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Supply Chain Management

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Enhancing Organizational Performance: Facilitating the Critical Transition to a Process View of Management (Baker and Maddux, 2005)

 



At the highest level, a firm’s business model is one large process with many interrelated processes within it.



Operation can be the foundation of strategy and the basis for superior performance.



If you want to improve the processes within a firm you need to analyze both construction and performance processes and look at how individual processes contribute to a firm’s competitiveness.



In the mid 1980s process management was primarily applying controls in the manufacturing areas but nowadays the term operations involve all activities that has to do with bringing a service or a product to the customer.



In order to improve the processes companies have started using IT-systems like ERP and thinking of SCM and CRM. Business Process re-engineering was something that became very popular in the 90s with promised benefits such as reduced leadtimes and cost, increased productivity, improved quality ets. But many failed because they didn’t have the proper company culture, the commitment of the employees, efficient communication.



Hammer (2002) claimed that you need supply chain integration, improvement incentives such as balance scorecard or six sigma and good management.



If you want to implement process management you need to consider three areas:




Ø
You need a structure that can handle working with processes instead of functions




Ø
Rapid changes require workers to adapt, something that can cause tensions and unwillingness




Ø
You need individual knowledge of the new structure and systems.



The implementation of a process view can be achieved by following four steps:




Ø
Internal neutral where internal control systems are used for measuring performance




Ø
External neutral where a firm keep pace with industry competitors and technology




Ø
Internally supportive where all manufacturing decisions follow the business strategy




Ø
Externally supportive where the capability of the operations function is a primary input to long-term strategic planning and the firm engage in proactive planning to meet new challenges.



A process is any activity that takes an input, adds value to it and provides output.



There are several different types of processes: customer processes i.e. marketing and operations since they result in a product received by an external customer, administrative processes such as accounting that supports customer processes and management processes such as strategic planning.



The four key features of any process are:




Ø
Definable inputs




Ø
Desired outcome




Ø
Sequence or flow




Ø
Clearly definable activities


 



The process change cycle:



Enables participants in the process (suppliers etc.) to perform measure of the process, characterize the process, analyze and understand the process and improve the process.


 


 



Processes are horizontal and they cross functional boundaries so the entire firm or SC need to implement a process view for it to be worth it.



Six sigma is a set of methodologies that are used to improve quality through variation reduction and to reduce costs.



Process metrics:




Ø
The process level, productivity, costs, utilization etc.¨




Ø
The output level, production or service quantities




Ø
The outcome level, customer satisfaction.



Criteria for effective measurement:




Ø
Accessible data




Ø
Ongoing collection of data




Ø
Understandable measurements




Ø
Meaningful measurements




Ø
Effective measurement is the most critical of the four stages.



Process characterization:



e.g. by process mapping, how they connect, white space etc.



It is necessary to evaluate:




Ø
flow (methods for transforming input into output),




Ø
effectiveness (how well customer expectations are met),




Ø
efficiency (how well resources are used), cycle time and costs.



The central focus of managing processes is an effective understanding of each process design.



The process characterization and measurements are used to analyze what can be improved in a process.



High-performing organizations have the following elements:




Ø
Core competence




Ø
Networks and cooperation




Ø
Process orientation




Ø
Free margins, the creation of growth cells in the company with creative teams etc.




Ø
Learning organizational structure




Ø
Knowledge management and information technology


 



Process improvement:




Ø
You need to organize for improvement, understand the process, streamline, measure and control and continuously improve.



Individuals need these skills to succeed in process improvement:




Ø
Job knowledge




Ø
Team skills




Ø
Process analysis skills



Potential causes for failure in performance:
data, incentives, resources, skills, capacity and motives.


 



Reduced work in process will not increase throughput if it is not done at bottlenecks

 



Leading by example is a CSF for lasting changes in behavior.



 



Managing The White Space (Rummler and Brache, 1991)

 



The authors argue that managers don’t know enough about their businesses, how their companies develop products, get them sold and distributed.



Managers mostly look at businesses like business units with their own hierarchy since that group the people who work together and show who reports to who but they usually forget about the products or services they provide, their customers and the work flow process. They also tend to manage the units separately and set goals for them separately. This make department managers look at the other dep. as enemies. Decisions between departments are then usually taken on managerial level even if that’s not always necessary and take time from the managers.



When every department tries to make their own numbers as good as possible it can actually make the organization as a whole worse. This is called a silo culture.



A good way to look at your business is instead through process management. Then you avoid the traditional vertical view and go for the horizontal view that includes the customer, the product and the flow of work (see images in the article). As a high-level manager you add value by managing the parts between the functional units since the units tend to have mangers already.


 


 



In the horizontal scheme you can see that the work gets done through processes that cut across functional units and how functional units are customers and suppliers to each other within the organization.



Greatest improvements can usually be made at the cross-points., this is what the authors refer to as the white space.



How to work with process management?

 



Identify a critical business issue, a measurable goal based on a current or potential problem or opportunity that has an impact on the organization’s strategy.



As a middle step you might need to describe the procedures involved in each process step.



Select critical processes, identify the processes that have the greatest potential to solve it.



Select a leader and members for a process improvement team, you could involve a consultant but in order to succeed you need to involve representatives from the critical departments



Train the team

 



Develop “is” maps, maps of the processes and how the customer-supplier relationships connect



Find the disconnects, missing or redundant factor that could affect the CBI



Analyze disconnects

 



Develop a should map, second process map that would achieve the goal.



Establish measures, measurements or standards for the process and its sub-processes. Start with the standards that the end-customer will judge the quality of the product on and continue backwards in the process



Recommend changes

 



Implement changes, this should however be seen as the beginning rather than the end of a process improvement.



Effective practice of process management:

 



Strategic processes, influences the company’s competitive advantage



Vertical and horizontal organizations, important with an owner for key process and serve as an ombudsman for each white space that his process touches. You cannot only have a horizontal structure, it is not practical if the people working with the same things, i.e. finance, are grouped together. To overlay the horizontal dimension to the vertical structure you need measurements.



If you take process management one step further, each process has an owner and customer-driven measurements and a team that meets up to discuss possible improvements on a regular basis. The goal is efficient and effective processes.


__
__

 



How to stay flexible and Elude Fads (DeToro and McCabe, 1997)

 



Business process management consists of continuous improvement, benchmarking and reengineering. A combo of these paths is needed for improvement.



In a traditional organization, cross-functional issues are rarely addressed and the organizations is therefore often suboptimized.



In a horizontal view of an organization, the direction and policy are still run from the top management but the authority to examine and change working methods are delegated to cross-functional work teams. It requires a change in thinking to switch from top-down to a more flat organization with a team-structure.



Business process management solves many suboptimizing problems because:




Ø
They focus on the customer




Ø
They manage hands-off between functions




Ø
They avoid turf mentality because employees have a stake in the final result.




Ø
Business process = the way work is done



BPM is important because the competition structure today is not just about the products but how well organizations perform their work, the organization with better planning, marketing and distribution processes wins.



The processes that are essential for achieving the company’s goals and vision are core processes and they are more important than the others. They typically include product development, customer service and order fulfillment. Companies usually have 10-20 core processes.



Operational processes are processes that produces output to customer, i.e. product time to market.



Supporting processes are i.e. legal services or HR



Management processes are how management oversees the system.



A core process usually have many subprocesses. (see figure 4, p. 57 for process chart)



BPM can be achieved by beginning to do an inventory of an organization’s processes: identify major processes, identify linkages between processes, name core processes and assign a sequential classification number, compare to template, i.e. Table 1.



 



Use the 20/80 rule for deciding on improvement areas, keep the goals and vision of the organization in mind



Assign a process owner that have the authority to approve changes in their assigned process



Calculate the risks, benefits, costs, time and difficulties of each possible way of changing a process.


 



 


 

Implementing performance measurement systems (Mike Bourne and Adam Neely)

 


Performance measurement definitions

 



·
Performance measurement refers to the use of a multi-dimensional set of performance measures




·
Performance measurement cannot be done in isolation




·
Performance measurement has an impact on the environment in which it operates




·
Performance measurement is now being used to assess the impact of actions on the stakeholders of the organization whose performance is being measured


 

Categorizing performance measurement design process

 


2 dimensions:

 


The procedures (“hard issues”)

 



1.
The “needs led” procedure: Top-down procedure for developing performance measure, where the customer, business and stakeholder needs are severally or jointly identified




2.
The “audit led” procedure: Bottom-up approach to the design of a performance measurement system, starting with a an audit of the existing performance measures




3.
The “model led” procedure: Uses a prescribed theoretical model of the organization


 

The approaches (“soft issues”)

 



1.
The “consultant led” approach: Majority of work is undertaken by an individual (or group of individuals, usually consultants) almost in isolation from the rest of the management team




2.
The “facilitator led” approach: Management team in facilitated workshops, where they are intimately involved in the discovery and analysis phases of the work


 

The performance measurement design processes

 



·
Balance scorecard (“needs led” and “consultant led”)




·
The performance model (“needs led” and “facilitator led”)




o
What is the objective to be achieved?




o
How do we achieve this?




·
Getting the measure of your process (“facilitator led”)




o
Part 1 – Grouping products




o
Part 2 – Agreeing business objectives




o
Part 3 – Agreeing performance measures




o
Part 4 – Signing off the top-level performance measures




o
Part 5 – Embedding the top-level performance measures




o
Key features:




§
“facilitator led” top-down approach




§
explicitly using views of customers and stakeholders




§
detail level for trained facilitators




·
PMQ – The performance measurement questionnaire




o
Part 1 – To score the importance of specific improvement areas




o
Part 2 – To score performance measures


 

ECOGRAI

 


6 stages:




1.
Detailed analysis of the manufacturing system




a.
Split into manufacturing functions with 3 main activity




i.
Management of the activity




ii.
Planning of the activity




iii.
Management of the resources used in the activity




2.
Review of these activities in 3 levels;




a.
Strategic




b.
Tactical




c.
Operational




3.
Decision variables are identified




4.
Performance indicators are designed (from the objective and decision variables)




5.
Implementation, coordinated 3 groups;




a.
Synthesis group – oversees and validate the study




b.
Functional group – defines the performance measures




c.
Analysis group – analyzes and present the result


 

The Fraunhofer approach

 


Method for usage of process mapping to identify critical success factors. 6 stages;




1.
Develop a value chain process model




2.
Identify the critical success factors




3.
Define the performance indicators




4.
Gather and verify the data




5.
Evaluate the performance indicators




6.
Implement a continuous process


 

Performance measurement implementation

 


4 barriers when implementing performance measurement systems




·
Vision and strategy not actionable




·
Strategy is not linked to department, team and individual




·
Strategy is not linked to resource allocation




·
Feedback is tactical not strategic



To overcome these barriers:




·
A top to bottom measurement architecture




·
A systematic review architecture




·
An integrated budgeting and planning process



 



The process Audit (Hammer, 2007)

 



Companies have lately embraced the thought of process management as an important thing for a company’s competitiveness but there are many organizations who fail in the implementation or underestimate the difficulties or the amount of work you have to put in.



Companies need to redefine jobs and enable decision making, redirect reward systems, reshape the organizational culture to emphasize teamwork and the customers importance, redefine roles and responsibilities so that managers supervise processes instead of functions and realign information systems so they can support cross-functional systems.



Process design = specification of what tasks, in what order, where, under what circumstances, with what information etc.



Process design determines performance, you need to eliminate the non value-adding activities.



A problem has been that companies tend to overlay new processes on already existing organizations, such as establishing a cross-functional process but not redesigning the performance measurements accordingly.



BPM needs to make employees focus on a common outcome for the entire organization.


 



In order to develop high-performance processes a company needs to offer supportive environments.



Organizational capabilities must be developed in leadership, culture, expertise and governance.



If only a unit of the company is mature enough to start process redesigning you can allow this unit to start and sometimes it can encourage the rest of the company to work faster in order to get ready for a change as well. This is what happened at tetra Pak in 2001.



The PEMM model that is described in this article is supposed to be easier to administer than other well known models so you don’t have to rely on consultants.



 




Week 2 & 3




Supply Chain Management: The pursuit of a consensus definition (Gibson et. al, 2005)

 



There are many definitions of supply chain management but most people agree that it is not equal to logistics. It can be more or less narrow and include different aspects which makes the definitions vary a lot.



The latest definitions have tried to include relationships, functions and scope but existing definitions does not portray SCM consistently. Some focus on strategy while others focus on activities or processes. In a survey made by the authors, most of the respondents said that it was about both strategy and activity. It was mostly academicians who viewed SCM as merely strategic.



The activities that was found to play the most important role in SCM was Supplier and customer collaboration, Information Technology, Marketing, Finance, Sales and Product Design.



CSCMP adopted the following definition as the organization’s official one:



SCM encompasses the planning and management of all activities involved ion sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, SCM integrates supply and demand management within and across companies.”



But another definition was slightly preferred by its members. Both academics and practitioners should play a role in discussing and improving this definition. Academics should continue to research and practitioners should be active in conferences etc. and talk about their experiences.



 



An Executive Summary of SCM Processes, Partnerships, Performance (Lambert, 2008)

 



There has been a paradigm shift from the view of companies that only competes alone to the view that they compete within the supply chain.



The success of a company will therefore depend on the management’s ability to integrate the company’s network of business relationships. It requires cross-functional integration within the firm and across the supply chain. If you do this you could increase the profitability for the entire supply chain.



There are many different views of SCM but lately most people look at it as the management of relationships across the supply chain, that the supply chain is not a chain of businesses but a network of businesses and relationships.



Definition of SCM by the Global Supply Chain Forum is:



“SCM is the integration of key business processes from end-user through original suppliers that provide products, services and information that add value for customers and other stakeholders.”



Successful management of the supply chain requires involvement of all the corporate business functions, in most major companies today, functional managers are rewarded for behavior that is not customer friendly.


 


 


 



It might feel like too much work to include all parts of the supply chain but you can gain a lot, like Coca-Cola did.



The structure of activities within and between partners in a supply chain is a critical cornerstone for supply chain performance.



SCM processes identified by the Global Supply Chain Forum are:




Ø
CRM, structure for how the customer relationship should be developed and maintained. The process owner is the CEO, you want to try and categorize the customers with regards to their value for the company, their spending habits etc. and find the key customers that you should focus on and base your mission upon. This is made on a strategic level. You can meet these customers needs by giving them special deals (PSA’s, product and service agreement). The process owner and his team work to develop value for the key customers and eliminate non-value adding activities from the supply chain.


 




Ø
SRM, same as CRM but for suppliers, you maintain special relationships (PSA) with the most important suppliers and traditional ones with the others. The closest relationships are only developed with key suppliers, those that provide the most value for the company. You then develop a PSA with each key supplier specifically for them and a more wide PSA for segments of less important suppliers. The desired outcome is a win-win situation where both parties benefit.


 




Ø
Customer Service management, the administration around a PSA. The goal is to solve problems before they arrive at the customer, like delivery or quality issues. They will interface with other processes like CRM to ensure that the PSA’s are being followed.


 




Ø
Demand management, balances customer requirements with the capacity of the supply chain. If you do this correctly you can avoid disruptions by matching supply with demand. It is not only about forecasting but also about increasing the capacity, flexibility and reduce the variability in production and demand. It involves managing all of the organization’s practices to avoid volatility in demand. A good demand management uses point-of-sales data and key customer data to reduce uncertainty. The manager of demand should also coordinate planning and marketing requirements to fit the entire company.


 




Ø
Order fulfillment, involves activities necessary to design a network that enables the firm to meet customer requirements while minimizing the total delivered cost, not just about filling orders. It is e.g. necessary to decide on a strategic level which countries that should service different customers needs. Most of the work is provided by the logistics department but the objective is to create a seamless process from customer and all the way upstream to the supplier.


 




Ø
Manufacturing flow management, all activities necessary to obtain, implement and manage manufacturing flexibility in the supply chain at the lowest possible cost. In order to maintain this, planning and execution must be done in collaboration with the partners of the supply chain.




Ø
Product development and commercialization, not only within one firm but this process should be able to support suppliers and different functions within the firm in e.g. manufacturing and marketing new products.


 




Ø
Returns management, it is not only about managing this process efficiently but also to discover opportunities to improve and flaws in the supply chain that needs to be corrected.



Each process has both strategic and operational sub-processes.



CRM and SRM are the most important links in the supply chain but accurate profitability reports is also key to success.



The decision regarding who is a key customer requires an analysis of the profits and potential profits that the firm can gain from the customer.



Implementing SCM should benefit the whole supply chain and members should share the risks and profits, it is dependent on close relationships if you will succeed or not.



Partnership – is built on mutual trust, benefits and risks, can take many forms and levels. The drivers for forming a partnership can be profitability growth, marketing advantage, customer service, cost efficiencies. The facilitators are corporate compatibility, management philosophy and techniques, mutuality and symmetry. The components of a partnership are planning, joint operation control, communications, risk/reward sharing, trust, contract style, scope and investment. The success of a partnership depends on the creativity and openness of the team group that needs to be put together with staff of all levels from both companies.


 



 



An Introduction to the Supply Chain Council’s SCOR methodology (Harmon, 2003)

 



The steps of the SCOR model can be made as follows:




Ø
Review corporate strategy




Ø
Define the supply chain process




Ø
Determine the performance of the existing supply chain




Ø
Establish your supply chain strategy, goals and priorities




Ø
Redesign your supply chain as needed




Ø
Enable the redesign and implement



The key to success is to accept SCOR as it is and not make changes to the methodology.



SCOR assumes that all SC processes can be divided into:




Ø
Plan




Ø
Source




Ø
Make




Ø
Deliver




Ø
Return



You then define different levels of the processes, first you decide that it is i.e. a sourcing process (level1) and then you decide what kind of sourcing (level2).



After this you draw an As-Is diagram that describes the operations within a single company.



The thread diagram is more detailed and includes all levels and flows that are bound together with arrows.


 


 


 



Then you define and measure the processes


 



Then you do a SCOR card where you compare the performance to other similar companies, superior, parity and the company itself.



After this you decide how the supply chain should be changed in line with the strategies defined in the beginning and you can make a To-Be diagram with the new changes. With SCOR, you are then able to simulate the changes electronically.



SCOR recommends specific plan activities for managers responsible and also for employees so they can utilize the changes and be the difference between success and failure.



 



Creating the optimal supply chain (BCG)

 



You can’t manage what you can’t measure”. Many companies have started working with SCM to gain competitive advantage but many of them are lagging when it comes to measuring how well they are doing and balance trade-offs. The supply chains are becoming increasingly complex thanks to fragmented customer needs, increased cost pressure and complex distribution models. A key issue is simply knowing what to measure.



Most companies measure things but are those the things that reflect customer satisfaction or strategic goals.



Measuring can also help increase the visibility across the supply chain and anticipate demand.



It is crucial to know what the customer wants and give it to them in the most efficient way!



You need to consider the efficient frontier since the supply chain management essence is to provide the right products, at the right time and place to the right price and with the right amount. It’s about the trade-off between increased service and increased costs. But this task is not easy. New technology can help you assemble the data needed to analyze where the efficient frontier for your company is but you really need to understand the system in order to work with it.



Key priorities are to align the supply chain with the company strategy, align incentives, arm people with the right data so they can make good decisions, be flexible to changes in demand rather than relying on forecasts. The high-level management needs to be supportive.


 



A company’s strategy should guide it’s supply chain design.



You want to avoid the inefficiency in the supply chain by collaborating and coordinating in SCM

 



Supply chains have become more sophisticated throughout the years but the performance have not always increased. Poor coordination among supply chain partners can waste a lot of money, one department store found that they had to have sales for excessive clothes but at the same time 25 % of the customers left the store without having found what they were looking for, flawed integration can increase the inventory levels with up to 40 %. Both collaboration and coordination among supply chain partners are therefore CSFs for SCM profitability.



This streamlining of the supply chain across partners is crucial due to the increased competition and consumer trend that if you cannot find exactly what you want and to the right price you will go to someone else. The collaboration and coordination ranges from communication to exchange of data through complex data systems.



Collaboration and coordination has to start within your own company. You cannot achieve this with your supply chain partners if you have structures, strategies and an incentive structure that favors sub-optimization. To avoid sub optimization and emergency plans to increase customer service (i.e. express packages) you have to have a holistic view.



When it comes to collaboration and coordination outside the company you need to have trust in your partners when it comes to information sharing and you need to get and send out the right information and be able to understand and act at what you receive.



In order to achieve efficiency you also need to make sure that you have the “right” supply chain for your product. A functional product with stable demand needs one kind of strategy and structure whereas others might need to be more flexible.



So why are so many companies unsuccessful in this matter? Because the number of products and options often are way too many than we have systems to handle a complete collaboration and coordination. You also have the fact that no matter how hard you work with these two factors you cannot coordinate with the final customer and you will be left with a certain uncertainty in demand.



Therefore you need to design a supply chain that can handle uncertainty, that has access to good data, empowers people to make good decisions quickly and is quick to react to changes.



You also need to manage the risks by being flexible,it consists both of knowing about potential risks and being able to increase the capacity to handle disruptions without being affected too much.



Disruptions can be caused by nature, terrorists or smaller things like shipping delays, electrical blackouts etc.



The risk have increased since there are so many companies competing in the global market with increased pressure to deliver fast and longer ways of transports, and the authors argue that this should be a priority to top management.



In order to manage disruptions you need to:




Ø
Indentify the risks and understand the company’s vulnerabilities (and the supply chain’s)




o
Obtain senior management understanding




o
Identify key processes that are likely to be affected by disruptions




o
Mitigation and risk transfer for these processes




o
Reporting, periodic auditing, management and legal reviews complete the analysis




Ø
Increase the capacity of the supply chain within reasonable limits to sustain disruptions.



Kleindorfer indentified three major sources of risk:




Ø
Operational contingencies




Ø
Natural hazards




Ø
Political instability



People tend to focus on the risks that they will be held responsible for, for example not too much about terrorists or natural disasters.



It can be difficult to notice the vulnerabilities of the supply chain since a company with a weakness in general is not too keen on sharing information about it or telling anyone about it at all.



Contingency planning – the act of knowing secondary resources has becoming increasingly important (see the Nokia-Ericsson case).



Good companies have triple A supply chains, Agile (respond quickly to changes), Adaptable (adjust supply chain to fit market changes) and Aligned (create incentives to increase supply chain performance).



How to Maintain flexible supply chains:




Ø
Segment the product in sensitive and less sensitive




Ø
Create detailed assessment of all elements of the supply chain and build in redundancy for the critical items (reasonable amount, you don’t have to outrun the bear, just the people you are with… then you’ll have a lot more options).



You cannot protect every risk but if you can act quick and in advance of competition, you have a good risk management.



IT-systems can help the supply chainbut it is usually very difficult and costly to implement such a system. You therefore need to have a clear strategy for the supply chain and reasonable expectations for what the chosen system can do to help the supply chain achieving its goals.



Companies have a hard time getting true benefits and increased profits out of the investments in supply chain information systems.



You need to have a clearly defined need for improvements and the appropriate expectations for what a certain system could do. When facing the costs, it is usually not a question of which system to buy but if the company should have a system at all.



The vendors promise systems that can provide planning, coordination, forecasting, replenishment, determine the most efficient supply chain design, shorter lead-times, reduced costs.



Technologies are also popping up, like for example RFID that is said to be an excellent tracking device but it has only been proven to be true for large containers and not for single items. Another important issue is the experienced disability of the workers to use the information sent by the RFID tag. A common misunderstanding is that the technology will do everything for you. In some cases there is also the problem of trusting the technologies, many companies don’t trust their machines and they keep overriding the systems.




Ø
In order to succeed you need:




Ø
Invest in the right system




Ø
First, revise the technology you already have , you might not need a new system or technology




Ø
It takes time, plan for it




Ø
Adjust all processes with IT in mind if you are to implement a system


 



 



Towards a theory of Supply Chain Management: the constructs and measurements (Chen and Paulraj, 2003)

 





Many authors have stressed the need for clearly defined constructs and frameworks to be able to advance the field.


 



Since construct measurement development is at the core of theory building, the authors wanted to contribute to the SCM advancement by constructing a set of operational measurements.


 



The framework they have constructed can help researchers better understand and test different SCM model.


 


 



The frameworks is based on the paradigm that the supply chain is built on collaborative advantage rather than competitive advantage among firms within the same chain. The framework is based on a buyer-supplier dyadic supply chain.




1.
Environmental uncertainty, there are different forms of uncertainty in the supply chain; supplier uncertainty that arises from on-time performance, average lateness and degree of inconsistency; manufacturing uncertainty and customer and demand uncertainty. The authors considers uncertainty in the forms of supply, demand and technology.




2.
Customer focus, customer’s expectations are dynamic so companies need to address them continuously. Org.s can outperform their competition by exceeding customer needs. Customers are a central element so the theoretical construct is based on the importance given to customers when it comes to strategic planning, quality, responsiveness etc.




3.
Top management support, this is also an important part, it is characterized by the time and resources contributed by top management to strategic purchasing, supplier relationship and adoption of technology in this study.




4.
Supply strategy, incorporated interactions among various supply chain members.




a.
Competitive priorities, i.e. manufacturer’s choice of manufacturing tasks or key capabilities.




b.
Strategic purchasing, the ability of purchasing to affect strategic planning




5.
Information technology, can enhance supply chain efficiency and facilitate collaborative planning through information sharing etc.




6.
Supply network structure, the topics of interest are the task, authority and coordination mechanisms across distinct firm or organizational units, it is however hard to define a network precisely




7.
Managing buyer-supplier relationships




a.
Supplier base reduction, in the past companies usually had many suppliers but nowadays many firms have switched and are using less suppliers. This gives benefits like reduced inventory management costs, volume consolidation, economics of scale opportunity, fewer suppliers to contact in case of urgency, reduced lead-times due to dedicated capacity and WIP inventory form the suppliers, reduced logistical costs, improved trust etc.




b.
Long-term relationships, supplier contracts have increasingly become long-term since the supplier-buyer will then be a part of a well-managed chain that could increase competitiveness




c.
Communication, it is necessary in any supply chain to have this part functioning




d.
Cross-functional teams, has been identified as an important contributor to supply chain success and it is becoming increasingly common.




e.
Supplier involvement, has seen many benefits from involving suppliers in planning process and strategic projects




8.
Logistics integration, logistics provide firms with time and space utilities, nowadays the logistics integration stretches outside the boundaries of a single firm.




9.
Supply chain performance measurement




a.
Supplier performance, they play a more important role in supply chain performance than many companies realize. The supplier performance is measured in terms of flexibility, cost, quality, delivery and responsiveness.




b.
Buyer performance, is measured using indicators of operational performance in addition to financial indicators such as return on investment, profit, present value and net income.


 



 




Week 4



 

Sharing Logistics Information Across Organizations: Technology, Competition and Contracting

 


By Seidmann, A. and Sundarajan, A.



Tremendous cost and delay reductions from information sharing, and the ability to use advanced information technology to exploit superior expertise outside the boundaries of the firm have resulted in a number of virtually integrated corporations – independent companies which operates somewhat like a single vertically integrated firm.



A strategic important issue of information sharing is the level of information sharing. Three observations:




·
The marginal returns from information sharing tend to be decreasing in the amount of information shared




·
Though the sharing of information improves operational efficiency, the relative bargaining power of the two parties is affected




·
The nature of the information shared may affect the competitive position of the buyer or the supplier with respect to their other industry rivals.


 



How can the value generating arrangement be sustained and how is the value generated divided? Ex. a supplier may get tremendous performance improvements if permitted to access point-of-sales information. However, the buyer may not gain significantly from this arrangement. Some kind of contract may be needed to ensure that the information is shared on a continuous basis and that the value created is shared in a satisfactory manner.



Control is another issue. There is a limit to the gains that one can achieve by only sharing information; more value can be added when decision rights and authority related to that information are also transferred from within the organization to an external business partner, e.g. transferring the ownership of the inventory by VMI. However this induces a problem similar to that studied in agency theory: The two organizations may have different maximization objectives and the shifting of decision making outside the organization can result in policies that may be optimal for the decision making party, but sub-optimal for the other party.



Identified information sharing arrangements:

 




·
Shared inventory information on a weekly/daily basis

 




·
Shared payment information, e.g. the store level day-to-day point-of-sales information (some may only see UPC’s (universal product code) and quantities, others may have access to the distribution of sales over the day and even the profile of the customers. However, this poses a concern for the customer that he won’t be needed any more)




·
Only transmit order quantity and cost information by using EDI, the volume of information exchanged may be great but its impact on other operations of the firm are relatively low.


 

 



The Level of Information Sharing

 




 



When two firms in the supply chain decides to share information the owner of the information (say the buyer) will choose to share the information that a) creates the most value for the buyer and b) that reduces the buyer’s relative bargaining power the least. As the parties move towards sharing higher level of information, the marginal value from this sharing will tend to reduce. Simultaneously, the relative effect on its bargaining position will tend to increase, i.e. the marginal cost of sharing information will increase. At some point the cost of sharing additional information will outweigh the benefits, and this is the point at which the buyer will stop. This model may explain why firms share varying levels of information with different customers.

 



4 Different Levels of Information Sharing:

 




·
Exchanging order information. Transactions such as price and quantities by EDI. Most inter-organizational logistics arrangements do not involve sharing firm-specific information but merely improve logistics processes through efficiency gains from EDI, which aims at reducing transactions costs and the duration of order cycles. In contracting there are a few strategic issues involved:

 




o
Both parties gain from reduced order cycle times (reduces inv. Levels)

 




o
The value gained is not joint; each party improves efficiency independently and hence there is no value sharing issues.

 




o
The issue of information may be a problem, since one party may find it cost-effective to invest in an EDI system that enables these improvements; the other may not. Both need it to be able to transact electronically. Subsidies (ekonomiskt understöd) are a common solution to this problem


 




·
Sharing operational information. Information is shared to leverage on the superior expertise or the operational economies of scale of one organization. E.g. one party owns valuable information, while the other party possesses the ability to use this info more efficiently, as the case of VMI. The supplier benefits: Better planning of production, his relative bargaining position for its other transactions with the buyer may improve. For the buyer: Reduced supplier-uncertainty àlower average inventory, decreased cost of ordering and order fulfillment (since they are borne by the supplier. The contracts may include:




o
Value sharing agreements between the parties/penalty for non VMI-suppliers


 




·
Sharing strategic information.Brand specific information which provided strategic benefits to one of the organizations and also leverages on the superior expertise of one of the organizations. E.g. a retailer may possess POS information on all the products it sells, which doesn’t have much value in isolation. However, a supplier can make superior demand forecasts by analyzing detailed transaction level POS information from many retailers. Also operational level info is shared, since inventory level easily can be derived from POS info àboth buyer and supplier benefits from the superior inventory management as discussed above.




o
The supplier also gains from better demand forecasting, he gets a good idea of sals pattern in different geographical regions and across different seasons àhe can make segment-specific forecasts. The reduced demand uncertainty will also improve the internal inventory management of the supplier, thus he may gain from reduced operating costs.




o
The buyer gains from improved operating efficiency and reduced transaction costs, but his relative bargaining power is further reduced. Pre-specification of supply chain terms may alleviate this problem, but this is only possible when the supplier and the buyer enters a long-term contract, which is not very practical when the rate of new product development is high.


 




·
Sharing strategic and competitive information.At the highest level of information sharing it is possible for a buyer to allow a supplier access to broad market information that provides strategic and competitive benefits to one of the organizations, apart from leveraging on the superior expertise of that organization. Again this occurs when one of the organization possesses information that it can derive little independent value from. However, the other organization can derive internal strategic benefits as well as competitive benefits (with respect to intra-industry rivals not additional advantage over the buyer) from this information. Category management is an example of this situation.

 




o
Category Management:One buyer (the retailer) deals with many competitive suppliers in a particular category. Therefore endowing one of the suppliers with inventory management responsibilities over all the products supplied for that category, and providing them with relevant POS information gives that supplier strategic benefits (from improved demand forecasts), competitive benefits (from sales and demand info about competitor’s products) and will enable superior inventory management. The buyer’s operating costs will also be reduced (order management costs are eliminated and since the buyer only deals with one supplier per category the IT costs will be reduced).

 




o
Tradeoffs for supplier: Increased transaction costs.

 



 



Information Sharing Contracts:

 



Prior to any sharing agreements, the buyer is the owner of information and will therefore tend to have a bargaining advantage during the negotiation process. However, this doesn’t have to imply that all the value goes to the buyer as the supplier is responsible for generating value from that information and can potentially use this fact to negotiate for a larger share.




·
In simple EDI contracts there is not much flexibility; the value created is simply due to a reduction in administrative costs on both sides. When contracting it is likely to be simple: Each party keeps their own gains; if one makes a loss due to high technology costs, the other might subsidize EDI adoption to enable some value creation.




·
In VMI there are examples that shows that the threat of losses from competition can result in the retailer extracting not only all of the value from VMI, but actually making the suppliers worse off than they would be with no form of information sharing. The supplier may agree to VMI contracts that are unfavorable, as this eliminates the threat of an even more unfavorable situation where another supplier gets a category management contract. When a supplier enters a position where the buyer can offer category management to more than one person the resulting outcome will make the suppliers worse off than they were and the buyer will extract all value from the arrangement.


 



Position on the supply chain:



As one moves from A to B:




·
The relative bargaining power of the buyer increases. When a manufacturer contracts with a supplier of parts of immediate goods, the supplier has a relatively good bargaining position, since often substitutes are not readily available to the buyer. On the other hand, when a finished goods manufacturer supplies a retailer, the retailer has readily available substitutes in most cases, and therefore is not really dependent on any one supplier for their profits. In addition, a manufacturer adds a lot more value to immediate parts than a retailer does to finished goods; hence the manufacturer has a lot more at stake in terms of profits with any given supplier than a retailer does.




·
The agency costs that the buyer faces reduces. When a supplier of parts supplies a manufacturer, there is a much higher risk of costly holdup that could arise from a missed order delivery, or insufficient inventory on the buyer’s side.




o
Conclusion 1: At point A, one expects to see no more than operational information sharing; at point B, one expects to see strategic and competitive information sharing. This is due to the lowered agency costs faced by the buyer as one moves closer to the consumer. Since the manufacturer is more dependent on the supplier, there will be a reluctance to transfer decision rights. Inventory info and electronic transactions may be shared but competitive advantage sharing agreements are unlikely, as this magnifies the agency cost the buyer could bear due to any particular supplier. Retailers on the other hand will definitely enter into extensive information sharing and decision rights transfers with their suppliers (category management is fairly common). To prevent opportunistic behavior by the supplier, such as holdup of competitor’s products, simple minimum-quantity contracts are used. VMI will also continue to be common.

 




o
Conclusion 2:As one moves towards point B, the buyer extracts a much larger portion of value created. This is due to the increased bargaining power of the buyer. Since a retailer is likely to have competing suppliers on a continuous basis, there is a lot more scope for value extraction by pitting the suppliers against one another.

 




o
Conclusion 3: as one moves from point B towards point A, the level of partnering between buyer and supplier will increase. At point B, it is unnecessary for a retailer to partner with a supplier, since he adds little value to the goods he sells and has no need of product specific info or production schedules. At point A, however, since supplier monitoring by the buyer is essential, partnering is a likely outcome.

 



There is little reason for buyers to be worried about loss in bargaining power when they share information; through creative contracting and competitive threats, they can regain any power they might apparently lose.



Firms further away from the consumer on the supply chain will do well to partner with their suppliers. {ANAME()}_GoBack{ANAME}


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Supply Chain Discontent

 


By Simatupang, T. and Sridharan, R.



6 antidotes to supply chain discontent:




·
Mutual strategic objectives




·
Appropriate performance measures




·
Decision synchronization




·
Information sharing




·
Incentive alignment




·
Streamlined intercompany business processes



A supply chain is designed to achieve a chain goal that is the result of optimizing total profits through functional differentiation and business processes interdependence in offering products to customers. The main concern of SCM is to create seamless and agile supply chain processes that enable the chain members to meet customer needs at the lowest costs. This is however difficult to achieve because of conflicting interests, such as specific wants, perceived needs and expectations amongst chain members.



Supply chain discontent occurs when two or three parties working together along the same supply chain perceive differences in organizational settings that affect their ability to perform better. In this situation, actions taken by one party are often beneficial to it but have detrimental effects on other players. àLeads to inefficiency loss, such as high logistics costs and unnecessary costs of demand uncertainty including surplus inventory, markdowns and stock-outs.



7 barriers that block chain members from supply chain success:




·
Lack of trust




·
Little commitment to SCM principles




·
Fear of relinquishing control




·
Different goals and objectives




·
Inadequate information systems




·
A short-term “Wall Street” focus on outcomes




·
Involvement in too many supply chains



6 sources of supply chain discontent, which reduces the potential of total profits of collaboration:




·
Incongruent objectives




·
Disintegrated performance measures




·
Unsynchronized decision-making




·
Information asymmetry




·
Misaligned incentives




·
Fragmented business processes



Supply chain discontent may involve issues such as pricing control, inventory control, operations control, control over the channel structure, and information control, task completion, risk/reward splitting, and policy interpretation.



Operational inefficiencies include task duplication, long lead-times, unwanted stock, and distorted information.



Commercial inefficiencies may be pricing distortion, unnecessary inventory costs, lost sales and disputed risk pooling.



Supply chain discontent behavior refers to decisions and actions – in the area of forecasting, inventory, transportation, and decisions and actions – taken by individual chain members that prevent the achievement of the chain goal.



The dual concern model:

 



Skepticism about collaboration. Changing the mind-set from competitive supply chain (see the four types of discontent behavior below) to the collaborative supply chain (i.e. a win-win relationship) is a vital prerequisite to understanding the mutual benefits of improvement initiatives.




·
==Avoiding==: one player has low concern for the interests both of self and of others. E.g. changing terms of trade agreements, cannibalism of the current channel by establishing direct selling to end customer and speculative purchases.




·
==Forbearing==: a player with low concern for its own interests combined with high concern for other player’s interest. This player may have a vulnerable position, e.g. players often perceiving some costs in contending with their partners’ threats and punishments. This generally decreases the chain members’ income.




·
==Rival==: A player has high concerns for its own interests but low concern for other parties’ interest. The rival style often stresses the use of market power to impose unequal exchanges on other players and thereby gain surplus from trade deals. Characteristics include the ability of one chain member to shift the risk of demand uncertainty – either shortage or surplus stocking costs – to other players.




·
==Compromising==: One player emphasizes on give-and-take bargaining during the relationship. Cost savings are split, since it is assumed that the amount of savings is fixed and needs to be divided amongst all players. The achievement of overall optimization is not expected because of sacrificing quality and delivery time.


 



A lack of coordination in dealing with demand uncertainty contributes to unnecessary costs of markdowns and lost sales. The bullwhip effect is also an example of supply chain discontent.


 



Information asymmetry occurs when one player has better access to certain information sources compared to other players. The member with superior information can take advantage from either hidden information (players are reluctant to share relevant information) and hidden actions (one party cannot observe actions taken by another party) or both. The manufacturer, for instance, has superior knowledge about its own operations including product quality, production capacity and delivery lead time. The retailer, on the other hand, has better knowledge of product demand and customer preferences in the market, but not of individual goods.



Fragmented intercompany business processes often contribute to various wastes along the supply chain that lead to unnecessarily high operating costs and considerable unnecessary costs of supply-demand mismatch, which lead to poor profitability. The chain members need to collaboratively eliminate this waste. Initiatives of intercompany business process reengineering can be in the forms of product redesign, process redesign, reducing on-time variability, reducing demand variability, lead-time reduction, improving forecast accuracies, cross-docking, and postponement.


 



==Mutual strategic objectives==are specific targets of competitive positions that the chain members can apply in order to create competitive advantage through collaboration such as accurate response, inventory deployment, customer loyalty, target costs, rapid product development etc. These need to be set by the supply chain members in order to create competitive responsiveness to market changes.



==Appropriate performance measures==are a set of measures used to evaluate participating members’ performance and overall performance. Could be metrics such as customer service, perfect order, new product introduction, speed and operating costs. Overall collaborative business outputs are usually measured in terms of net profit, cash flows, return on investment (ROI), market growth and market share.



==Coordination structure ==is defined as a strategic choice of shared responsibility of decision right, level of information sharing and level of incentive alignment in order to enhance the overall mutual benefits of the collaboration such as increasing customer value and lowering total supply costs.



Information sharing leads to lowered inventory levels, effective allocation of resources, lowered operating costs and improved total profits. One-way communication means the chain members communicates through transactional data such as purchase orders, order and delivery status, product catalogues, and price quotation. Data exchange allows sharing private data in two-way communication such as point-of-sales data, delivery schedules, inventory levels, forecasts, capacity planning, and performance status. Exclusive visibility includes sharing proprietary data such as strategic planning, market research, product blueprint and sensitive costs-related data.



Incentive alignment reflects various inducements (i.e. reward and penalty schemes) to sharing costs, benefits and risks to be applied by the chain members during the collaboration. Since each member may bear a portion of the total chain costs, the agreement to optimize the chain performance may not automatically minimize individual member costs. Incentive alignment thus means to design proper incentives that motivate players in aligning individual decision-making more closely to the overall goal by sharing costs, distributing risks and sharing benefits.



An elementary incentive scheme consists mainly of transfer payments based on current market mechanisms – such as zoning, quota, rebates, warranties, price discount, quantity discount etc. – necessary to move products swiftly to end customers.



A professional incentive scheme attempts to share costs and benefits tied to mutual objectives. Ex. applying inducements - such as accurate forecast, quick response, shared cost-savings, and gain sharing – based on improved performance.



A sophisticated incentive scheme is a change of priorities within the partners’ decision framework of risk sharing. It clearly spells out obligations, expectations and remedies, e.g. flexible quantity contracts, return policies, price protection, real options, and dynamic pricing.


 


 



Antidotes for supply chain discontent incorporate initiatives to resolve shared commitment and collaborative business drivers. Gaining shared commitment involves setting mutual strategic objectives and defining appropriate measures of performance.


__
__

 



Information sharing and the supply chain performance: the role of connectivity and willingness (Fawcett et al., 2007)

 



Information sharing is the core in supply chain based business models. It allows for example Wall-Mart to outsource much of its inventory.



Dell is another example where information sharing has allowed them to reduce their inventory levels significantly.



Many managers define information sharing as a technology issue and tend to think that by investing in technology they can be connected across the supply chain.



Some companies however, treat information sharing as something that is embedded within the culture. Deere and Honda have i.e. sent their engineers to work for the suppliers in order to improve the entire supply chain. In these cases they share both technology plans and cost plans across the supply chain.



The authors argue that while willingness is extremely important, connectivity is the capability you invest in.



To respond productively to rapid change a company must be aware of new information generated and adopt structures that enable fast decision making.



Up until today most focus have been on implementing technology to solve the information sharing problem but this has many times been disappointing for companies that were not otherwise ready to start sharing and therefore didn’t reach a successful result.



Information systems can however help a lot in connecting managers and other employees across different functions and provide them with correct and timely information, especially with the advancements in these areas that have occurred in recent years. The most apparent change as a cause of connectivity throughout the organization is reduced inventory but companies have also experienced shortened product development cycles, order fulfillment leadtimes, help in responding to changing competitive rules and help in monitoring customer behavior.



The authors hence believe that connectivity is positively correlated to a company’s performance.

 



But, since many people live by the saying that information is power, they might be unwilling to share information across the organization so while connectivity increases the capability to share information, the people still make the decisions as to what they share. A company’s willingness to share information is essentially what determines what will be shared. Company culture influences how willing people are to share information.



For a supply chain to take the most advantage of information integration, the companies that the chain consists of must be willing to share information to the other firms in the chain.



The authors also believe that the willingness to share is positively correlated to a company’s performance.

 



They therefore come to the conclusion that companies that have both high willingness and connectivity will outperform their counterparts.

 



From interviews with companies it was found that a wide variety of opinions exist regarding the nature, role and adequacy of information sharing.


 



When asked what they invested time and money in to gain competitive advantages, companies most often said information technology since they are well aware of the importance of connectivity. But few companies have grasped the importance of willingness, they often blame the software for what is caused by unwillingness.



The authors identified four barriers for better information sharing:




Ø
The cost and complexity of implementing advanced systems, they have problems installing them and the budgets are almost always exceeded.




Ø
The second barrier is the systems incompatibility, they cannot connect to one another.




Ø
Different levels of connectivity exists across the supply chain which means that companies cannot take full advantage of their systems




Ø
Finally, the barrier of managers not understanding the importance of willingness for information sharing.



So how should it be done?




Ø
Maintain a balanced perspective, technology should enhance, not replace managerial decision making.




Ø
Avoid technology traps, don’t buy what you don’t need




Ø
Match technologies to specific value-added capabilities, tie the technology investments to specific needs




Ø
Understand the 3 Ps of technology implementation, processes (they should be redesigned, not just automated to gain full benefits), performance measures and people (draw on people’s expertise)




Ø
Invest proactively in a culture of willingness



 



Logistics Process Redesign: Some Useful Insights (Göran Persson, 1995)

 



Over the last years many companies have tried to become time-based. A time-based company is one that has the:




Ø
Ability to develop and introduce goods and services quicker than competitors




Ø
Capability to supply goods and services quicker than their competitors




Ø
Ability to tailor services more exactly according to customer needs than competitors



The goal of such a company is to become a customer-focused organization which is an organization that actually fulfills the needs and deliver value to the customer.



Since it is no longer enough to have a good product companies must focus on increasing customer loyalty and create value for the customer. They do this by improving their responsiveness, their quality and their cost efficiency.



But this is not enough, it is also important to create value for the shareholder, in other words to make profit. Before you thought that these two things could not be achieved simultaneously but now it seems like they are linked together. Many successful companies today manage to create value both for the shareholders and the customers.



They follow the Japanese model of the two zeros: zero defect and zero inventory but a third one can be added, zero response time.



The three leading concepts to achieve this process thinking are TQM (total quality management), TBM (time-based management) and process redesign.



TQM is the origin of process orientation whereas TBM has made the process orientation into a strategy concept. Process redesign is more of a tool to manage improvements.



TQM is focusing on doing the right things right, TBM develop process orientation into a strategy-paradigm. Process redesign or core process redesign stands for redesigning core processes in order to find and implement breakthrough improvements in those processes.



Assumptions for process orientation:



Any business, or segment of a business can be described as a series of processes involving the transformation of inputs into outputs in the form of transactions between suppliers and customers.



The exchange involved in the transactions differ: it can be services (transportation etc.), information and knowledge or goods.



The performance of a response cycle can be described by responsiveness, quality and productivity of the process.



A company that is able to meet customers expectations for choice and response almost always dominates the most profitable segments of demand.



In an individual response cycle, the time to carry out the activities involved in the cycle is often a very small part of the total time, normally as much as 95% is non-active time, hence, there exists a lot of opportunity to reduce lead times.



Small reductions in cycle time tend to get large improvements on quality, overtime issues etc.


 


 



It is therefore important to have goals because if you set up goals you are forced to find new ways of doing things to reach them.



Logistics processes as response cycles:



Operational characteristics of a response (or exchange) cycle are lead time (time from identifying a need until it is satisfied), the concept of uncertainty (fluctuations in the demand etc.), frequency (deliveries per month etc., in order to grasp that the higher the frequency, the lower the inventory etc.) and expected demand patterns



The structural context of a response cycle:




Ø
Complexity, the number of logistics decision elements in the system.




Ø
Heterogeneity or divisibility, the degree to which it is possible to define relatively autonomous groups or segments in the materials or information flow and the strength of relationships between the different segments or groups.




Ø
Task predictability, the degree to which it is possible to specify the task to perform at a given point in time. whereas uncertainty expresses that one know what is needed, task predictability expresses to which degree we actually know the content of the need. By postponing an activity, task predictability might be increased.



The managerial context of a response cycle:



The administrative or managerial context in which logistics process takes place can be characterized by:




Ø
Planning and control




Ø
The tools used to control




Ø
The organizational setting for the process, the degree to which the organization is built around the process.



Strategies for redesigning logistics processes:




Ø
Reduce or redistribute lead times, can be carried out in the supply cycles, the internal response cycles, supporting response cycles such as maintenance or in delivery cycles to customer. Activities that do not add value to the customer should be eliminated, you can reduce the waiting time between activities, make sequential activities parallel or reduce the activity lead time by simplifying it somehow. Some response cycles are more important to reduce lead times for than others and some customers might be more sensitive to the changes. Products of high volume value, major customers and time sensitive customers should be focused on. You can also corporate with your suppliers and in that way reduce lead times.




Ø
Reduce or adapt the uncertainties, there are many different kinds of uncertainties, demand, information, damage, waste, quality, in the process itself, lead times, volumes etc. co-planning involving major customers might reduce demand uncertainties and others as well, also important with good relationship to suppliers.




Ø
Redistribute or increase frequencies, this will decrease inventory and lot sizes.




Ø
Eliminate or adapt to expected pattern of demand, demand patterns are possible to change and to level such an expected pattern is important for an effective utilization of capacity and the reduction of waste.




Ø
Simplify structures, systems and processes, reduce the number of logistics decision elements




Ø
Differentiate, by this the authors mean measures that find new and more effective ways in which to categorize and group products, systems or processes. Most common groupings are by volume value, critically, lead time vs. planning horizon, type of demand etc.




Ø
Postpone, this creates flexibility, not to do anything today that can wait until tomorrow




Ø
Improve the information processing and the decision support system




Ø
Strengthen the internal and external integration


 



 



The impacts of sharing production information on supply chain dynamics: A review of the literature (Huang et al., 2010)

 



When looking at i.e. the beer game, supply chain dynamics can be defined as the variation of orders or inventory levels. The source of such fluctuation is mainly due to the lack of timely sharing of production information, including delays and feedback in the decision rules between entities of the supply chain. The benefit of information sharing is here shown to be significant, especially for reducing the bullwhip effect.



The information sharing may however not be beneficial to some entities owing to the high cost of joining the information system. Barriers like, the high costs for technology, personnel training, lack of trust can hinder SMEs especially from beneficial information sharing.



There are many different systems that can be used to share information (EDI, XML etc. ) but it is unclear which technology is most suitable for enabling the sharing of production information in the supply chain.



It is not a question of if information sharing is good for the supply chain but rather how it shall be shared, what time, how much etc. to benefit all entities of the supply chain.


 



The supply chain structure represent how enterprises are arranged in the supply chain.



PIM (Product Information Management) categorizes production information that affects supply chain performance which should be measured in an efficient way



DIM measures the performance of information sharing from different perspectives.



Two kinds of decisions that require information sharing at the strategic level are found; facility allocation and outsourcing. Production and distribution planning are tactical decisions that require information sharing. Safety stock placement, capacity allocation and inventory allocation are also among those.



For operational decisions, order replenishment and shipment are identified as decisions that need information sharing.



PIM:



The impact of product structure on information sharing has not yet been fully explored by researchers.



Process information describes the characteristics of the business structure that adds value to the customer. Different kinds of process information:



Lead time, few researchers have written about this but some argue that sharing lead time might not increase the revenue of the manufacturer when the preference of the customer is not fully understood.



Cost, is considered to be important to share by many even though cost data can be an issue to share for many companies.



A high capacity level leads to greater benefit of sharing information.



Three categories of inventory information were identified; on-hand, backlog and WIP. Cost savings through information sharing were found to be higher when the holding cost was lower and an increase in backlog cost gives an increased supply chain cost due to information sharing.



Sharing order information can help reduce the bullwhip effect a lot and reduce the supply chain costs.



Different modes of information sharing exists, mainly full sharing or no sharing. Full sharing can be very expensive so you need to make sure you get the benefits of it.



 




Week 5




Aligning incentives in Supply Chains (Narayanan et al., 2004)

 



Cisco lost over $2,69 billion in just a few months which many blamed their new forecasting software. The truth was that Cisco’s suppliers (they didn’t have any manufacturing of their own) were stocking up enormous amounts of inventory because Cisco usually ordered more than they had foreseen and the suppliers were rewarded if they delivered quickly which gave them incentives to keep stock. They also bought in large volumes of components to increase their profit margins since they could get these products to a lower price per unit.



When demand slowed Cisco couldn’t cut off its supplies fast enough, many contractors actually believed that Cisco would buy everything they could produce, it was not clear in their contracts. The supply chain imploded because Cisco’s suppliers didn’t act in the best way for the supply chain nor the company and Cisco ended up with a lot of excess inventory.



This scenario is in fact very common to see in supply chains, companies are given incentives to act in ways that are far from optimal for the supply chain. Most companies don’t worry about what their partners are doing in the supply chain and they believe that when maximizing the profit for themselves they also maximize the supply chain profit. In order to maximize the supply chain profit , companies have to create incentives for it to happen.



A supply chain network works well if its companies incentives are aligned – if the risks, rewards and costs of doing business are fairly distributed across the network but this is a hard task because it demands that everyone do their part in the network.



Misaligned incentives are often the cause for excess inventory, incorrect forecasts, stock-outs etc.



If you increase the incentives for everyone to optimize, you yourself can also get a bigger share of the profits.



There are three reasons why incentive-related issues occur in the supply chain:




Ø
When companies cannot observe other firms actions they find it hard to persuade those firms to do their best for the supply network (example with Whirlpool that cannot control that Sears will do everything to sell as much of their products as they can).




Ø
When one company in the supply chain has information that others in the supply chain don’t (for example in the automotive industry in the U.S. where the vendors fear that if they share their cost data, the manufacturers will use the information to squeeze the vendors margins.




Ø
Because incentives are often badly designed (example with Canadian bread manufacturer that felt like they needed to increase their stocks in store and gave the deliverymen commissions to fill up the shelves which they of course did even on days when competitors had huge discounts on their bread leading to a massive amount of waste).



When aligning incentives all entities of the supply chain can get a bigger share.



Companies can tackle incentive problems by:




Ø
Acknowledgement that such problems exist




Ø
Diagnosing the cause (hidden actions, hidden information or badly designed incentives)




Ø
Creating or redesigning incentives



Companies can redesign incentives by:




Ø
Changing contracts to reward partners for acting in the best interest of the supply chain




Ø
Gathering or sharing information that was previously hidden, the most effective way to do this is by measure more variables. Example of campbells soup that invested in technology that could track both distributors sales and purchases which meant they were able to eliminate their incentive to forward-buy large volumes.




Ø
Using intermediaries or personal relationships to develop trust throughout the supply chain, the use of a middleman has become increasingly popular since companies started outsourcing across the world, mostly to developing countries.



Companies can prevent incentive problems by:




Ø
Conducting incentive audits when they adopt new technology, enter new markets or launch supply chain improvement programs




Ø
Educating managers about processes and incentives at other companies of the supply chain




Ø
Making discussions less personal by getting executives to examine problems at other companies or in other industries



Think about the example of the video retailer…



Companies should periodically study their supply chains, conduct incentive audits, educate their managers and examine case studies from other industries.



 



Global Supply Chain Risk Management (Manuj et al., 2008)

 



Companies today are restricting themselves to operate on a global market which creates many issues, both economic, political, logistical, cultural and infrastructure. Global supply chains tend to be very complex and they require high coordination in the flow of goods and cash.



Natural disasters, terrorist attacks and other things that disrupts part of a supply chain have been proven to affect the entire supply chain with sometimes huge losses as one of the effects. It is therefore important to look at the entire supply chain when selecting and implementing a risk management strategy.



There is a difference in risk management between global and domestic supply chains since the global ones must take into account the differences in economies, cultures, politics, infrastructure and competitive environment. Global supply chains also tend to have more potential delay points, greater uncertainties, and therefore greater need for communication and coordination and monitoring.



So why go global? Because it provides access to cheap labor and raw materials, larger products market and governments might sometimes offer special deals because they want to attract new businesses to the country. Kogut identified ways to profit from a global market; production shifting, tax minimization, financial markets and information arbitrage.



The advantages of a global supply chain are outsourcing; material, people etc.



Risk can be defined as the probability of expected outcomes but there are other definitions as well, the risk of any other consequences or that risk contains different types of losses. The authors chose the definition probability x loss



How to address risk:




Ø
What are the potential losses if the risk is realized?




Ø
What is the probability of it happening?




Ø
What is the significance of the potential losses?



Probabilistic choice (PC), is based on the concept that unwanted choice can be compensated by good events, a solution can therefore be evaluated by its average behavior. The PC tends to favor extreme solutions



The risk analysis (RA) is better for example catastrophes since it works by the concept of minimizing regret which is the difference cost of an optimal solution and the solution actually adopted.



Supply chain risk can be divided into sources and types of risk where sources can be holistic or atomistic. Atomistic risk means that only a small part of the supply chain is needed to asses the risk and holistic means that an overall review of the supply chain is needed.


 



Risks can also be classified as quantitative or qualitative, quantitative risks include stock-outs, obsolescence etc and qualitative risks include lack of accuracy, reliability etc.


 


 


 



When assessing the risk it is important to understand the nature of the probability (normally, Poisson, etc.)



Historical data may be used to understand the behavior of risk probability distributions but this data might be unreliable or incorrect.



A decision analysis to asses supply chain risk and generate a solution.



Strategies and mitigation plans:



On a strategic level, risk management is focused on identifying and assessing the probabilities and consequences of risk and selecting risk strategies



Risk management strategies can be classified into seven categories:




Ø
Avoidance




Ø
Postponement, maintains flexibility and delay the incurring of costs




Ø
Speculation, decisions are made on anticipated customer demand




Ø
Hedging




Ø
Control




Ø
Transferring/sharing, through outsourcing, insurances etc.




Ø
Security



Mitigation model:




Ø
Risk identification




Ø
Risk assessment or evaluation, not all risks affect the supply chain which is why it is important to evaluate which risks to focus on




Ø
Selection of strategy




Ø
Implementation of strategy, reducing complexity is identified as the most important factor of the implementation




Ø
Mitigation of supply chain risk, plan for when the risk occurs since not all risk are feasible or possible to avoid.


 



 



Ericsson’s proactive supply chain risk management approach after a serious sub-supplier accident (Norrman and Jansson, 2004)

 



When industries move towards longer supply chains and more uncertainty in demand, risk handling and risk sharing becomes increasingly important. The risks become even higher when companies become increasingly dependent on each other. Some trends that increases the vulnerability a part from increased dependence are:




Ø
Increased use of outsourcing




Ø
Globalization




Ø
Reduced buffers




Ø
Increased demand for on-time deliveries in shorter time windows




Ø
Shorter product life cycles



SCRM is defined as “to (collaborate) with partners in a supply chain apply risk management process tools to deal with risks and uncertainties caused by, or impacting on, logistics related activities or resources”.

 



It is suggested that risk sources can be divided into three categories; numbers (external to the supply chain like political, natural etc.), internal to the supply chain and network related.



Risk map/matrix



BCM (Business Continuity Management) is defined as “ the development of strategies, plans and actions which provide protection and alternative modes of operation for those activities or business processes which, if they were to be interrupted, might otherwise bring about a seriously damaging or potentially fatal loss to the enterprise”.

 



 



 



Supply risk assessment process:


 



The first activities in developing BCM are to identify the risks and assessing. Then strategies and plans should be developed.



Ericsson has been chosen as a case company since they operate in a volatile industry and it has recently had a major supply chain incident that has made them work with their SCRM a lot.



The accident happened in 2000 in a productions plant in the U.S. there was a fire that interrupted the production for one of Ericsson’s suppliers. This was unfortunately Ericsson’s only supply of the chip they were making which made them lose many months of mobile phone production which meant great losses since they didn’t understand the seriousness of the event , didn’t act on time and didn’t have a plan for that risk.



They had before this incident handled risk mostly through insurance companies but now many more people are involved and it is carried out throughout the organization.


 



Ericsson identifies risks in the supply chain by mapping the chain both upstream and downstream and looking at suppliers as well as products.



First, each component is classified into four different classes:




Ø
The product is currently sourced from more than one source




Ø
The product is currently sourced from one source but more sources are approved and available but not used




Ø
The product is currently sourced from one source but more sources are approved and available but no tools or other equipment needed are in place




Ø
The product is currently sourced from one supplier, no other manufacturer is available.



Then Ericsson try to look at the impact of a disruption by putting the components in another four different classes:




Ø
It takes less than 3 months to get delivered from another source




Ø
3-8 months to get approval and delivery from another source




Ø
9-12 months, redesign the only alternative




Ø
12 months, re-design of a unit/product of high complexity



Then Ericsson go into an analysis period where they analyze their suppliers and sub-suppliers of critical components by using their own tool ERMET. They look at business control, financial issues, hazards in the surroundings, hazards at site etc.



Then they try to combine probability and impact in a risk map/matrix, see it above.



The third step is called risk treatment which include both developing of strategies and choosing which one to work with.



After this they do a lot of monitoring and follow-up



They also perform incident handling and Business continuity-plans to make sure that every possible accident is handled in the most effective way with the minimum amount of damage.



The contingency plan is divided into three steps:




Ø
Response plan, the required reaction to an incident




Ø
Recovery plan, the recovery phase actions




Ø
Restoration plan, the process of planning and implementing operations again



They have also developed requirements for their suppliers:




Ø
The supplier shall identify a back-up site/resource




Ø
They need to have someone responsible for the risk management




Ø
The supplier shall report incidents




Ø
The supplier shall actively work with risk management etc.



This new tactic by Ericsson have only given positive results. They have had accidents since they’ve implemented the risk strategy and it worked well.



 



Supply chain risk sharing from a buyers’ perspective: content and experience (Norrman, 2008)

 



An issue when changing structures or processes in a supply chain is that it might not be the part of the org. that changes that later on will receive the benefits. The investments in supply chain performance will therefore not always be made.



Risk and gain sharing are therefore key success factors for an implementation of a change in the supply chain.



Incentives could be made visible by putting them into well-structured contracts.



Incentive alignment and supply chain risk sharing:



Companies often know about the benefits of focusing on the supply chain as a whole but still they often look at their own interest, unless they have incentives to do it. A lack of aligned incentives is therefore one of the reasons to why companies focus on themselves and why supply chains perform badly.



A supply chain stays tight only if every company in the network has a reason to pull in the same direction.



Misaligned incentives can cause:




Ø
Excess inventory




Ø
Stock-outs




Ø
Incorrect forecasts




Ø
Poor customer service



Incentive related issues arise when (Narayanan and Raman):




Ø
Companies cannot observe other firms actions they find it hard to persuade those firms to do their best for the supply chain




Ø
It is difficult to align interests when one firm in the supply chain has information or knowledge that the others do not




Ø
Incentive schemes are often badly designed



These issues can be handled stepwise:




Ø
Executives must acknowledge that there are problems with misalignment




Ø
Pinpoint and analyze the cause




Ø
Align and redesign incentives



There are different types of redesign solutions:




Ø
Contract based, changing contracts to reward partners for acting in the supply chain’s best interest




Ø
Information based, information that was previously hidden is now shared and gathered




Ø
Trust based, by use of intermediaries or personal relationships



Some antidotes for supply chain discontent are:




Ø
Mutual objectives




Ø
Appropriate measurements




Ø
Information sharing




Ø
Decision synchronization




Ø
Incentive alignment




Ø
Streamlined processes



Example Blockbuster:



Blockbuster, instead of buying copies, agreed to give the movie studios a share of the rental fees in return for a much lower upfront price on the videotapes. This resulted in better profits for both parties and blockbuster was able to have more in stock and satisfy the customers.



Agency theory:



This is a contract under which one person engages another person to perform some service on their behalf which involves delegating some decision-making authority to the agent. The principal and the agent have different objectives and risk attitudes and the principal wants to know what kind of reward he should offer the agent to ensure that:




Ø
The agent accepts the task




Ø
The agent performs the task in a satisfactory way



The optimal choice depends on the information and uncertainty structure of the problem, the risk attitudes of the actors etc.



Potential agency problems that can occur in such a relationship are when:




Ø
The actors have different goals




Ø
It is difficult or expensive for the principal to monitor the agent’s actions.



Risk-sharing problems arise when the two parties have different risk attitudes.



Some argue that contracts is the best method since it is quick and simple but others argue that they are costly and might signal distrust. They mean that different social processes are important to encourage exchange, flexibility and solidarity. Other people believe that you need a combination of both, that well-specified contracts will promote long-term trusting relationships.



Example Agilent:



High-technology company. They had previously tried to reduce uncertainty by sharing data and improving forecasts but they found better potential in trying to prepare for uncertainty. This includes having contracts with suppliers and secure different supply options. They started implementing contracts for sharing risks with their suppliers. The contract was that Agilent first develops an internal range forecast of expected demand. Then Agilent tries to get the supplier to guarantee supply and availability as well as lead time and prices. Suppliers will secure clearer planning information.



Agilent experienced that it was easier to put together a contract with smaller suppliers since they in general are a more important customer for them.



The key benefit has been the flexibility Agilent have gained. Agilent gives the supplier better visibility and they are both committed to the contracts.



Agilent stress the importance of the approach not being about implementing a software tool but changing the mindset of the organizations involved.



One problem that occurred was for the suppliers to understand Agilent’s volatility in demand.



Example Hewlett Packard:



Global high-tech company. Belongs to the top three in their different markets, demand is highly volatile. They have a large purchasing power but find themselves with a high risk on their supply side.



Instead of pushing risk upon their suppliers HP should move risk to where it drove the least costs. They tackled three types of risks:




Ø
Demand and mix uncertainty




Ø
Supply uncertainty




Ø
Material cost uncertainty



HP tried to develop scenarios to measure risks and structure supplier agreements by using a forecast that is divided into three scenarios:



Low scenario, base scenario and high scenario.



The three scenarios are then linked to different contract mechanisms, three terms are structured in the contracts:




Ø
Quantity




Ø
Pricing terms




Ø
Cash flow



HP was able to save $200 million and the suppliers were able to see the value of working with the contracts. The first years were about creating awareness by using pilot projects etc.



Analysis of the case studies:



The buying companies received many benefits from the risk-sharing contracts especially since they had such high volatility in demand. Normally the price got better with a larger commitment. The suppliers also expressed satisfaction over the new contracts.



Barriers of risk-sharing contracts:




Ø
Changes the commercial interface between companies




Ø
Affected both internal and inter organizational processes




Ø
Main challenge was to handle the people, change management, since the change demanded more proactive decisions and sometimes new competences




Ø
Increased workload




Ø
Need to develop new metrics for the purchasers



CSF’s for risk-sharing contracts:




Ø
Sharing the risks and gains




Ø
Trust




Ø
Good relationship




Ø
Suppliers should not be too dependent on the buying firm




Ø
Good forecasting process




Ø
Realistic requirements


 



 




Week 6




Six questions every supply chain executive should ask about cloud computing (Schramm et al., 2010)

 



Flexible solutions are an important part of the supply chain design today when companies are powered by information technology.



Cloud computing is therefore getting more and more interesting for companies and those technologies are a growing business. It promises to enable information control and the economics of supply chain information technology. The author believes it will lead to a revolution in the way more supply chain services are provided, shifting from outsourced contracting models to more flexible transaction-based models.



Cloud computing refers to the provision of computational resources on demand via a computer network, such as applications, databases, file services, email, etc. In the traditional model of computing, both data and software are fully contained on the user's computer; in cloud computing, the user's computer may contain almost no software or data (perhaps a minimal operating system and web browser only), serving as little more than a display terminal for processes occurring on a network of computers far away. A common shorthand for a provided cloud computing service (or even an aggregation of all existing cloud services) is "The Cloud". From Wikipedia



The most common analogy to explain cloud computing is that of public utilities such as electricity, gas, and water. Just as centralized and standardized utilities free individuals from the difficulties of generating electricity or pumping water, cloud computing frees users from certain hardware and software installation and maintenance tasks through the use of simpler hardware that accesses a vast network of computing resources (processors, hard drives, etc.). The sharing of resources reduces the cost to individuals. From Wikipedia



When choosing what cloud computing system to purchase there are several things that need to be considered since there are certain trends that cloud computing will drive in the supply chain:




Ø
New competitors, could enable new companies to start up in a short time without large infrastructure investments.




Ø
Speed to market for new products, will be faster with cloud computing




Ø
Large-scale transformation, it will be easier to have dynamic supply chains and they will be more scalable



There are however also some issues:




Ø
Collaboration, very few companies own their entire supply chain and cloud computing requires that everyone wants it which could potentially lead to some complications.




Ø
Competitive essence, companies use very sophisticated SCM today so how could applications that are not customized for them deliver what they need?




Ø
Security, lost data can lead to lost business



Cloud computing is in other words something that is coming up for companies. Accenture has identified six key questions that decision makers should ask about this in order for them to narrow it down and see the opportunities and also the risks that such an implementation would inquire for their company.




1.
What is cloud computing and how does it work?


 



Cloud computing allows companies to access IT-based services such as infrastructure, applications, platforms and business processes via the Internet. It allows companies to better respond to changes in the business environment, enter new markets etc. it is good because of the pervasiveness of the Internet and a catalyst has been the success of i.e. Google and Microsoft.



Cloud computing is good because:




Ø
It requires little capital investment




Ø
Buyers pay per use




Ø
Rapid acquisition and employment




Ø
Lower ongoing operational costs




Ø
Adaptable



From infrastructure to business processes:


 



It is important that companies align their IT-systems to fit their needs and strategies. The initial focus has been on IT infrastructure to achieve benefits like financial flexibility, lower costs, speed to market etc.


 



But cloud is about much more than infrastructure, it brings opportunities to expand similar benefits in processes and design.


 


 


 



Clouds can take two forms, private and public.


 



Private clouds are built within the company’s data center and are designed to provision and distribute virtual application for internal business users. The service components are designed to use the available IT assets in an efficient way.


 



Public clouds on the other hand extend the data center’s capability by enabling provision of IT services from 3P-providers over a network.


 



The choice between private or public is a trade-off between security and flexibility, see figure 2.


 



Global, large companies may use private clouds as a way of standardize their IT-infrastructure and this also goes for large 3PL providers, private clouds can also span between multiple companies.


 



SME’s however, usually benefits more from public clouds even though they sacrifice the ability to customize the solution.


 




2.
Is cloud more than just a technology or applications play?



Technology is the basis for cloud computing but it is not just another technology platform, it promises to transform the way companies use IT services. The authors believe that cloud computing will create a new paradigm: cloud-based supply chain processes where suppliers of supply chain services will be able to provide services on a transactional pay-per-use basis to any customer, anytime, anywhere which will have a great impact on how supply chains are created.



Key enablers for providers:




Ø
Massive scalability, while traditional service providers needed to size and provision computing hardware each time they added customers, cloud computing utilizes server farms consisting of thousands of servers.




Ø
Multi-tenant capabilities, cloud computing applications are designed to house multiple users.



Key enablers for customers:




Ø
Little or no CapEx required, will be used on a transactional basis with little or no capital expense outlay to get started in new business segments or markets.




Ø
Low barrier to entry will create new market entrants, since major investments are not required new companies will find it easy to establish themselves on the market.



But supply chain in the cloud is at a very early stage and will likely develop at a different pace in different process areas, business sectors and markets:



Process areas, likely that the supply chain in the cloud initially takes place in the core capabilities like transport route planning, product design and global trade compliance.



Industry sectors, early adopters will most likely be those with less complex products and those with great cost and margin pressure.



Markets, early services are most likely to emerge in countries with less developed infrastructure, like the BRIC-countries but also parts of Africa where companies have minimal access to capital.



Supply chain applications in the cloud:



Many companies are already preparing a strategy to move to offer SaaS (software as a service) solutions. Two camps are evolving in the SCM market:




Ø
Incumbent leaders in the SCM application software markets, are taking their existing application suites and turning them into SaaS.




Ø
New entrants




3.
Is cloud a reality for a supply chain process?


 



Not every supply chain process will be a candidate for a cloud, complex process that require a lot of customization are less likely to be delivered this way and this also goes for processes that require heavy integration with either a physical flow or other information systems.


 



Processes that are suitable are, freight bill audit and payment, spare parts locating and transportation sourcing management, most of them already available as clouds.


 



Processes likely to move towards being cloud-based , see figure 4.


 


 




4.
What benefits can cloud bring to my supply chain?



Financial benefits:




Ø
Revenue growth due to increased market shares to improved services




Ø
Cost savings on service delivery and IT and application management




Ø
Ability to switch capital expenditure into operational expenditure




Ø
Opportunity to move to a more variable cost structure that is in line with revenue



Operational benefits:




Ø
Enhances flexibility




Ø
Improved uptime in the supply chain applications as having fewer instances of software simplifies the support and maintenance




Ø
Process excellence, while taking advantage of the best processes in a lower-cost and more flexible environment




Ø
Focus can be on core competences




5.
How will cloud computing change business models in the supply chain?


 



For buyers/consumers:




Ø
Better and broader decision making




Ø
IT governance, it will need to consider standards and expectations towards cloud-based services




Ø
Business process governance, companies will need to ensure that cloud based processes are used across all regions in order to standardize the global operations




Ø
Financial governance, companies will come to look at the aspects of contracting for services in a different way




Ø
Administration and budgeting, will need to govern who is using services, how often and then account for the costs




Ø
Measuring and monitoring, cloud-based services may be provided by multiple providers, companies will need ways to ensure the service levels are met.




Ø
Billing and payment


 



For providers:


 




Ø
IT




Ø
Finance, shift from long-term contracts to transaction based




Ø
Standardization of services, will need to be this in order to achieve economics of scale




Ø
Globalization of control




Ø
New players will want to participate in the market


 




6.
What are the challenges and how can they be managed?


 



Service providers:


 




Ø
Ability to scale, the technology behind cloud computing is well-established but it might require additional human (will require training) resources and in some cases PPE (plant, property and equipment) to offer a cloud-based service which might be a challenge.




Ø
Fierce competition, will likely create an initial rush of new entrants




Ø
Pricing of the services, could be tricky since it is transaction based. Companies could have customers pay for speed, peak pricing, discounts for volume etc.



Service consumers:




Ø
Data security is consumer’s number one concern, companies using the services should perform data security audits together with the provider




Ø
Loss of skills and knowledge from the organization, need a clear strategy as to which process that should be cloud-based and not




Ø
Loss of customization, companies will offer the ability to configure




Ø
Loss of competitive advantages if you use a public cloud, but if it is a competitive advantage, as mentioned earlier, it will not be fit to be a cloud-based process



Implementation plan:


 




Ø
Evaluate the market need




Ø
Evaluate the competition




Ø
Crunch the numbers, since it is a new paradigm, it will not be a cost plus world, look at the value the services will bring to your customers and price accordingly




Ø
Develop your strategy




Ø
Define the business case, risk analysis etc.




Ø
Set the standards for success




Ø
Survey the market




Ø
Collaborate on decisions with key supply chain partners




Ø
Approach cautiously and evaluate frequently


 


 



 



Supply Chain Enterprise Systems: The Silver Bullet? (Knowledge Wharton, 2006)

 



The trend towards globalization is evident but simultaneously there is a revolution in communication and management technologies that support supply chain functions, supply chain enterprise systems.



The systems support many functions such as planning, inventory control, CRM etc. the systems comes in many types and shapes, ERP, WMS, VMI, TMS, RFID etc. the vendors of the systems have worked to develop solutions that not only supports the supply chain but helps increase customer satisfaction and can improve corporate financial returns.



The application of this technology however, has emerged as a pain point for companies that often fail to leverage the systems for a competitive advantage even with the help of a 3P-provider.



In order to succeed with an implementation of such a technology you need to:




Ø
Have a clearly defined need based on supply chain strategy




Ø
Have clear and realistic expectations of what the system can and cannot do for the supply chain




Ø
Analyze whether a new system is needed at all considering the high costs of such an investment



Kleindorfer still identifies technology as one of the three pillars that support the upcoming supply chain. A supply chain supports material flows, information flows and financial flows. The coordination of these flows are supported by processes, organizational structure and enabling technologies.



The systems often promise to deliver a lot, for example SAP that promises to enable companies to “ share information and set and achieve supply chain goals through collaborative planning, forecasting, and replenishment, support for VMI and SMI.



When looking at upcoming technologies, the author sees RFID as the strongest one, that is said to replace the bar codes within a few years as the ultimate positioning device. But the RFID tags are still too expensive to be used on single items. Another thing that is still to come is the ability for employees to actually use the information the RFID tag produces.



Other technologies that are getting more and more popular are VMI technologies, improved technology for replenishment and forecasting technologies.



Another thing that is important to consider with information systems is that they are only as good as the data you give them. If the employees cannot handle the systems and give inaccurate data, they will get inaccurate data out of the system as well. You actually need a lot of human intervention for the forecasting technology to work, sometimes companies just buy a lot of new technology but they normally need some help to figure out how to use the systems. In some cases you have the other extreme with people i.e. doing everything in Excel, that’s not the solution either.



It is also different depending on what business you are in, what systems you need and how much technology you need, not every supply chain is handled equally.



Another thing that is common in companies is that people don’t believe in the machine and do as they want even though the system is telling you to do something else. If you don’t trust the system’s numbers you need to try to figure out what is wrong and fix it instead of just changing the numbers.




Ø
In order to chose the right supply chain technology you need to understand your own supply chain and strategy.




Ø
You also should revise the IT systems you already have in place, often you can just make better use of the technology that is already in place.




Ø
It can be very hard to calculate how much a new system will affect the company.




Ø
Implementation time is key, some systems take over a year to implement.



 



Building the supply chain of the future (Malik et al., 2011)

 



Many companies and supply chains are not equipped for the globalized world we live in today that changes constantly.


 



The bottom line for supply chain strategy makers is a greater risk of making key decisions that become uneconomic as a result of forces the company cannot control.


 



To prepare for this some companies have started divided their supply chains into smaller ones that are easier to manage and they are treating their supply chains as hedges against uncertainty. One example of dividing the supply chain comes from a U.S. company that first outsourced all but a small part of the production to China. They realized that this wasn’t stable so they examined the volatility of demand and the volume sold of each SKU. Then they placed the products with high volume and stable demand in china and moved the others closer to the end customers. They also changed their forecasting, for those with high volatility they started producing direct to customer orders and not do any forecasting which made the forecasting for the other products easier.


 



How many splinters a company needs to divide its supply chain in depends on the way the supply chain is designed and what products the company is selling. When doing this you can reduce complexity and manage the supply chain better because operational assets can be focused on tasks they’re best equipped to handle. It also adds visibility


 



The increase of importance of emerging markets are one of the major uncertainties, economic growth there will increase the energy consumption with about a third. Worries for the environment are growing too along with concerns for new laws and regulations.


 



Manufacturers and supply chain planners must also deal with an increased complexity in the variety of products but also partners in the supply chain which means they have to work harder to meet customer needs.


 



Companies will not be able to meet this challenges once and for all, it’s a continuous process.


 



Another advantage that multiple supply chains offer are most valuable if companies view them dynamically since circumstances change. It might not be a feasible solution in a few years to have production in low-cost countries if transportation costs go up and as these economies get stronger.


 



 



Strategic Supply Chain Mapping Approaches (Gardner and Cooper, 2003)

 



Visualizing, tracking and managing supply chains becomes more and more complicated when companies start outsourcing and are becoming increasingly global.



A supply chain map should link to the strategic planning process of the firm to be able to evaluate supply chain membership and structure.



The current definitions of a supply chain covers multiple functions or processes across multiple firms and calls for an integrated approach that adds value for stakeholders.



A map is a spatial representation of the environment. There are several reasons to construct a supply chain map:




Ø
To link corporate strategy to supply chain strategy




Ø
To catalog and distribute key information for survival in a dynamic environment




Ø
It offers a basis for supply chain redesign or modification




Ø
Current channel dynamics can be displayed in a map, like competitive positioning and future importance




Ø
The process of building it will define the perspective of the supply chain integration effort




Ø
Leads to a common understanding of the supply chain




Ø
Provides communication tools to reach across firms and functions




Ø
It facilitates monitoring of supply chain integration progress




Ø
New individuals or firms can be oriented to their role in the supply chain




Ø
Can lead to an improved SCM procedure



Fine suggests three kinds of supply chain maps that should include:




Ø
Organizations




Ø
Technologies




Ø
Capabilities, e.g. JIT delivery, SCM, assembly plant management


 


 


 



Strategic supply chain mapping focuses on the flow of information, money and goods whereas process mapping tend to focus on a single operation or system.



A second distinguishing is the level of detail you put in the map and the third major distinction is the overall purpose of the mapping.



Characteristics of a good map:




Ø
Standardized icons




Ø
Color- and symbol coding business processes




Ø
Should include a plan for dissemination (utspridning)


 


 


 


 


 


 



Geometry includes the number of tiers, the degree of aggregation and the inclusion of spatial relationships.



Implementation issues:




Ø
Information density




Ø
If it is dynamically linked to a database, it can be redrawn, this could otherwise be an issue




Ø
Delivery modes (paper etc.)



A supply chain map should be easy to build and use, comprehensive but not overly detailed, strategic in focus, effective in building alternatives.



Risks of mapping:




Ø
Giving away competitive information




Ø
Changing the change dynamics




Ø
Getting lost in too many details




Ø
Providing an ineffective perspective for management use



A key consideration is how the mapping will be used in conjunction to a firm’s strategy.


 


 


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