supply chain management 1800
nonoytyt
Revision.pdf
Format for questions
Rationale A number of challenges are faced by today’s global businesses. These include, for example, the need to apply appropriate supply chain configuration strategies to improve competitiveness and customer satisfaction. Drawing upon the case study paper “Managing New Product Development and Supply Chain Risks: The Boeing 787 Case” published in 2009 and your knowledge and publications since this date the following three questions are set:
Themes covered in the exam
1. Supply chain configurations • Ie the overall pattern for the supply chain
2. Supply chain management • Ie the integration of businesses processes which add value to the customer
3. International collaboration and outsourcing • Ie using suppliers to perform operations, potentially previously undertaken
inhouse
Format for question
A number of challenges are faced by today’s global businesses. These include, for example, the need to apply appropriate supply chain configuration strategies to improve competitiveness and customer satisfaction. Drawing upon the case study paper “Managing New Product Development and Supply Chain Risks: The Boeing 787 Case” published in 2009 and your knowledge and publications since this date the following three questions are set: 1. Outline alternatives for configuring supply chains and the factors which inform these 2. Discuss the approach Boeing used to manage it supply chain, including its strengths and
weaknesses 3. Critically review the potential limitations of outsourcing internationally
Marking approach
1. Three questions, each is equally weighted 2. Marks allocated for covering relevant major themes 3. Additional marks available for
• Criticality • Up to date reflections on Boeing • References to other sources beyond the case study • Grammar and spelling
Theme #1: Supply chain configuration
Supply chain configuration
Definition “A supply chain is the alignment of firms that bring products or services to market” Source: Lambert, Stock and Ellram, 1998, in Hugos, Essentials of supply chain management 2011:3
“Configuring a supply network simply means determining its overall pattern. In other words, what should be the pattern, shape or arrangement of the various operations that make up the supply network?”
Source: Slack et al, Operations Management, 2016:145
A simple supply chain
Supplier
Manufacturer
Distributor
Retailer
Consumer
Upstream
Downstream
In fo
rm at
io n
G oo
ds Re
la tio
ns hi
ps Se
rv ic
es O
th er
re so
ur ce
s
Supply chains involve “getting the right product to the right customer, at the right price, right quality at the right place and at the right time”
1. Impact of strategy
Corporate strategy
How to grow over short & long term
Business strategies
How to compete in the market
Operational strategies
How to function on a day to day basis
Corporate goals: survival and prospering
Ve rt
ic al
A lig
nm en
t Ea
ch le
ve l c
on tr
ib ut
es to
th e
ov er
al l g
oa l
Acquisition? Integration of supply chain? Diversification? Consolidation?
Price leadership? Differentiation through quality?
Eg impact for HR, purchasing, Marketing, supply chain
Horizontal Alignment
Units are co-ordinated around the requirements of customers, operations and available resources
FUNCTION
FORM
1. Impact of strategy: Competitive priorities for supply
Priority Description Cost Supply, production and distribution [SPD] of products at low cost Quality Supply, production and distribution of products with high quality
and performance standards Delivery Supply and distribution of products on time and/or at short lead-
time Flexibility Supply production and distribution of different mixes and volumes
of products with little or no impact on cost Innovation Supply, production and distribution of new products
Source: Cousins et al Strategic Supply Management, 2008:155
Dreamliner priorities: Reduced assembly time Enhanced performance Shared development costs Shared risk
Trade offs – which are most important for Boeing?
2. Influence of product/ service type: Functional and innovative products
Source: Fisher, 1997 What is the right supply chain for your product? Harvard business review, 75, 105-117 (also in Cousins et al 2008:105)
Functional Innovative
Functional Innovative
2. Influence of product/ service type: Postponement and mass customisation
2. Impact of product type: P:D ratio and demand management
Ve nd
or
Cu st
om er
Design Manufacture Assembly DeliverProcure
Engineer to order [one offs eg racing car]
Make to order [bespoke, eg Ferrari]
Assemble to order [restricted variation, eg takeaway pizza]
Make to stock [standardised, eg beans]
P= production lead in
D= demand lead in
Total lead –in time
Is the product a strategic priority?
Do we have capacity to make it in-house?
Is there an IP risk?
Make
Buy
Make
Can we develop the required capabilities
to make this product?
3. The decision to outsourcing: The make or buy decision tree
Buy
Most likely to make when… Most likely to buy when…
4. Benefits/ risks of integration
5. Number of suppliers: single or multiple sourcing
Single Multi
Advantages Consistency Relationship Dependency on contractor Easier to co-ordinate Economies of scale Greater confidentiality
Competitive tendering reduces costs Protects against market failure Wider source of knowledge
Disadvantages Greater risk of major disruption Greater impact of volume fluctuation Dependency on supplier
Less commitment Inconsistency of quality Communication issues Suppliers less likely to invest in new processes Fewer economies of scale
Was the Dreamliner a single or multiple supplier model?
Low High
H ig
h Lo
w
(from Cousins 2008)
Im pa
ct o
n bu
si ne
ss /
v al
ue (i
nt er
na l i
ss ue
s) Im
pa ct
o n
bu si
ne ss
/ v
al ue
(i nt
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l i ss
ue s)
Im pa
ct o
n bu
si ne
ss /
v al
ue (i
nt er
na l i
ss ue
s) Im
pa ct
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bu si
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al ue
(i nt
er na
l i ss
ue s)
Supply risk / supply market complexity (external issues)Supply risk / supply market complexity (external issues)Supply risk / supply market complexity (external issues)Supply risk / supply market complexity (external issues)
6. Influence of risk in supplier selection: Kraljic’s product and service positioning matrix
Routine (Low profit impact, low supply risk) • Standard specification • Substitute products readily available • Competitive supply market – negotiation,
rationalisation, spot buying
• Eg generic aircraft nuts, consumables
Critical (High profit impact, high supply risk) • Custom design or unique specification • Small group of suppliers, Supplier
technology important • Substitution difficult • Long term strategic partnerships, senior
manager involvement
• Eg jet engines, hydraulic systems
Leverage (High profit impact, low supply)risk) • Larger number of suppliers • Unit cost management important • Substitution possible, focus on best
deal
• Eg aircraft doors
Bottleneck (low profit impact, high supply risk) Niche products, difficult to resource Limited number of suppliers Production based scarcity, long term partnerships
Eg specialised aircraft nuts
Source: Kraljic 1983, in Cousins et al Strategic Supply Management, 2008:47
#1 Supply chain configuration – summary of key points 1. Configuration is simply the overall pattern or shape of the supply
chain. 2. Fundamentally, its form should follow its intended function.
Therefore strategy is key. 3. Elements to potentially consider include:
• The characteristics of the product/ service • The merits of making in house or outsourcing • The pros/cons of using one or multiple providers • The type of relationship required with providers • The benefits of increasing the supply chain integration
Theme #2: Supply chain management
Supply chain management
Definition “The integration of business processes from end user through original suppliers that provides products, services, and information that add value for customers.”
Source: Lambert, in Cousins et al Strategic Supply Management, 2008:174
Why supply chain management is important
Supplier
Manufacturer
Distributor
Retailer
Consumer
Upstream
Downstream
In fo
rm at
io n
G oo
ds Re
la tio
ns hi
ps Se
rv ic
es O
th er
re so
ur ce
s
Supply chain management involves “seeing the forest and the trees” ‘FT – SCM is crucial to competing in tomorrow’s market places’ Source: http://lexicon.ft.com/Term?term=supply-chain-management
1. Capabilities of the supply chain management team and level of risk involved
2. Types of relationships with providers: Use of tier 1 providers in managing the supply chain
Indirect management of SC
Direct management of SC
Driven by:
• Greater efficiencies – reduced assembly time
• Increased innovation – more efficient product development
• Sharing of risk – IP
2. Type of relationship required with suppliers: Strategic relationship positioning model [SRPM]
Low High
H ig
h
Opportunistic (High dependency, low trust) Short term, discreet activity
Little fall out
Strategic collaboration (High dependency, high trust)
Longer term activity for higher stakes
Lo w
Adversarial (Low dependency, low trust)
Activity is transitory and arms length
Tactical collaboration (low dependency, high trust)
Higher mutual certainty Discreet partnerships
Le ve
l o f d
ep en
de nc
y Le
ve l o
f d ep
en de
nc y
Le ve
l o f d
ep en
de nc
y Le
ve l o
f d ep
en de
nc y
(from Cousins 2008) Level of certainty [trust]Level of certainty [trust]Level of certainty [trust]Level of certainty [trust]
Dependency: Historic, economic, technological, political
Certainty: Contractual, goodwill, competency, political
Adversarial vs collaborative • Short term vs long term • Low certainty vs high certainty • Independent vs inter-dependence • Standardisation vs customisation • Cost vs value • Low info exchange vs openness • Compliance vs innovation • Low risk vs high risk
Source: Cousins et al Strategic Supply Management, 2008
Driver for Boeing’s change in supply chain strategy from adversarial [737] to collaborative relationships [Dreamliner]
Boeing’s change in approach: Increased outsourcing and development of strategic relationships with tier 1 increased risk and mutual dependency. But driven by: • Greater efficiencies • Increased innovation • Sharing of risk • Speedier product development
Low High
H ig
h Opportunistic (High dependency, low trust)
Strategic collaboration (High dependency, high trust)
Lo w Adversarial (Low dependency, low trust)
Tactical collaboration (low dependency, high trust)
(from Cousins 2008)
Le ve
l o f d
ep en
de nc
y Le
ve l o
f d ep
en de
nc y
Le ve
l o f d
ep en
de nc
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ve l o
f d ep
en de
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Level of certainty [trust]Level of certainty [trust]Level of certainty [trust]Level of certainty [trust]
3. Technical based solutions
4. Contracts 1. Legal documents which state mutual
expectations 2. Provide clarity on how negative situations will
be resolved 3. Delayed payments can reduce financial risk 4. Retention of IP can act as incentive
5. Performance management systems
Improves decision making
1
Improves communication
2
Increases visibility
3
Enhances motivation
4
5. Increasing transparency through performance measurement systems
Determine goals
Priorities
Evaluate progress
Detailed analysis
Implement improvement
actions
Corrective action
Source: Cousins et al Strategic Supply Management, 2008:155
Establish performance
measures
SMART
Specific Measurable Achievable
Realistic Timebound Establish
benchmarks
Relevant comparators
Eg Competitors? Non-competitors?
contract
Monitor progress
Who, what, when how [KPIs]
Eg quality, time, cost, customer satisfaction
6. Managing expectations
#2 Supply chain management – summary of key points 1. SCM is concerned with integrating processes to add value. 2. Fundamentally, its form should follow its intended function. 3. Elements to potentially consider include:
• The capabilities of the supply chain management team and the level of risk involved • The extent to which contractors can effectively manage other tier providers • The types of relationships appropriate to different suppliers • The strengths and limitations of technical based solutions • The inclusion of penalty and incentive clauses in contracts to drive desired behaviour • More proactive approach to managing supplier / customer expectations • The use of performance management systems to manage suppliers
Theme #3: International collaboration and outsourcing
Outsourcing and offshoring definitions Definitions “Outsourcing is the transfer to a third party of the management and delivery of a process previously performed by the company itself.”
Source: Mangen et al, Global logistics and supply chain management, 2012:39
“Offshoring is the transfer of specific processes to lower cost locations in other countries.”
Source: Mangen et al, Global logistics and supply chain management, 2012:41
Drivers for outsourcing 1. Adds competitive performance incentives 2. Supports rationalisation and downsizing 3. Allows increased focus on core activities and competencies 4. Accesses specialist expertise, technology and resources for non-
core activities 5. Access to economies of scale since contractors may serve many
customers 6. Cost certainty 7. Share risk, e.g. NPD
Source: Summarised from Mangen et al, Global logistics and supply chain management, 2012
Risks from outsourcing
1. Potentially higher cost [including hidden costs] 2. Difficulties with quality, consistency and corporate social responsibility 3. Potential loss of in-house capacity 4. Potential loss of control over key areas of performance 5. Adds distance to the customer 6. Risk of contractual ‘lock in’ – loss of flexibility 7. Loss of data control and intellectual property 8. Can lead to dependency on supplier 9. Over commitment by contractors
Source: Summarised from Mangen et al, Global logistics and supply chain management, 2012
Definition: “at risk: vulnerable, likely to be lost or damaged.” Source: Mangen et al, Global logistics and supply chain management, 2012:41
Global sourcing Not just about leveraging costs… 1. Uniqueness 2. Quality 3. Timeliness 4. Technology 5. Breadth of supply chain 6. ExpertiseIssues can relate to:
1. Culture 2. Long lead in times 3. Volatility of markets 4. Quality 5. Late delivery 6. Opacity 7. Challenges of managing suppliers 8. Social/ labour costs/ ethical issues 9. External threats, eg natural and man made disasters See Hines and Slack amongst others
Local sourcing Not just about proximity… • Less variables • Shorter lead in times • Easier to resolve disputes • Social responsibility
Issues can relate to: • Higher costs • Lack of expertise • Better service from overseas
#3 International collaboration and outsourcing – summary of key points
1. Outsourcing and offshoring are fundamentally separate context. • Outsourcing concerns the transference of activities previously performed by the company • Off-shoring is generally concerned with transferring activities to lower cost locations
2. The use of these strategies should by driven by the intended outcome.
3. Outsourcing can achieve significant benefits including: • Increased quality • Access to specialist resources • Ability to increase focus on the core activity
4. However it may also introduce significant risks to the supply chain including: • Reduced visibility • Hidden costs [including project management] • Ethical issues and concerns relating to corporate social responsibility • Loss of control • Dependency
5. Off-shoring: • may reduce costs, leverage capacity, increase responsiveness • can also introduce hidden costs, delays and potentially impact on local expertise
