Searching for Value in Supply Chain Implementations of Manufacturing Firms

1
Searching for Value in Supply Chain
Implementations of Manufacturing Firms

• Vernon J. Richardson
• University of Arkansas

2
Map

• How Do Supply Chain Implementations Create Value
• Affects Costs and Revenues?
• Use of the Value Chain to Pinpoint Location of
  Financial Effects of Supply Chain Implementations
• Our Investigation

3
Supply Chain

• A supply chain is a coordinated system of
  organizations, people , activities, information
  and resources involved in moving a product or
  service from supplier to customer.
• Supply chain activities transform raw materials
  and components into a finished product that is
  delivered to the end customer.

4
Dell

• Michael Dell, Dell Computer, explained one aspect
  of the information-sharing relationship with
  suppliers as follows
• We tell our suppliers exactly what our daily
  production requirements are. So it's not, "Well,
  every two weeks deliver 5,000 to this warehouse,
  and we'll put them on the shelf, and then we'll
  take them off the shelf."
• It's, "Tomorrow morning we need 8,562, and
  deliver them to door number seven by 7 am."

5
Wal-mart

• Retail Link allows suppliers to view real-time
  sales data of their products by store.
• This allows suppliers to assess their own demand
  schedules and minimize inventory and logistics
  costs.
• 116,000American flags sold by Wal-Mart on Sept.
  11, 2001
• 6,400American flags sold by Wal-Mart on Sept.
  11, 2000

6
Goals
7
Which Costs Will Be Affected by Supply Chain
Implementation?

• Logistics and Distribution Costs
• Transportation Costs
• Warehousing Costs
• Order Processing and Information Costs
• Lot Quantity Costs
• Inventory Carrying Costs
• And Revenues?
• Right product in right place Increased Sales!

8
Cost Tradeoffs Required in Getting the Right
Product in the Right Place
9
Where will benefits be found in the Value Chain?
Source Porter 1980, 1985
10
What metrics should be used to assess supply
chain performance?
10
Source Porter, 1980, 1985
11
The Value Chain Model Performance Metrics
12
Supply Chain Investment

• A manufacturing firm spends money to install
  supply chain software.
• Our question
• Was it a good investment?
• And where can we see the financial effects of
  that investment?
• Our answer
• The Financial Performance Effects of IT-based
  Supply Chain Management Systems in Manufacturing
  Firms June 2007, Journal of Operations
  Management (with B. Dehning and R. Zmud)

13
IT-Based Supply Chain Management Systems
 

• The search terms implement or choose or select
  or purchase or install or chosen within 25 words
  of the words supply chain were used to identify
  potential firms.
• Each press release was then read to identify
  firms that were actually implementing IT-based
  SCM systems.
• Vendors of IT-based SCM systems include Aspen
  Technology, Baan, i2 Technologies, and
  Manugistics.

14
Hormel Foods

• Hormel Foods Corporation has chosen Manugistics
  Group's supply chain software to optimize its
  nationwide transportation network and utilize the
  communication capabilities of the Internet to
  improve deliveries and service to its customers
  as well as to lower transportation costs.
• Hormel will use Manugistics Transportation
  Management to simultaneously optimize
  transportation plans and execute all
  transportation moves -- inbound, outbound, and
  inter-company -- including freight pay, tracking,
  and reporting. In addition, Hormel plans to link
  all its contract carriers to a central
  logistics-planning center via the Internet for
  real-time collaborative load tendering, using
  Manugistics e-Chain Solution. By combining the
  e-Chain Solution with Transportation Management,
  Hormel will have the ability to receive, explore,
  sort, and prioritize loads, enhancing
  communication with carriers by automatically
  tendering loads via the Internet.

15
Colgate-Palmolive

• Colgate-Palmolive has implemented APO's supply
  network planning, transportation load builder,
  forecasting, and vendor-managed inventory (VMI)
  modules on a limited basis. The supply network
  planning system, for example, is installed at a
  Kansas City, Mo., plant that makes soap, while
  the VMI software, which lets Colgate-Palmolive
  manage its inventory at customer sites, has been
  installed in about a dozen Kmart Corp.
  distribution facilities.
• By mid July, Colgate-Palmolive intends to
  implement these modules in all of its North
  American manufacturing and distribution
  facilities and to have the VMI software installed
  in nearly 70 customer facilities, which account
  for half of the company's sales volume. Later
  this year and next, Colgate-Palmolive plans to
  install the production planning, detailed
  scheduling, and demand planning APO modules.
  Plans are also in the works to implement SAP's
  Focus sales and service applications and Business
  Information Warehouse data warehouse software.

16
SCM Adopters in Sample By Year
17
The Value Chain Model with Performance
Measures
18
Pre-Post Design, Compared to Industry
(ROAFIRM.POST ROAFIRM.PRE) (ROAINDUSTRY.POST
ROAINDUSTRY.PRE) Pre One Year Before Supply
Chain Initiative Announcement Post One or Two
Years After Supply Chain Announcement
19
So what did the supply chain do?
20
Results, All Firms
(ROAFIRM.POST ROAFIRM.PRE) (ROAINDUSTRY.POST
ROAINDUSTRY.PRE)
21
(No Transcript)
22
(No Transcript)
23
Mapping Business Process Improvements into
Overall Firm Performance

24
High Tech Firms

• High Tech Industries are characterized by
• An ultra-competitive environment with high
  competition for market share
• Products with short life cycles
• Products that require high research and
  development expenditures
• Greater uncertainty than in non-high tech firms.

25
High Tech Firms

• High Tech firms may get more out of supply chain
  implementation because they
• Introduce new products frequently and rapidly
• Source and sell globally
• Offer personalized one-to-one solutions to
  customers (i.e. build-to-order)
• Accelerate pipeline flows and minimize inventory
  across the supply chain
• Reduce costs throughout the supply chain.

26
Scope

• Firms that adopt an incremental approach to
  implementing SCM initiatives might be more
  successful than firms that implement the SCM
  system company-wide.
• Phased approach and lessened complexity of
  orchestrating the SCM implementation as a
  sequence of smaller projects.

27
Regression Analysis

• (ROS or ROA) ß0 ß1IT ß2SGA ß3Hightech
  ß4Scope ß5AT ß6Size ß7Year ?
• ROA Return on Assets Income Before
  Extraordinary Items/Total Assets
• ROS Return on Sales Income Before
  Extraordinary Items/Net sales
• IT Total Inventory Turnover Cost of Goods
  Sold/Total Inventory
• SGA Selling, General, and Administrative
  Expenses (SGA) SGA/Sales
• Hightech Dummy variable coded one when the firm
  is a member of a high-tech industry (see Table
  2).
• Scope Dummy variable that is 1 if the SCM
  system is being implemented company-wide, 0 if
  the SCM is being implemented in one or only a few
  divisions or geographic areas
• AT Total Assets Turnover Sales/Total Assets
• Size Natural Log of Total Market Capitalization
  (Year -1)
• Year Year implementation of the IT-based SCM
  system begins (Year 0)

28
(No Transcript)
29
Conclusions and Questions

• Use of Value Chain to Look for Financial
  Performance Effects of Supply Chain Initiatives.
• On average, supply chains improve inbound and
  outbound processes and support processes. They
  also improve overall performance.
• Questions?

30
(No Transcript)
31
GLM Results, High Tech Firms