Supply Chain

1
Supply Chain

• Business Improvement

2
What is a Supply Chain
Customer wants cereal and goes to Tesco
Kelloggs
Tesco DC
Tesco Supermarket
Packaging Producer
Plastic Producer
Cereal Raw Material Suppliers
Chemical Manufacturer
Paper Manufacturer
Timber Industry
3
Flows in a Supply Chain
Information
Customer
Product
Funds
4
Supply Chain Management

• the management of upstream and downstream
  relationships with suppliers, distributors and
  customer to achieve greater customer value at
  less cost (Christopher, 1997)
• Involves the management of flows between and
  among stages in a supply chain to maximise total
  profitability
• Note that all flows of information, product or
  funds generate costs within the supply chain

5
Supply Chain

• Supply Chain Management is no longer a matter
  for the operational and functional areas of the
  firm today it is a strategic issue demanding
  top-level management attention. Indeed, the
  quality of a firms supply chain performance can
  mean the difference between business prosperity
  and failure.
• Strategic Supply Chain Management John
  Gattorna (1998)

6
Evolution of Supply Chain Management

• 1970 s - primarily distribution -the
  integration of warehousing and transportation
  within the firm, reduction of inventories.
• 1980s - reengineering of supply chain cost
  structures.
• Late 1980s - shift of supply chain focus towards
  customer service - improved supply chain
  performance resulted in revenue growth, greater
  profitability increased market share.
• 1990s - Focus on improving customer service
  intensified. - Focused on growth
• 2000s - evolution of strategic supply chain
  -can drive and enable business strategy.

7
Strategic Supply Chain

• Four Dimensions of Strategic Supply Chain
  Management

Sourcing Strategy
Demand Flow Strategy
Customer Service Strategy
Supply Chain Integration Strategy
8
Relationships Alliances

• Individual businesses no longer compete as stand
  alone entities, but rather as supply chains - the
  era of network competition
• Network Competition - structuring, coordinating,
  managing the relationship with partners - the
  results being better, faster and closer
  relationships with the final customers.

9
Relationships Alliances

• Traditional Business Model - transactional-
  products and services bought and sold
• New Paradigm - sustainable advantage lies in
  managing the complex web of relationships. The
  key to success is the way in which this network
  of alliances and suppliers are welded together in
  partnership to achieve mutually beneficial
  goals.
• Relationship and alliances - embracing the era of
  network competition - Martin Christopher

10
Better, Faster, Closer

• Better - customers are demanding ever-higher
  levels of performance from suppliers.
• Faster - the ability to move quickly, whether it
  be in new product development or in replenishing
  new customers inventories is increasingly
  recognised as a prerequisite for market-place
  success. Time sensitive customers Time
  compression
• Closer - Network organization Virtual
  organizations - visibility along the pipeline -
  a more effective means of satisfying customer
  needs at a profit than the single firm
  undertaking multiple value creating activities

11
Relationships Alliances

• 4 Stages in the transition from a stand-alone
  organization to supply chain partner
• The baseline organization
• The functionally integrated company
• The internally integrated company
• The externally integrated company

12
Achieving the integrated supply chain
Stage 1 Baseline
Material
Customer Service
Flow
Purchasing
Material Control
Production
Sales
Distribution
Stage 2 Functional Integration
Customer Service
Material
Flow
Distribution
Materials Management
Manufacturing Management
Source Stevens, 1989
13
Achieving the integrated supply chain
Stage 3 Internal Integration
Material Flow
Customer Service
Materials Management
Manufacturing Management
Distribution
Stage 4 External Integration
Material Flow
Customer Service
Suppliers
Internal Supply Chain
Customers
Source Stevens, 1989
14
Benefits of Supply Chain Partnerships

• Ongoing cost reductions
• Quality improvements
• Design cycle times 20 - 75 shorter than those
  in traditional relationships
• Increased operating flexibility
• More value for customers
• Enhanced leverage with technology
• More powerful competitive strategies

15
OUTSOURCING
16
Outsourcing

• .the market procurement of formely in-house
  produced goods and services from legally
  independent supplier firms
• Jenster, 1991

17
OUTSOURCING

• Today Manufacturing Focus Means Learning How Not
  to Make Things - How Not to Make Parts That
  Divert a Company From Cultivating Its Skills -
  Parts Its Suppliers Could Make More
  Efficiently.
• Ravi Venkatesan

18
The Essence of Core Competency

• Skills or knowlewdge sets, not products or
  functions
• Flexible, long-term platforms - capable of
  adaptation
• Limited in Number
• Unique source of leverage
• Quinn Hilmer, 1994

19
The Essence of Core Competency

• Areas where the company can dominate
• Elements important to customers in the long run
• Embedded in organisations systems
• Pre-eminence - The Key Strategic Barrier

Quinn Hilmer, 1994
20
Strategic Outsourcing

• Concentrate resources on a set of core
  competencies where pre-eminence can be achieved
• Outsource activities which the firm has no
  critical need or special capabilities

21
Potential Benefits

• Focus resources on areas which the company
  excels
• Well developed core competencies - a formidable
  barrier against competitors
• Leverage supplier capabilities
• Decrease risks, shortens cycle times, and quicker
  customer response.

Quinn Hilmer, 1994
22
Internal V External Source

• What is the potential for obtaining competitive
  advantage?
• What is the potential vulnerability from the
  market failure if the activity is outsourced?
• How can suppliers be managed to alleviate
  potential vulnerability?

23
Mc Ivors Outsourcing Framework

• Defining the Core Activities of the Business
• Formal
• Reactionary
• Evaluate the Relevant Value Chain Activities
• Evaluate the Relevant Value Chain Activities
• Total Cost Analysis of the Core Activities
• Total Cost Analysis of Core Activities
• Relationship Analysis

24
STRATEGIC DECISIONS

• Identify the Strategic Strengths of the Firm
• What Does the Firm Do Really Well - Better Than
  Most Firms In The Competitive Environment?
• Design Skills
• Production Skills
• Equipment
• People
• Existing Core Competencies

25
STRATEGIC DECISIONS

• Examine Current and Expected Future Environments
• Competition
• Governmental Regulatory Climate
• Changing Characteristics of Sales and Supply
  Markets
• Identify Expected Competency Requirements

26
STRATEGIC CATEGORIES

• Critical to the Success of the Product, Including
  Customer Perceptions of Important Product
  Attributes
• Requires Specialised Design and Manufacturing
  Skills or Equipment, With a Limited Number of
  Capable and Competent Suppliers
• Fits Well Within the Firms Core, or Expected
  Core Competencies

27
DECISION MAKING PROCEDURES
No - Outsource Yes - Further analysis required
Is it strategic?
Deal next with components and parts that make up
the strategic subsystem Can the subsystem be
broken down into families of components and parts
No - Make in-house Yes - Are families
of components and parts strategic
No - Outsource Yes - Make in-house
28
DECISION MAKING PROCEDURES

• PRESENT
• SITUATION
• Capabilities
• Design
• Manufacturing
• Quality

• POTENTIAL
• SUPPLIERS
• Capabilities
• Design
• Manufacturing
• Quality

Relative Costs
Volume Requirements
29
Competitive Advantage Vs Strategic Vulnerability
High
Strategic Control (Produce Internally)
Moderate Control Needed (Special venture or
contract arrangements
Potential for Competitive Edge
Low control needed (Buy off the shelf)
Low
Low
High
Degree of strategic vulnerability
30
Competitive Edge

• Can a company achieve a sustaining edge
  internally in either of the following
• Lower cost base
• Speed of response
• Unique capability?
• Requires an analysis of best in class external
  resources.

31
POST DECISION MAKING

• THE DYNAMIC ENVIRONMENT
• Unsatisfactory Supplier Performance
• Changing Sales Demands
• Restricted Manufacturing Capacity
• Modification of an Existing Product

32
Operational/Tactical Considerations

• Cost
• Availability of Production Capacity

33
ASPECTS THAT FAVOUR MAKING

• Cost Considerations (Less Expensive to Make the
  Part)
• Desire to Integrate Plant Operations
• Productive Use of Excess Plant Capacity to Help
  Absorb Fixed Overhead
• Need to Exert Direct Control Over Production
  And/or Quality
• Design Secrecy Required
• Unreliable Suppliers
• Desire to Maintain a Stable Work Force (in
  Periods of Declining Sales

34
ASPECTS THAT FAVOUR BUYING

• Suppliers Research and Specialised Know-how
• Cost Considerations (Less Expensive to Buy the
  Part)
• Small Volume Requirements
• Limited Production Facilities
• Desire to Maintain a Stable Work Force (in
  Periods of Rising Sales)
• Desire to Maintain a Multiple-source Policy
• Indirect Managerial Control Considerations
• Procurement and Inventory Considerations

35
TO MAKE - COST CONSIDERATIONS

• Delivered Purchased Material Costs
• Direct Labour Costs
• Any Follow-on Costs Stemming From Quality and
  Related Problems
• Incremental Inventory Carrying Costs
• Incremental Factory Overhead Costs
• Incremental Managerial Costs
• Incremental Purchasing Costs
• Incremental Costs of Capital

36
TO BUY - COST CONSIDERATIONS

• Purchase price of the part
• Transportation costs
• Receiving and inspection costs
• Incremental purchasing costs
• Any follow-on costs related to quality or service

37
Value Chain Analysis (VCA)

• VCA describes the activities within and around an
  organisation, and relates them to competitive
  strength.
• Organisations - more than a random collection of
  machines,money,people and information.
• These resources are of no value unless organised
  into routines and systems which provide value
• Competencies in each activity must be evaluated
• Managing linkages is a source of advantage.

38
THE VALUE CHAIN
MARGIN