Digital Business Delivery-1
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MN7030Session11SupplyChainManagementSystemslecturer.pptxMaster of Business Administration Digital Business Delivery Session 11: Supply Chain Management systems
Professor Nigel Caldwell
Todays agenda
What is supply chain management?
SCM has a Supply side (Purchasing and relationships) and a Demand side (SC design and logistics including location planning).
SCM, outsourcing and the boundary of the firm
Transparency, Traceability and Blockchain
Unit of analysis
Dyadic exchange
relationship
Relationship portfolio
Supply chain
Focal firm supply chain
Industry as network
Industry as Eco System…
Consumer marketing
Industrial marketing /
Supply Chain
Management / B2B
Supply chain management
is the management of the interconnection of organisations that relate to each other through upstream and downstream linkages between the processes that produce value to the ultimate consumer in the form of products and services.
What is a Supply Chain?
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“A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request” (Chopra and Meindl, 2004, p4).
Involving: manufacturer, suppliers, transporters, warehouses, retailers and customers.
Flows of products, finances, information and services
Martin Christopher - Logistics
Logistics is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organisation and its marketing channels in such a way that current and future profitability are maximised through the cost effective fulfilment of orders.
This section draws heavily on Martin Christopher’s excellent book Logistics and Supply Chain Management
Demand creation and physical supply
The mission of logistics management
To serve customers in the most cost effective way
Christopher’s insight is that the way we reach and serve customers has become a critical competitive dimension
That is why it is necessary to look at logistics in a wider business sense and as linked to competitive advantage and not just a collection of tools and techniques.
SCM is broader than logistics
Logistics is essentially a planning orientation and framework that seeks to create a single plan for the flow of products and information through the business.
SCM builds upon this framework and seeks to achieve linkage and co-ordination between the processes of other entities in the pipeline, i.e. suppliers and customers and the organisation itself.
e.g. one goal of SCM might be to eliminate buffers of inventory through sharing information on demand and stocks
SCM is different: its about relationships
So SCM is a different to the arm’s length even adversarial relationships of business past
The focus is on co-operation and trust and that
The whole can be greater than the sum of the parts.. so… SCM is
The management of upstream and downstream relationships with customers and suppliers in order to deliver superior customer value at less cost to the supply chain.
Names – demand chain management better than supply?
Actually a network not a chain with multiple suppliers and multiple customers
Supply Chain
A simple supply chain showing suppliers upstream and customers downstream. Note that the operation is both a supplier and a customer.
Source: Jones and Robinson, 2013
A simple supply network for a small catering company
Downstream has Never heard of Leah’s cupcakes – HOW MUCH OF THIS SUPPLY COULD BE consolidated through the catering wholesaler
Vertical integration?
Returning to Outsourcing
Abbreviation for: Outside
Resource
Using
Outsourcing is the act of sub-contracting some of the firm’s internal activities to outside providers e.g.
Warehousing & Logistics
Catering
Cleaning
Call centre services
Manufacturing
Outsourcing is followed by the decision to
source a suitable supplier or service provider
Typically involves global sourcing
Outsourcing: “moving functions or activities outside of the organisation” (e.g. Lonsdale and Cox, 1997)
¼ of European/US companies now use 3rd party Procurement Service Providers (PSPs) for e.g. hosting e-sourcing and e-procurement applications: expected to grow (Accenture Procurement Survey, 2003)
Core outsourcing benefits
Economies of scale
Aggregating orders means a supplier can take advantage of economies of scale to reduce operations costs and then offer lower prices to customers.
Risk pooling
Outsourcing offers customers to transfer demand uncertainty to suppliers
Reduce capital investment
Capital investment is transferred to the supplier. Suppliers can do that because it is implicitly shared with many of their customers
Focus on core competencies
Enables company to focus on skills & knowledge that differentiate it from its competitors and gives an advantage in the eye of the customer
Increased flexibility
Ability to react more quickly to customer demand using supplier’s technical knowledge & ability to gain access to new technologies
Primary outsourcing risks
Loss of competitive knowledge
Outsourcing may open up opportunities for competitors (IBM PC).
Outsourcing implies that companies may lose their ability to introduce new designs based on their own agenda
Outsourcing may prevent the development of new skills, insights, innovations and solutions by parent company staff
Conflicting objectives
Increased flexibility for the buyer is in direct conflict with supplier’s objectives for long-term commitment from the buyer
The supplier may have business relationships with many of the buyer’s competitors and could leak confidential information
Delegation of operational control
Outsourcing means some loss of day-to-day control in return for greater focus on other parts of the business
Is there potential for critical loss of quality through suppliers sub-contracting? Think about Apple, Mattel, BP, Benetton, Primark..
Make or buy?
Other options..
Vertically integrate and ‘buy out’ the supplier
Create a virtual company and only use suppliers on ‘needs basis’
Alliance or Keiretsu approach: have suppliers become part of a company coalition
Outsourcing
Company
core
Functions close to core
Complementary functions
Peripheral functions
Partner
or supplier
Figure 5.1 Outsourcing Model (Adapted: Arnold 2000).
Outsourcing Model (Arnold, 2000)
Key question: is an activity core or non-core to the business?
Arnold’s 2000 model provides a useful starting point
However, the boundary between the company & its environment is no longer clear cut
RBV approach to make or buy decision
Considers the firm as a bundle of resources and capabilities (Penrose 1959)
Effective core competencies are sources of SCA:
Valuable
Rare
Inimitable: difficult to copy by other firms
Non-substitutable: unique skills or knowledge sets
Areas where company can dominate
Embedded in the organisation’s systems
Valuable
Rare
Inimitable
History dependent
Causally ambiguous
Socially complex
Non-Substitutable
Sustained Competitive Advantage (SCA)
Simplified version of Barney’s Model of Sources of Sustained Competitive Advantage
(Adapted from Barney, 1991)
Example of Micro compact Car and mercedes Benz
Capability is the combination of resources to create value
Examples of core capabilities from book
Reasons for making
Core competencies
Lower production cost
Unsuitable suppliers
Assure adequate supply
Utilise surplus labour
Obtain desired quantity
Remove supplier collusion
Unique item
Protect proprietary design/ quality
Increase/maintain company size
Reasons for buying
Free management time
Lower acquisition cost
Preserve supplier commitment
Obtain technical/management skill
Inadequate capacity
Reduce inventory costs
Flexibility/alternate supply source
Inadequate own resource/skill
Reciprocity
IP protected or trade secret
Make or buy summary
Supplier selection criteria
Company - Financial stability, Management, Location, Capacity/technical skill
Product/Service – Quality, Price, IP/license, Delivery on time, Condition on arrival, Technical support, Training
Other - Risk management, Political/principal
Types of supply network arrangements
Supply Management (nee purchasing) balances contracting and relationships
The value of partnership style relationships
Supply strategies change
High-tech industry
1980s: Sourcing in the US
1990s: Singapore and Malaysia
2000s: Taiwan and mainland China
2020 Reshoring…
?
Supply chains management is concerned with the flow of information and the flow of products and services
Products and services
New products and services
Delivery information
Payment request/credit
‘Downstream’ flow of products and services for customer
Fulfilment
‘Upstream’ flow of customer
Requirements
Long-term plans and requirements
Market research information
Individual orders
Payment
Potential new products and services
Flow between processes
Consumer
Flow between processes
Flow between processes
Operation 1
Operation 2
Operation 3
Supply Chain Managerial Decisions
Decisions, decisions!
Make or buy?
Designing the supply chain
Locations
Coordinating the spend portfolio
Selecting suppliers
Negotiating with suppliers
Supplier performance measurement & management
New product development
Green & ethical issues
Managing risk
Supply Management
(‘Purchasing / Buying / Procurement’)
What is Supply Management?
Ensuring that the enterprise is supplied with what it needs, so that it can provide what it sells to its market.
SOURCE
MAKE
DELIVER
RETURN
Procurement
Operations
Logistics
Reverse Logistics
The Make-Buy Decision
Which items to produce in-house and which items to purchase externally
Fundamental to supply chain management
Starting point for sourcing process
Make or buy?
Supplier selection
Negotiation
Relationship management
The Sourcing Process
A Simplified Sourcing Process
Step 1
Step 2
Step 3
Step 4
Step 5
Step 1 = Analyse
Opportunities
Step 2 = Develop
Sourcing Strategies
Step 3 =
Supplier Selection
Step 4 = Negotiation and Contracting
Step 5 = Supplier relationship management
Step 2: Position Products/Sourcing Group on Matrix
LEVERAGE
STRATEGIC
NON-CRITICAL
BOTTLENECK
Complexity of Supply Market
Impact on Business
High
Low
Low
High
EXAMPLE:
Bicycle Manufacturer
Where:
A = Stem & Bars
B = Groupset
C = Inner Tubes
D = Tubing
A
B
C
D
Category management strategies for a high-end bicycle manufacturer
Step 2: Categorise spend – The Kraljic Matrix
LEVERAGE
Multiple sources
Abundant supply
Medium-term focus
STRATEGIC
Single/parallel sources
Natural scarcity
Long-term focus
NON-CRITICAL
Multiple sources
Abundant supply
Short-term focus
BOTTLENECK
Single/tiered sources
Production scarcity
Variable focus
Complexity of Supply Market
Impact on Business
High
Low
Low
High
Four key sourcing approaches
Why would we want to mainatain more than one supplier like parallel sourcing ?
Categorising Spend – The Kraljic Matrix
A more dynamic perspective on Kraljic
Strategic Sourcing Practices
STRATEGIC SUPPLY MANAGEMENT
VOLUME CONCENTRATION
BEST PRICE EVALUATION
GLOBAL SOURCING
RELATIONSHIP RESTRUCTURING
JOINT PROCESS IMPROVEMENT
PRODUCT SPECIFICATION IMPROVEMENT
Step 3: Supplier Selection
How do firms select among potential suppliers?
Supplier selection requires definition and evaluation of wide range of factors:
‘Hard’ factors: cost, quality, delivery…
‘Soft’ factors: capability, complementarity, culture…
Some factors more important than others: weighting system
Simplicity = cost
Complexity = cost + others
Step 4: Negotiation and Contractual Arrangements
Will cost you…
Tactics
Emotion
Logic
Threat
Bargaining
Compromise
The best negotiators…
…have no tricks up their sleeve
…play it straight
…ask a lot of questions
…listen carefully
…and concentrate on what they and the other party are trying to accomplish at the negotiating table
G.R. Shell (2006) Bargaining for Advantage, Penguin,
Prepare, Prepare, Prepare
Comprehensive market knowledge
A wide range of quotations/tenders
Economic analysis
Product knowledge
Raw material sources and prices
Product or service cost analysis
Supplier financial data
Supplier activity/capacity data
BATNA – best alternative to a negotiated agreement
Listening
Most people can listen at about 450 words per minute, but they can only talk about 175 words per minute (39%).
Step 5: Implementation and Management
Performance & Relationship Management
Contract management
Performance measurement
Supply base optimisation
Supplier development
Green and Ethical Sourcing
Supply Chain Risk Management
Functional Vs. Innovative products
Lean & Agile Supply Chain Strategy Johnsen, Howard & Miemczyk (2014) p213
Matching supply chain with market requirements
Global supply chain for iPhone
https://www.iphoneincanada.ca/news/interactive-map-apples-worldwide-supply-chain/
Andy Warhol’s Campbell’s Soup Cans
More recently Volvo and green carts – Campbells soups funded the original project into the Foerester effect or Bull whip
Also known as the ‘Forrester Effect’
Is the effect of information delay & demand amplification across a supply chain
It is why supply chains run best when one common strategy is adopted by all partners
The bullwhip effect and Inventory
Inventory ‘spikes’ and fluctuation
Illustrates the tensions & mismatch in a supply chain
Operations run most effectively in stable conditions, but the reality is often constant market uncertainty See Lee et al. 1997
So what we need is to share more information right?
So if the relatively simple answer is sharing more information across the supply chain why has this not happened before?
Lets look at technology in supply chains
Transparency & traceability
Successful supply chains rely on transparency of shared supply and demand information
Technology such as RFID (radio frequency identification) helps SC actors to track stock as it moves in and out warehouse
GPS (Global positioning system) technology can even track trucks or ships as they ship goods to their destination.
Traceability involves the tracking & tracing of items in the supply chain as part of delivery, quality & security
Rise of importance of sustainability means a new level of traceability is required for supply chain assurance
E.g. Horsemeat scandal
Blockchain
How blockchain technology works to record
and verify transactions in supply chains
Low carbon …
Omni channel retailing / Reverse logistics – return of products to source
Disintermediation – ‘cutting out the middleman’
Blockchain and smart contracts
IoT, E-Procurement – use of the internet to improve cost and time ERP, SAP, track and trace technologies, RFID, Drones, SD vehicles
AI???
Trends in Supply Chain management
Critical commentary
SCM is the management of relationships and flows between operations and processes – different to the network.
Supply chains have supply, demand and sharing/collaboration elements, firms are suppliers and customers
[Supply] Sourcing strategy depends on the complexity and risk of the supply market and its criticality to the business.
[Demand] Supply chains should be designed to serve the needs of the end customer; e.g. choosing functional vs. responsive chain
[Sharing/collaboration] Blockchain is reportedly going to revolutionise chains through trusted overviews of supply chain transactions.
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