Supply Chain Management Lectures PDF

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Supply ChainManagementLecture 1 Understanding Supply ChainsSupply Chain Management plays a significant role in the development of civilization. It is much about managing suppliers as about managing customers – must consider both sides.theguardian/business/2017/sep/29/food-regulator-chicken-supplier-...

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Supply Chain Management

Lecture 1 Understanding Supply Chains Supply Chain Management plays a significant role in the development of civilization. It is much about managing suppliers as about managing customers – must consider both sides. https://www.theguardian.com/business/2017/sep/29/food-regulator-chicken-supplierfood-safety-dates-2-sisters-food-group New SCM laws; if organizations benefit from slave labour (or illegal working principles) then they are directly responsible Evolution of SCM 1950s-1970s – Traditional Mass Manufacturing 1960s-1980s – Inventory Management/Cost Optimization 1980s-1990s – JIT, TQM, BPR and Alliances 1990s-2000s – SCM Formation/Extension 2000s+ - Further refinement of SCM Capabilities (relatively new concept) Future?  Uber – largest taxi company, owns no vehicles  Facebook – largest social media, owns no content  Alibaba – most valuable retailer, has no inventory  Airbnb – largest accommodation provider, owns no real estate Visual Representation of a Supply Chain

First-Tier Customers = Customers with whom there is direct contact Physical Distribution is usually outsourced to logistics companies Apple, eg., dictates what type of machinery second/third/fourth-tier suppliers must use

Kellogg’s SCM

Upstream = supplier relations, downstream = customer relations Innovation of iPhone: Most innovations of iPhones come from government-funded research for safety purposes; developments that the government are unable to make themselves (Professor Mariana Mazzucato) What is a Supply Chain?

A network of connected and interdependent organizations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users (Christopher M., 2011) What does a SC Manager’s Job Consist of?  Mitigate risks  Supply monitory  Scheduling  Supplier selection  Storage/inventory/logistics  New ways of adapting into market  Information flow and material management What a Supply Chain Management Looks Like:

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Problems:  Retailers decide when they put 2-for-1 offers, but the farmers usually have to pay for the extra one US Aviation Department did not allow transatlantic flights with two engines; Boeing paired up with GE, who convinced the Aviation Department that it was safe to do so – more demand for Boeing flights

Why is SCM Important?  Up to 75% of companies’ expenditure spent on supply chains (Tent, 2004)  “Supply Chain is the most dominant function within modern organizations” (Miles and Snow, 2006)  Supply chains compete, not companies… o Eg. mobile phones (Apple, Google, Microsoft) Porsche was forced to suspend production for 2 weeks in 2009 when the firm which supplied the thread for its seat belts went bankrupt Why are Suppliers Important? Case Studies: Henry Ford Black Cars, Mini-Coopers 10m Combinations Supply Chain Operations Reference (SCOR)

*learn model Aim of model is to create a universal language for all supplier

Achieving an Integrated Supply Chain

Triple A by Lee Being cost effective is not enough amongst competitive; actual winners of the supply chain context are companies that are agile (responding to short-time changes, contingency plans), adaptable (responding to long-term changes, social/political/environmental and tracking customer demand in long-term) and aligned (having similar motivations and incentives in the industry) 4R by Christopher (2001)  Responsiveness (ability to meet customer demands by responding to changes in the market)  Agile/Adaptability  Resilience (ability to cope with unexpected disturbances)  Agile  Reliability (quality of being reliable, dependable or trustworthy, increasing standardization and decreasing process variability generally contributes to reliability)  Adaptability/Aligned  Relationships (ability to manage relationships- every business is built on relationships)  Aligned Zara Case Study Notes  Design

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o Right information required; “what we should have but do not” o Information from store manager to product/commercial developers o Stock control used as method of product demand o All departments work and organized in the same way Sourcing and Manufacturing o Most produced in Europe (80%-90%), manufactured in Spain o Fabrics from Italy, France and Spain o Minimize waste of fabric o “Like a puzzle” to further then go to the cutting team o 120-130 layers of fabric cut together o Each garment checked one by one for quality control Distribution Retail Cycle – back to Design!

Important to Notice!  Design o How to get the right information from the stores?  What was sold  What could have been sold o Three options for something that doesn’t sell: 1. Take it out 2. Amend it 3. Introduce something new  Sourcing and Manufacturing o Where is the merchandise made?  80%-90% in Europe  Local, no culture barriers, agile/adaptable/aligned o Cutting (internal) o Assembly (external) o Quality control and final preparation (internal)

Lecture 2 Outsourcing and SC Strategies

Outsourcing is the starting point of supply chain management; currently organizations faced with the challenges of what to produce in house and what to outsource Oliver 1990 – Determinants of Inter-organizational Relations  Necessity- refers to the desire of one organization to acquire resources of the partnering organization which it cannot produce effectively or efficiency  Asymmetry- relates to relations driven not just by resource scarcity (which is the condition of necessity) but also by the potential of an organization to exert its power over other organizations and acquire the needed resources  Reciprocity- refers to the aim to have mutual advantage or the aim to share mutual risk; in contrast to asymmetry, this dimension emphasizes cooperation between organizations rather than the exercise of power and control  Efficiency- refers to the objective of improving internal performance and not the need to conform to the dictates of a more powerful organization or environmental forces  Stability- refers to the desire to minimize the effects of environmental uncertainty, which is generated by resource scarcity and the lack of perfect knowledge about environment conditions  Legitimacy- refers to the aim of an organization to improve the reputation and image by conforming to the prevailing norms and values imposed by the institutional environments in which the organization is embedded Outsourcing The process of transferring an existing business activity, including the relevant assets, to a third party. The difference between outsourcing and subcontracting is that outsourced products have the capacity of being in-house, whereas subcontracted products do not. Outsourcing: Make or Buy Decision

Determinants of Outsourcing Decision - Dependency on Capacity o Firm has knowledge and sills, but not capacity - Dependency on Knowledge o Firm does not have knowledge and skills- how to select suppliers if don’t have knowledge? - Toyota Engines o Engines- knowledge and capacity- 100% in-house o Transmissions- knowledge, designed in-house, made by suppliers

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Electronics System- designed and made by suppliers

Outsourcing and Offshoring Offshoring can be done in-house as well; just in different country.

Do or Buy? Depends on aspects such as significant of process, maturity of process and the products relativity to competitors Outsourcing – Organizational Effects Benefits/Opportunities Enable focus on core Reduce costs, providing short-term balance sheet and P&L benefits Increased flexibility to configure resources Increased ability to meet changing market needs Provision of benefit through economies of scale and scope Ability to access best in class skills and capabilities Freeing of constraints of in-house cultures and attitudes Provision of fresh ideas and objective creativity Outsourcing – Sector Effects Benefits/Opportunities Provides opportunities for niche players to enter a sector, enabling original sector players to focus on core Improvement of products and services from the sector

Risks/Disadvantages Failure to identify core and non-core may lead to outsourcing core Difficulty in insourcing later Difficulty in deciding how close to core outsourcing should get Lack of skills and competence to manage outsource relationships Increased costs in relationship management Lack of understanding, skills and competence to design appropriate service level agreements with outsource company

Risks/Disadvantages Privatization by stealth Reduction of government control over sector

Improved ROI, leading to increased investment in the sector In public sector, policy can be redirected to focus on improvement of services

Outsourcing – National Effects Benefits/Opportunities Increased use of world-wide “best in class” capabilities Enables national focus on improved services to citizens and taxpayers Improved GNP and employment for nations who become outsource centers of excellence

Creation of powerful outsource companies who gain leverage over a sector Possible adverse impact on employment in the sector Possible reduced consistency of training and development May conflict with some stakeholders’ objectives

Risks/Disadvantages Possible adverse affect on national employment Downward pressure on domestic salaries Mismatch of international cultures, belief and traditions Risks of foreign control of critical resources and possible subversion International exploitation of less developed nations human resources and environment

Most outsourced services are considered failures (60%). Service reliability are the key drivers for successful outsourcing partnerships. Outsourcing Logistics- What is the difference between 3PL and 4PL? A 4PL where they control the cash flow and accounts and inventory for the employing company, whereas a 3PL simply ensures the building of the product/service. Purchasing v Procurement Purchasing refers to actual buying. Procurement can include different types of acquisition: purchasing, rental, contracting and so on as well as associate work of: - Selecting suppliers - Monitoring supplier performance - Negotiating - Warehousing & receiving goods - Agreeing terms - Expediting Re-Shoring – An Emerging Practice (eg. Adidas) - Bringing back operations from outsourced destinations to produce near the customer markets (localization) - Outsourcing is criticized and seen by some as a “herd mentality”- eg. it is not always a rational decision to outsource to China - Expanding to China gives boost to shareholder value and reputation but most cases are only assessed based on unit cost rather than total cost, so transportation, delay and incompatibility issues are not taken into account Labour cost plays a major role in determining the decision to outsource or offshore. China’s labour costs have increased drastically over the years, whereas other countries have remained stable. In terms of total cost, 53% of the time, it was cheaper to outsourcing to America than China.

Lecture 3 Relationships Management Recent news: Bombardier (all supply chains affect each other, either directly or indirectly) What is a Relationship? Social Exchange Theory Perspective: the essence of any personal relationship is interaction (individual emit behaviours in each other’s presence, create products for each other of communicate with each other), on a repeated occasion Social Network Perspective: a collection of ties of a given kind among pairs of actors; establishes a true linkage Business Relations (Inter-Organizational Relationship) - 7 Principles of IORs 1. Separate entity outside organizational boundaries 2. Interactions or linkages amongst organizations 3. Not an entity purely controlled by one organization only 4. Between two or more organizations 5. Collection of both direct and indirect interactions 6. Multi-dimensions; vertical (buyer-supplier) and horizontal (alliance-partners-joint ventures) [to note; even though an organization is bought, does not mean that their relationships are bought too] 7. Context specific An inter-organization relationship is an entity outside organizational boundaries which is a collection of direct or indirect interactions amongst the actors and organizations involved. What Influences a Relationship? Customer Relationship Customer is the main driver behind all supply chain relationships  Competitive landscape has changed over the past decades; customers have become more demanding – eg. Nike/Adidas: providing customized shoes What influences a relationship, apart from customer?

Trust- different levels of trust; organizations must trust each other in terms of performance targets met, individuals must trust the organization in terms of quality and price Reputation- being a supplier to high branded companies gives organizations a good reputation, enticing more customers to buy from them rather than their rivals Mutual Respect and Interpersonal Relationships- information transfer, not taking advantage of each other Loyalty- price loyalty from organization, brand loyalty from customers Common Goals Objectives- between organizations, all entities in the supply chain to understand and respect each other’s goals, should be similar goals Culture- organizational culture; innovation, quality – manifested in different manners Government Rules and Politics- in terms of taxation policies, minimum quality required + issues such as BREXIT Social Pressure- have ethical considerations in mind during the entire product life cycle National Context- eg. Boeing applied to US economy only, permission power Localization- eg. Patro case study, all material made in the same area

*photo of class discussion What Useful Relationship Typologies (Classifications) Would you Suggest? Typologies of Inter-Organizational Relationships Key Dimensions:  Structure o A dyad (two main actors, eg. buyer-supplier) o A triad (three main actors, eg. supplier-supplier-buyer)  Governance (way in which it is managed) o Formal (legally binding contractual documents & creation of memorandum/article of association stating in what manner to behave) o Informal (interpersonal relations based on trust)  Duration

Long-term (over time, you develop trust and mutual understanding, systems and process and people – collaborative relationships are usually long-term) o Short-term Development stage o Earlier stages: signing/deciding contract o Then develop the contract o Then you multiply the contract towards others in the industry Nature of exchange (most important) o Adversarial (arms-length, transactional) – short term, based on transaction, does not involve integrated teams, usually does not involve too much information sharing, interaction driven by cost, always representing company in the short-term, lower levels of trust [case study example: GM] o Collaborative (partnering, relational) – long term, win-win mentality, driven by innovation and quality rather than cost, lot of trust [case study example: Toyota] o

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Adversarial Large/Market Short-term Win-Lose Low or none Low or none Infrequent/Few Low Low Superficial Tends to Formal

Number of Suppliers Time Horizon Mentality/Orientation Risk-Reward Sharing Information Exchange Communication Levels of Trust Levels of Commitment Understanding Governance

Collaborative Few Long-term Win-Win Fair High Frequent/Many High High In-depth Tends to Informal

When Dealing with External Firms, Where/Why do we Apply Specific Typologies? Peter Kraljic, published in 1983 and still in use today- in order to classify suppliers 1. Classification – profit impact v supply risk 2. Market Analysis – assess bargaining power 3. Strategic Positioning – identify opportunities and vulnerabilities 4. Action Plans –

British Standard for Collaboration 1. Awareness- strategic policy and process 2. Knowledge- development of knowledge in relation to business opportunity 3. Internal Assessment- structured look at capability to partner effectively 4. Partner Selection- evaluation and selection of partners 5. Working Together- governance roles and responsibilities for successful outcome 6. Value Creation- building and gaining value and desired results from collaboration 7. Staying Together- monitoring relationship to achieve optimum performance 8. Exit Strategy- support for effective and controlled disengagement when required Each stage then measured within a maturity category, in which they are graded from A to D [A being highest, most positive, D being lowest and most negative]

Lecture 4 Supply Chain Dynamics Bullwhip Effect (aka Demand Amplification, Forrester Effect, Inventory Variance, Information Distortion, Demand Variability, Industrial Dynamics or Whiplash Effect)application of demand amongst the different tiers of the supply chain Lead Time = the time between the initiation and completion of a production process

Customer  Retailer  Wholesaler  Distributor  Factory Bullwhip Effect in Service Industries? Until recently, there were no good examples of BWE in service industries; eg. supply chain of an internet service provider. Bullwhip Effect can exist in service industries, although its form and shape may be different Causes and Effect of Bullwhip Causes Demand variation/business cycles Price variations Forecasting errors (mistakes in determining demand) Lead time (certain industries have long lead times) Lack of communication Order batch Shortage gaming (ordering more when shortage predicted) Internal issues Policy issues (peripheral may

Effects Excess of insufficient inventory Shortage or excess employees (results in flexible contracting) Inefficient production Delayed deliveries Poor customer service Poor public image (eg. documentaries) Lost sales CHANGE IN SUPPLY CHAIN

become central/large product)* PRACTICES *eg. French policy stated all drivers needed a breath analyzer in their cars

Communication is Important to Counter Bullwhip Effect BUT IS NOT ENOUGH

Despite this, the Bullwhip Effect still exists today. To avoid it, communication between all parties in the supply chain must be efficient [the blind men and the elephant story]. Supply chains should be viewed as a system. However, systems create behaviour. Information sharing is important but must also understand the system. Need for a Systems View  Bullwhip effect is an example of system dynamics in supply chain  As long as human judgements are involved in a supply chain, such effects are almost inevitable  Communication of knowledge is important but they key message of beer game (and supply chain dynamics) is that systems create behaviour  We must recognize supply chain as a [unified] system Type of System of Supply Chain - Unified/Complete – failure to identify supply chains as a unified system can result in fraud that is unable to hold someone responsible- eg. horse meat scandal - Dynamic – word of mouth has great effect; bad word of mouth can affect supply chains largely - Random System – need for contingency plans, eg. in case of natural disasters - Organized System (Complex) – internationalization could be beneficial for cost reduction and skilled employees, but complexity means longer lead times and result in bullwhip

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Adaptive System – eg. 20m companies in Coca-Cola’s supply chain, but unable to control the entire supply chain; supply chain evolve very quickly without anyone being in charge

Supply Chains as complex, adaptive systems = “complex adaptive systems that emerge over time into a coherent form, and adapts and organizes itself without any singular entity deliberately managing or controlling.” Control vs. Emergence? “Many supply networks emerge rather than result from purposeful design by a singular entity. Imposing too much control detracts from innovation and flexibility; conversely, allowing too much emergence can undermine managerial predictability and work routines. Therefore, when managi...