Supply Chain Management: From Vision to Implementation Chapter 1: Supply Chain Management and Competitive Strategy

Chapter 1: Learning Objectives Define supply chain management and identify how supply chain collaboration can improve performance. Discuss the extent to which supply chain strategies are being implemented.

Define supply chain management and identify how supply chain collaboration can improve performance.

Discuss the extent to which supply chain strategies are being implemented.

Chapter 1: Learning Objectives Define strategic management and discuss how supply chain management supports the development and execution of a winning competitive strategy. Identify the four process steps involved in designing and implementing a supply chain strategy.

Define strategic management and discuss how supply chain management supports the development and execution of a winning competitive strategy.

Identify the four process steps involved in designing and implementing a supply chain strategy.

Theory of Supply Chain Management Companies seek to design business models that meet customer needs better than competitors. Success depends on the ability to Design, Make, and Deliver innovative, high quality, low cost products and services that customers demand.

Companies seek to design business models that meet customer needs better than competitors. Success depends on the ability to

Design, Make, and Deliver

innovative, high quality, low cost products and services that customers demand.

Theory of Supply Chain Management Supply chain management allows companies to focus on their unique skill sets. Supply chain management requires a common understanding of supply chain objectives and individual roles, an ability to work together, and a willingness to adapt in order to create and delivery the best products and services possible.

Supply chain management allows companies to focus on their unique skill sets.

Supply chain management requires a common understanding of supply chain objectives and individual roles, an ability to work together, and a willingness to adapt in order to create and delivery the best products and services possible.

Supply Chain: Manufacturing Example

Supply Chain: Manufacturing Example

Supply Chain: Service Example

Supply Chain: Service Example

Supply Chain Management Defined Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer. - Institute for Supply Management

Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer.

- Institute for Supply Management

Supply Chain Integration Internal Process Integration: increase collaboration among the company’s functional groups. Backward Process Integration: collaboration with 1st-tier and 2nd-tier (leading companies) suppliers. Forward Process Integration: collaboration with 1st-tier customers. Complete Integration: collaboration from the “suppliers’ supplier to the customers’ customer.”

Internal Process Integration: increase collaboration among the company’s functional groups.

Backward Process Integration: collaboration with 1st-tier and 2nd-tier (leading companies) suppliers.

Forward Process Integration: collaboration with 1st-tier customers.

Complete Integration: collaboration from the “suppliers’ supplier to the customers’ customer.”

Supply Chain Integration Common

Internal Value Chain Elements Executive Management defines company strategy and allocates resources to achieve it. Supply Management coordinates the upstream supply base, finding the right suppliers and building the right relationships with them. Operations transforms the inputs acquired from suppliers into more highly valued products. Logistics moves and stores materials so they are available when and where they are needed. Marketing manages the downstream relationships with customers, identifying their needs and communicating to them how the company can meet those needs.

Executive Management defines company strategy and allocates resources to achieve it.

Supply Management coordinates the upstream supply base, finding the right suppliers and building the right relationships with them.

Operations transforms the inputs acquired from suppliers into more highly valued products.

Logistics moves and stores materials so they are available when and where they are needed.

Marketing manages the downstream relationships with customers, identifying their needs and communicating to them how the company can meet those needs.

Internal Value Chain Elements Human Resources designs the systems used to hire, train, and develop the company’s employees. Accounting maintains business records that provide information needed to control operations. Finance acquires and controls the capital required to operate the business. Information Technology builds and maintains the systems needed to capture and communicate information among decision makers. Research and Development (R&D) is responsible for new product design.

Human Resources designs the systems used to hire, train, and develop the company’s employees.

Accounting maintains business records that provide information needed to control operations.

Finance acquires and controls the capital required to operate the business.

Information Technology builds and maintains the systems needed to capture and communicate information among decision makers.

Research and Development (R&D) is responsible for new product design.

Internal Value Chain: Local Focus R & D Operations Executive Management Logistics Marketing Human Resource Management Accounting Finance Supply Management Information Technology

Internal Value Chain: Company Focus Upstream Suppliers Downstream Customers R & D Operations Executive Management Logistics Marketing Human Resource Management Accounting Finance Supply Management Information Technology

Internal Value Chain: Company Focus Upstream Suppliers Downstream Customers R & D Operations Executive Management Logistics Marketing Human Resource Management Accounting Finance Supply Management Information Technology

SCM: Linked Value Chains Focal Firm Supplier Supplier’s Supplier Customer Customer’s Customer R & D Operations Executive Management Logistics Marketing Human Resource Management Accounting Finance Supply Management Information Technology R & D Operations Executive Management Logistics Marketing Human Resource Management Accounting Finance Supply Management Information Technology R & D Operations Executive Management Logistics Marketing Human Resource Management Accounting Finance Supply Management Information Technology R & D Operations Executive Management Logistics Marketing Human Resource Management Accounting Finance Supply Management Information Technology R & D Operations Executive Management Logistics Marketing Human Resource Management Accounting Finance Supply Management Information Technology

Supply Chain Integration Common Theoretical Ideal

Supply Chain Management Problems The goal of supply chain management is to use technology and teamwork to build efficient and effective processes that create value for the end customer. The goal is compromised when processes, value chain elements, and/or companies work toward local rather than global optimum.

The goal of supply chain management is to use technology and teamwork to build efficient and effective processes that create value for the end customer.

The goal is compromised when processes, value chain elements, and/or companies work toward local rather than global optimum.

The Bullwhip Effect Variation in demand is exaggerated as information moves upstream away from the point of use. Variation in demand is exaggerated due to infrequent demand and/or inventory level information exchange and order batching.

Variation in demand is exaggerated as information moves upstream away from the point of use.

Variation in demand is exaggerated due to infrequent demand and/or inventory level information exchange and order batching.

The Bullwhip Effect

The Bullwhip Effect Bullwhip effect costs can be as high as 12 to 25% Bullwhip can be effectively mitigated by: Sharing point of sale data Collaborative forecasting Collaborative future product promotion planning

Bullwhip effect costs can be as high as 12 to 25%

Bullwhip can be effectively mitigated by:

Sharing point of sale data

Collaborative forecasting

Collaborative future product promotion planning

Integrating SCM and Strategy What makes Dell and Wal-Mart successful? It’s the business model, and supply chain is an enabler. That’s why you’re seeing this growing importance of supply chains. People realize this is the weapon of the future. - Robert W. Moffat Jr., IBM

What makes Dell and Wal-Mart successful? It’s the business model, and supply chain is an enabler. That’s why you’re seeing this growing importance of supply chains. People realize this is the weapon of the future.

- Robert W. Moffat Jr., IBM

Strategy Strategy is the basis from which a consistent allocation of resources is made to achieve some objective. The objective of “for-profit” organizations is to make money; the best way to achieve this objective may be to focus on satisfying the customer.

Strategy is the basis from which a consistent allocation of resources is made to achieve some objective.

The objective of “for-profit” organizations is to make money; the best way to achieve this objective may be to focus on satisfying the customer.

Contingency Theory Contingency theory recognizes the need for managers to consider the relationship between a changing environment, managerial decision-making, and performance. Situational awareness is key to effectively aligning company resources in a changing competitive environment.

Contingency theory recognizes the need for managers to consider the relationship between a changing environment, managerial decision-making, and performance.

Situational awareness is key to effectively aligning company resources in a changing competitive environment.

Industrial Organization Theory Market forces constrained by the power of suppliers, buyers, existing rivals, potential rivals, and providers of substitute products/services should drive decision-making. Industrial Organization core questions: Where does market power exist? What are the sources of that power?

Market forces constrained by the power of suppliers, buyers, existing rivals, potential rivals, and providers of substitute products/services should drive decision-making.

Industrial Organization core questions:

Where does market power exist?

What are the sources of that power?

Resource-Based Theory Resource-based theory emphasizes management of internal sources to establish a unique skill set. Unique skills/processes (core competence) lead to competitive advantage, the ability to deliver distinctive products/services in a way that adds value in the eyes of the customer.

Resource-based theory emphasizes management of internal sources to establish a unique skill set.

Unique skills/processes (core competence) lead to competitive advantage, the ability to deliver distinctive products/services in a way that adds value in the eyes of the customer.

Four Decision Areas for Strategy Environment Internal – company culture, functional relationships, reward and measurement system External – competitive, economic, legal, and political environments

Environment

Internal – company culture, functional relationships, reward and measurement system

External – competitive, economic, legal, and political environments

Environmental Considerations

Four Decision Areas for Strategy Environment Internal – company culture, functional relationships, reward and measurement system External – competitive, economic, legal, and political environments Resources – all assets a firm can bring to bear, including: people, technology, infrastructure, materials, and money. Success requires investment in knowledge and processes

Environment

Internal – company culture, functional relationships, reward and measurement system

External – competitive, economic, legal, and political environments

Resources – all assets a firm can bring to bear, including: people, technology, infrastructure, materials, and money.

Success requires investment in knowledge and processes

Four Decision Areas for Strategy Objectives – unifies decision-making throughout a company. Focusing on the right objectives is the key to a winning business strategy. Feedback –input to the control mechanism, insuring the company strategy adapts to a changing competitive environment. Marketplace – custom expectations, company capabilities, and competitor actions General – exchange rates, government policies, technologies, weather and other natural occurrences

Objectives – unifies decision-making throughout a company.

Focusing on the right objectives is the key to a winning business strategy.

Feedback –input to the control mechanism, insuring the company strategy adapts to a changing competitive environment.

Marketplace – custom expectations, company capabilities, and competitor actions

General – exchange rates, government policies, technologies, weather and other natural occurrences

Strategic Thinking: Traditional View A valid business model must answer two questions: What is our business? Who are our customers? What is the real value that we offer them? How can we do it better than anyone else? Unique organizational capabilities Almost always process based

A valid business model must answer two

questions:

What is our business?

Who are our customers?

What is the real value that we offer them?

How can we do it better than anyone else?

Unique organizational capabilities

Almost always process based

Supply Chain Strategy Seeks to leverage the resources and skills of diverse companies in the supply chain to deliver exceptional value to the end customer. Addresses: How the capabilities of other chain members can be used to create value for the end customer How their own strategy and actions impact the ability of the supply chain to create value for the end customer

Seeks to leverage the resources and skills of diverse companies in the supply chain to deliver exceptional value to the end customer.

Addresses:

How the capabilities of other chain members can be used to create value for the end customer

How their own strategy and actions impact the ability of the supply chain to create value for the end customer

Supply Chain Strategy Rather than “What is our business?” the SC strategist inquires: What is the overall supply chain’s value proposition? How does our company uniquely help the chain deliver on its value proposition?

Rather than “What is our business?” the SC strategist inquires:

What is the overall supply chain’s value proposition?

How does our company uniquely help the chain deliver on its value proposition?

Supply Chain Strategy Rather than “How can we do it better than anyone else?” the SC strategist asks: What valued capabilities do other members of the chain possess? How can we bring these complementary competencies together in a way customers value? What type of relationships should we maintain with other members of the supply chain? Are any customer-valued competencies missing? If so, who is best positioned to develop them? How much of the value-added process should we control?

Rather than “How can we do it better than anyone else?” the SC strategist asks:

What valued capabilities do other members of the chain possess?

How can we bring these complementary competencies together in a way customers value?

What type of relationships should we maintain with other members of the supply chain?

Are any customer-valued competencies missing? If so, who is best positioned to develop them?

How much of the value-added process should we control?

SCM Impact on Strategic Thinking

SCM Impact on Strategic Thinking Great firms will fight the war for dominance in the marketplace not against individual competitors in their field but fortified by alliances with wholesalers, manufacturers, and suppliers all along the supply chain. In essence, competitive dominance will be achieved by an entire supply chain, with battles fought supply chain versus supply chain. - Roger Blackwell

Great firms will fight the war for dominance in the marketplace not against individual competitors in their field but fortified by alliances with wholesalers, manufacturers, and suppliers all along the supply chain. In essence, competitive dominance will be achieved by an entire supply chain, with battles fought supply chain versus supply chain.

- Roger Blackwell

The Supply Chain Road Map

The Supply Chain Road Map

A Return to the Opening Story Based on what you have now read and discussed: Wal-Mart, Dell, and Honda each take different and unique approaches to SCM. How would you define SCM for the purpose of Doug’s presentation? How would you suggest Doug organize his presentation to capture senior management’s imagination? Looking ahead, what do you think Doug’s biggest challenge is?

Based on what you have now read and discussed:

Wal-Mart, Dell, and Honda each take different and unique approaches to SCM. How would you define SCM for the purpose of Doug’s presentation?

How would you suggest Doug organize his presentation to capture senior management’s imagination?

Looking ahead, what do you think Doug’s biggest challenge is?

Supply Chain Management: From Vision to Implementation Supplement A: The Beer Game

Beer Game Layout

General Information Developed by MIT to simulate a simple 6-tier single product supply chain. The game is played in a series of periods; each period corresponds to one week. Each order has a two-week delay and each shipment has a two-week delay.

Developed by MIT to simulate a simple 6-tier single product supply chain.

The game is played in a series of periods; each period corresponds to one week.

Each order has a two-week delay and each shipment has a two-week delay.

Beer Game Layout

General Information There is cost associated with having too much inventory (i.e., inventory carrying costs) and too little inventory (i.e., backlogs, lost sales, lost customers). To hold a unit of inventory for one week costs $1.00. Each unit of backlog costs $2.00 per week. Inventory and backlog levels are tracked during the game on a form.

There is cost associated with having too much inventory (i.e., inventory carrying costs) and too little inventory (i.e., backlogs, lost sales, lost customers).

To hold a unit of inventory for one week costs $1.00.

Each unit of backlog costs $2.00 per week.

Inventory and backlog levels are tracked during the game on a form.

Order Entry Form Backlog = previous period backlog + current period demand – amount shipped in current period Week Inventory Backlog Order 1 2 3

Game Sequence Receive Inventory and Transport Orders – products in shipping delay boxes are advanced one position on the game board. Look at and Fill Incoming Orders – receive incoming order and ship the requested number of units (plus any existing backlog), if possible, into the empty shipping delay box that was created during step 1. If you don’t have enough inventory, ship as much as you can and add any unfilled orders to your backlog. Record Inventory or Backlog Levels – count your inventory or calculate your backlog and record it. Place an Order – decide how many units to order from your immediate supplier. Advance your previous period’s order from the order placed box into the supplier’s incoming order box and place your new order in the order placed box. Place orders face down so they cannot be seen by your supplier.

Receive Inventory and Transport Orders – products in shipping delay boxes are advanced one position on the game board.

Look at and Fill Incoming Orders – receive incoming order and ship the requested number of units (plus any existing backlog), if possible, into the empty shipping delay box that was created during step 1. If you don’t have enough inventory, ship as much as you can and add any unfilled orders to your backlog.

Record Inventory or Backlog Levels – count your inventory or calculate your backlog and record it.

Place an Order – decide how many units to order from your immediate supplier. Advance your previous period’s order from the order placed box into the supplier’s incoming order box and place your new order in the order placed box. Place orders face down so they cannot be seen by your supplier.

Rules of the Game You may NOT communicate with your supplier or any other tier in the supply chain. The only communication that takes place between the is through the order cards that are passed face down along the supply chain. Customer demand is determined in advance. Retailers are not allowed to share this information with other tiers. Each step in the game sequence must be completed by each of the tiers for the current period before the next period can be started.

You may NOT communicate with your supplier or any other tier in the supply chain. The only communication that takes place between the is through the order cards that are passed face down along the supply chain.

Customer demand is determined in advance. Retailers are not allowed to share this information with other tiers.

Each step in the game sequence must be completed by each of the tiers for the current period before the next period can be started.