless process to support customer requirements
Cross-functional team work: managers of cross functional teams use information from multiple sources to and are empowered to make immediate decisions.
Standardization: Establishment of cross-functional policies and procedures to facilitate synchronous operations
Simplification: Identification, adoption, implementation, and continuous improvement of best practices
Compliance: Adherence to established operational and administrative policies and procedures
the degree to which a firm can partner with its key supply chain members (customers / suppliers)
to structure their inter-organizational practices, procedures and behaviors
into collaborative, synchronized and manageable processes in order to fulfill the customer requirement.
Building lasting and distinctive relationships with customers of choice
development of customer specific programs designed to generate maximum customer success.
customer focus to continuously match changing expectations
Accommodation of unique and/or unplanned customer requirements
Linking externally performed work into a seamless congruency with internal work process
development of a common vision of the total value creation process and planning clarity concerning shared responsibility
linkages of systems and operational interfaces to reduce duplication, and redundancy while maintaining operational synchronization.
extended management to include the supplier’s suppliers
the degree to which a firm can coordinate the activities of information sharing and combine core elements from heterogeneous data management systems, content management systems, data warehouses, and other enterprise applications into a common platform in order to substantiate the integrative supply chain strategies.
Commitment and capabilities to facilitate supply chain resource allocation through seamless transactions across the total order to delivery cycle
Capability to exchange information across internal factional boundaries in a timely, responsive and usable format
Capability to exchange information with external supply chain partners in a timely, responsive and usable format
Collaborative Forecasting and Planning: Customer Collaboration to develop shared visions and mutual commitments to jointly generated action plans.
Some cases of SCI
Luen Thai’s D2S supply chain model
ASTEC’s SCI with Customers and Supplier
Ford Motor Company’s integration with its suppliers
Winning Model in the New Era 新时代的 致胜 模型 Manufacturing 生产 Logistics 物流 Store 零售店 Design & Development 设计及开发 Sourcing 采购 Winning Model: Design and Logistics Driven 致胜 模型﹕由设计及物流所推动 Pioneering the New Model 新模型的先驱 联泰 Information Technology Platform 信息科技平台 Logistics and Compliance Platform 物流及 推行 平台
雅达电子产品 DC/DC Industry standard pin-out Series (10W - 150W) - Industry standard pin-out - High efficiency - Zero load operation AC - DC Family 1W – 6KW DC - DC Modules 1W - 1200W Adapter (7.5W - 100W) - Multi - O/P - Wide-range AC input - OVP, S/C protection - High efficiency - High MTBF Lower Power Series (25W - 350W) - Auto ranging input - Build-in EMI filter - Active power factor correction - Multi - O/P - Medical safety approval - OVP, OCP Medium Power Series (400W - 1200W) - Wide-range AC input - C-share - Power factor correction - Multi - O/P - Warning signal DC/DC module (50W-300W) - Secondary side control - 24V, 48V, 300V input - High efficiency - Low noise/ripple Fast Transient VRM (100W) - Programmable output - High efficiency Server PSU (250W - 3000W) - Active power factor correction - N+1 parallel redundant operation, hot pluggable - I 2 C port for Vital Product Data and fault status - Built-in fans (in series) with temperature controlled speed Mobile phone charger (2W-5W) - standard/Custom design - constant current AC, DC Router 1360W - N+1 redundancy - Hot plug, hot swap - Current share on all outputs - Status signals - EEprom
Example: Nokia customer hub process ASTEC Bao’an, China Hub Planning
1 week trans-shipment
13 weeks Forecast Pick & pack inventory HUB Nokia manufacturing facilities Periodic Inventory Report Weekly total Pull Report Hungary Nokia in Europe Finland Germany
6 weeks in-transit time
ISR Forecast Production Requirements Outbound Shipment Invoicing based on pull information Global Commodity Manager Goods flow Information flow
Supply chain nodes of Ford Distant Suppliers Other Plants Logistic Centre Local Suppliers Almussafes Ford Plant Seq/ JIT Seq/JIT DAD DAD Industrial Park Seq/JIT Logistic Operator Seq/JIT Seq/JIT Logistic Operator Seq/JIT
Relationships and flows
Products & services flow; Information & knowledge flow; and Financial flow
J.I.T. Supplier Sequence Supplier D.A.D. Supplier Dealer OEM (Original Equipment Manufacturer) Carriers Planning & Sequence Info $ Order Goods $ Planning & Sequence Info. $ Sub Assemblies (JIT & Seq) Parts (O.C.) Planning Info. Sub Assembly Info. $ Constraints Constraints Parts (O.C.) /Empties Sequence Sub Assemblies Part s (O.C.) /Empties Planning & Sequence Info $ Constraints Goods Info J.I.T. Sub Assemblies Sub Assembly Info. Sub Assembly Info. D.A.D. Sub Assemblies Logistic Operator $ Routes & Material s info. Traditional Supplier Parts Planning Info $ Order Delivery Note Delivery Note Delivery Note Time Windows & M a terial s info. Time Windows & Materials Info Goods, services, revenue Information & Knowledge
The V-CHAIN Virtual Enterprise Reference Model, the TO-BE Model, has been conceived as the framework needed to obtain an integrated problem solving approach
Assembler Logistics Operator ( O perator for P lanning and S equencing) Other actors Carriers VE BUSINESS REFERENCE MODEL: OVERVIEW Suppliers
Our Research on Relationship Management and Supply Chain Integration in China
How do SCI influence supply chain performance and the financial performance of the firm?
How do trust and relationship commitment influence supply chain integration (supplier integrations (SI, CI and II)?
Surveys of manufacturers in 12 industries and 5 cities :
Chongqing, Tianjin, Guangzhou, Shanghai, and Hong Kong.
Respondents are people who are most knowledgeable on SCM, customer and supplier relationships
Top three industries :
Metal, Mechanical & Engineering. Textile and Apparel, Electronics & Electrical
617 usable questionnaires from 4,569 contacted companies (13.5%) or 1356 questionnaires (45.5 %) sent out.
Internal Integration (II)
Data integration among internal functions
Enterprise application integration among internal functions
Integrative inventory management
Real-time searching of the level of inventory
Real-time searching of logistics-related operating data
The utilization of periodic interdepartmental meetings among internal functions
The use of cross functional teams in process improvement
The use of cross functional teams in new product development
Real-time integration and connection among all internal functions from raw material management through production, shipping, and sales
Customer Integration (CI)
The level of linkage with major customer through information network
The level of computerization for our major customer ordering
The level of sharing of market information from our major customer
The level of communication with our major customer
The establishment of quick ordering system with our major customer
Follow-up with our major customer for feedback
The frequency of periodical contacts with our major customer
Our major customer shares Point of Sales (POS) information with us
Our major customer shares demand forecast with us
We share our available inventory with our major customer
We share our production plan with our major customer
Supplier Integration (SI)
The level of information exchange with our major supplier through information network
The establishment of quick ordering system with our major supplier
The level of strategic partnership with our major supplier
Stable procurement through network with our major supplier
The participation level of our major supplier in the process of procurement and production
The participation level of our major supplier in the design stage
Our major supplier shares their Production Schedule with us
Our major supplier shares their production capacity with us
Our major supplier shares available inventory with us
We share our production plan with our major supplier
We share our demand forecast with our major supplier
We share our inventory level with our major supplier
We help our major supplier to improve their process to better meet our needs
Growth in sales
Growth in profit
Growth in market share
Return on investment (ROI)
Growth in ROI
Return on sales
Growth in return on sales
Supply Chain Performance
Our supply chain has the ability to quickly modify products to meet customer’s requirements
Our supply chain allows us to quickly introduce new products into the markets
The length of the supply chain process is getting shorter.
We are satisfied with the speediness of the supply chain process
Based on our knowledge of the supply chain process, we think that it is efficient
Our supply chain has an outstanding on-time delivery record
The total inventory level in our supply chain is low
Our supply chain provides high level of customer services
Manufacturer (Customer-oriented) Performance
Our company can quickly modify products to meet our major customer’s requirements
Our company can quickly introduce new products into the markets
Our company can quickly respond to changes in market demand
Our company has an outstanding on-time delivery record to our major customer
The lead time for fulfilling customers orders (the time which elapses between the receipt of customer's order and the delivery of the goods) is short
Our company provides high level of customer service to our major customer
Our company’s inventory level is low
Our major supplier can quickly modify products to meet our company’s requirements
Our major supplier can quickly introduce new products into the markets
Our major supplier can quickly respond to changes in market demand
Our supplier has an outstanding on-time delivery record to our company
The supplier’s lead time for fulfilling our company’s orders (the time which elapses between the receipt of our order and the delivery of the goods) is short
Our major supplier provide high level of customer service to our company
Our major supplier has low level of inventory
What are some of the patterns of supply chain integrations?
What influences Integration?
Has been shown to significantly influence supply chain cooperation because:
trust is a useful lubricant in maintaining cooperation, avoiding conflicts and opportunistic behaviors
trust can significantly contribute to the long-term stability of a supply chain relationship
Trust increases the transaction specific investment
What are some of the major types of trust?
Refers to the technical and managerial expertise that the trustee is capable of performing and will perform their roles as expected
Refers to an expectation that a trustee can be relied upon to maintain the ethical standard and carry out a verbal or written promise
What are some of the major types of trust?
Refers to a trustor’s expectation that the trustee’s costs of cheating or engaging in opportunistic behavior are greater than the benefits of such actions
Refers to the mutual expectations of open commitment to one another, and the commitment is regarded as a willingness to do more than is formally expected
What is Relationship Commitment?
Relationship commitment can be defined as the willingness of a party to invest resources into a relationship
It indicates the propensity for relational continuity and the establishment of long-term relationship
What are the major types of relationship commitment?
can be defined as one party’s identification with and emotional attachment to the goals and values of another party, and willingness to secure the relationship
Affective commitment is based on a generalized sense of liking, loyalty and belongingness towards the exchange partner and an enduring desire to continue a relationship for enjoyment
What are the major types of relationship commitment?
can be viewed as one party’s identification with the benefits and costs of the relational exchange, and willingness of maintaining the relationship for satisfying his needs
Relationship Between Trust, Relationship Commitment and Process Integration? Business Sense & Judgment Ability & Expertness Predictability Confidence Benevolence Integrity Calculative Trust Competence Trust Contractual Trust Affective Trust Calculative Commitment Affective Commitment Supply Chain Integration ? - + + + + + + + + + +
Supply chain integrations (II, CI and SCI) significantly influence supply chain performance and the financial performance of the manufacturer.
Customer integration and internal integration seem to have great impact on performance than supplier integration.
To enhance integrations with customers and suppliers, manufacturers need to build trusts and enhance relationship commitments with them.
Affective relationship commitment is much more effective than calculative relationship commitment in enhancing SCIs
The use of expert power is much more effective than the use of reward or coercive power
Without trust and relationship commitment, technology is of no use
THANK YOU Li & Fung Institute of Supply Chain Management/Logistics http://lf-scml.baf.cuhk.edu.hk/index/ Q & A