11 -managing_the_supply_chain

Alex Hill and Terry Hill

Managing the supply chainAlex Hill and Terry Hill

Learning objectives

• Define what a SUPPLY CHAIN is and outline the steps that make up the chain

• Explain the factors that affecting its DESIGN including:

- The decision to MAKE or BUY- The ALTERNATIVES to make or buy- The issues surrounding OUTSOURCING

• Understand the processes of MANAGING and DEVELOPING supply chains, and the TECHNIQUES used in these approaches

• Outline the BENEFITS of effectively managing supply chains

Lecture outline

• INTRODUCTION

• What is a SUPPLY CHAIN?

• DESIGNING the supply chain

• MANAGING the supply chain

• DEVELOPING the supply chain

• Critical REFLECTIONS

• SUMMARY

> KEY IDEA

Businesses have to manageFLOWS of MATERIAL and INFORMATION across supply chain networks

What is a supply chain?

> KEY IDEAThe supply chain comprisesall the STEPS required toSUPPLY a service or a product to a customer

Designing the supply chain

Designing the supply chainDeciding to make or buy

•Support MARKET order-winners or qualifiers

•Build BARRIERS to entry•Maintain SUPPLY of key materials•Better UNDERSTAND customers•Retain CORE capabilities•Access EXTERNAL capabilities•Take advantage of reduced TRADE

barriers

> KEY IDEAThe FIRST STEP in designing a supply chain is to decide what to MAKE and what to BUY

> KEY IDEA

Companies need to keep IN-HOUSE the services, products or processes that help them understand customer REQUIREMENTS and build customer RELATIONSHIPS

Designing the supply chainDeciding to make

•Increased CONTROL•Increased

OPPORTUNITY

•More difficult to MANAGE

•Less FOCUS•Reduced ACCESS

DISADVANTAGES

ADVANTAGES

> KEY IDEA

Making IN-HOUSE:• Increases CONTROL over processes, material supply and service/product knowledge• Provides greater OPPORTUNITY for differentiation and cost reduction

Designing the supply chainDeciding to buy

•Easier to MANAGE•Increased FOCUS•Increased ACCESS

•Increased RISK•Difficult to

REVERSE•New SKILLS

required•Less FLEXIBLE

DISADVANTAGES

ADVANTAGES

> KEY IDEA

Deciding to BUY:• Makes it easier to manage COSTS• Increases FOCUS on critical tasks• Increases ACCESS to external sets of capabilities

Designing the supply chainDeciding to make or buy

> KEY IDEATo REDUCE the potential disadvantages of deciding to buy, businesses can instead use JOINT VENTURES or CO-SOURCING

CASE 11.1

STRATEGIC OUTSOURCING DECISIONS

1.Why are most companies SUBCONTRACTING call centre facilities?

2.Why would a company decide to set-up and manage its OWN call centre?

CASE 11.1

Question Answer

Subcontract

Keepin-house

• Increased CONTROL• Direct CUSTOMER contact• Increased OPPORTUNITY

• COST reduction• Easier to MANAGE• Increased FOCUS• Increased ACCESS

STRATEGIC OUTSOURCING DECISIONS

CASE 11.2

CREATING A POSITIVE RETAIL EXPERIENCE

1.Why is the guitar tuning service SIGNIFICANT for Fender?

2.Why are distributors now ORDERING new products?

CASE 11.2

Question

Answer

Significant service

Ordering new products

• Reduced delivery LEAD-TIME- UPS now hold INVENTORY- So retailers can offer WIDER

range without holding inventory

• Creates ‘positive retail EXPERIENCE’- Customer does not have to STRING and

TUNE guitar themselves after delivery• Increases SERVICE specification- To match their high PRODUCT

specification

CREATING A POSITIVE RETAIL EXPERIENCE

CASE 11.3

SINGLE SOURCING POLICY

1.Comment on KPMG’s ROLE in this dispute

2.What would you ADVISE Land Rover to do about its single sourcing policy?

CASE 11.3

Question

Answer

KPMG’s role

Advice

• Single sourcing brings ADVANTAGES- Reduces COST- Develops RELATIONSHIPS• However, need to introduce

SAFEGUARDS into future supplier contracts

• Get best deal for SUPPLIER- But focused on SHORT-TERM benefit- Would have DAMGED long-term

relationship• Increases SERVICE specification- To match their high PRODUCT

specification

SINGLE SOURCING POLICY

Markets, capabilities and supply chains

Designing supply chains

AppleTV adverts

DellTV adverts

VS.

Film clip Mac vs PC advert

FilmTitleDirector (year)

Mac vc PC ‘Customer Care’ advertApple ‘get a mac’ advertising campaign (2002)

ClipStartFinish

00:00:0000:00:30

What clip showsThree people discussing the ‘genius’ support within an Apple store and how this is different to the usual support for PC customers

Key learning objective

How Apple competes on the level of customer after sales support that it provides



Film clip Mac vs PC advert


Mac vc PC ‘Innovation’ advertApple ‘get a mac’ advertising campaign (2002)

ClipStartFinish

00:00:0000:00:30

What clip showsThree people discussing how Apple focuses on product innovation and how this is different to the usual support for PC customers


How Apple competes on product design



Film clip Dell advert


‘All I want for Xmas’ advertDell advertising campaign (1999)

ClipStartFinish

00:00:0000:00:44

What clip showsA boy recording a video that asks his Dad for a Dell computer for Xmas


How Dell competes on price



Film clip Dell advert


‘Portraits’ advert (with ‘colours’ song by Kira Willey)Dell advertising campaign (2009)

ClipStartFinish

00:00:0000:00:31

What clip showsA series of people who have all chosen a laptop to match the colour of something they like


How Dell competes on product customisation



•What are its MARKET order-winners?

•What are its CORE capabilities?•How should it DESIGN its supply

chain?



Apple



chain?



Dell

Aspect Apple Dell

Key MARKET order-winners

CORE capabilities

DESIGN supply chain

Make

Buy

• BRAND name• Product DESIGN• Technical SUPPORT

• Develop IMAGE• UNDERSTAND customer• DESIGN product• After sales SERVICE

• DESIGN• MARKETING• PURCHASING• RETAIL

• MANUFACTURING• DISTRIBUTION

• PRICE• Product

CUSTOMISATION

• Reduce COSTS• PRODUCT flexibility• VOLUME flexibility

• PURCHASING• MANUFACTURING

• RETAIL• DISTRIBUTION





chain?



Dell

Managing supply chains

•Increased customer FOCUS

•Increased EFFICIENCY

Driving the WHOLE CHAIN

in the same direction to satisfy CUSTOMERS

Managing supply chainsKey elements

•Manage ENTIRE supply chain•Develop customer and supplier

PARTNERSHIPS•Reduce NUMBER of suppliers in chain•Increase INFORMATION flow

> KEY IDEA

Businesses must see suppliers as an INTEGRAL part of the total supply chain and realise that whole chain is only as strong as its WEAKEST link

Managing supply chainsTypes of supplier relationship

> KEY IDEA

Businesses must build strong RELATIONSHIPS with those suppliers that are most strategically CRITICAL to their business and help them SUPPORT their key order-winners and qualifiers

> KEY IDEA

Businesses must aim to create SUSTAINABLE supply chains that have a positiveECONOMIC, SOCIAL and ENVIRONMENTAL impact within all parts of the chain

CASE 11.4

CHIQUITA RELOCATES FROM CINCINNATI TO COSTA RICA

1.Why did it MOVE its main purchasing team to Costa Rica?

2.What OPPORTUNITIES did the relocation offer?

CASE 11.4

Question Answer

Move purchasing

Opportunities created

• Integrate SUPPLY CHAIN- Closer internal supply chain

RELATIONSHIPS- Provide DIRECT support to buyers• Develop its CSR policy- Developing supplier PRACTICES

• Develop supplier RELATIONSHIPS- With fruit GROWERS

CHIQUITA RELOCATES FROM CINCINNATI TO COSTA RICA

Managing supply chainsIncrease information flow

•Use Electronic Data Interchange (EDI) systems to TRANSFER information

•Incorporate INTERNET technology

•Link companys’ business SYSTEMS

Managing supply chainsIncrease information flow

> KEY IDEA

The continued development ofMOBILE electronic devices and faster INTERNET connections creates the opportunity for companies to move from physical to DIGITAL supply chains

> KEY IDEADigital supply chains give customers access to a WIDER range of CHEAPER products that can be ordered and delivered more QUICKLYSuch chains are also easier to MANAGE, enabling suppliers to reduce CASH holdings and supply COSTS

Managing supply chainsDigital supply chains

CASE 11.5

APPLE’S iTUNES: DIGITAL SUPPLY CHAIN

1.What is Apple’s business MODEL?

2.How has its digital supply chain contributed to its recent SUCCESS?

CASE 11.5

Question Answer

Business model

Contribution to success

• Increased HARDWARE sales- Customers access to WIDE range of CHEAP products• Reduced CASH holdings- No PHYSICAL inventory• Reduced supply COST- No PHYSICAL chain- No excess or obsolete INVENTORY- Easier to MANAGE

• Sell HARDWARE- iPods, iPhones and iPads• Give away SOFTWARE at no cost- iTunes• Allow suppliers to distribute their PRODUCTS

through iTunes- Act as MARKETPLACE- Take a PERCENT of sale


Developing supply chainsPhase 1 - Fragmented

> KEY IDEASupply chains can be developed to • More EFFICIENTLY and EFFECTIVELY support market needs by• INTEGRATING, CO-ORDINATING and SYNCHRONISING activities across the chain

Developing supply chainsPhase 2 - Integrating activities within a business

Developing supply chainsPhase 3 - Integrating activities between businesses

> KEY IDEA

To DEVELOP a supply chain, companies must: 1.INTEGRATE activities across the chain2.Look for ways to COORDINATE them3.Work out how to SYNCHRONISE them

CASE 11.6

THE DIRECT ALPINE APPROACH TO MOUNTAIN CLIMBING

1.What is the TRADITIONAL mountaineering supply chain?

2.How has Messner DEVELOPED this chain?

CASE 11.5

Question Answer

Traditional approach

Messner developments

• Separated climb into TWO phases- Up to the BASE of a mountain- From the base to the TOP• FIRST phase- Similar to TRADITIONAL approach• SECOND phase- Only ONE person - him- LEAN, INTEGRATED and SYNCHRONISED approach

• High level of SUPPORT for climber- Hundreds of PORTERS- Tonnes of EQUIPMENT• Large MANAGEMENT task- MANAGE and CO-ORDINATE all of these

activities


Developing supply chainsTools and techniques

•Improve CUSTOMER support•Change ATTITUDES to

suppliers•Increase use of IT•Strategic PARTNERING•Delivering to CUSTOMERS

Developing supply chainsChanging attitudes to suppliers

CASE 11.7

JAPANESE COMPANIES’ APPROACH TO SUPPLIERS

1.How would you describe the Japanese APPROACH?

2.How does this illustrate a change in ATTITUDE to suppliers?

CASE 11.7 JAPANESE COMPANIES’

APPROACH TO SUPPLIERS

Question

Answer

Approach

Attitude

• Bring suppliers on board in DESIGN phase• REWARD and COLLABORATE with suppliers• Moved to HIGHEST level of attitude- INTEGRATED and SYNCHRONISED

• Suppliers RETAINED throughout product life cycle

• TRAINS supplier• Tests viability of long-term RELATIONSHIP- Assesses ROBUSTNESS of supplier

Developing supply chainsIncreasing use of IT

CASE 11.8 IT DEVELOPMENTS

Question

Caterpillar Gap

From

To

Benefits

CASE 11.8

• REACTIVE- Service triggered by

DEALER

IT DEVELOPMENTS

• Reduced COSTS- LONGER lead-times• Improved SERVICE- NO overdue services- Reduced potential

customer PROBLEMS

• PROACTIVE- CATERPILLAR identifies

need for service

• Reduced INVENTORY- Increased TURNS- Easier to CHANGE stock• Reduced COSTS- Less OBSOLETE stock• Increased SALES- Sell MORE when

fashionable

• DELAYS- Information always

slightly OLD

• REAL-TIME- SALES, INVENTORY and

DISTRIBUTION data

CASE 11.9

DELL: SUPPLY CHAIN INTEGRATION

1.How does it INTEGRATE its supply chain?

2.How does its WEBSITE help this integration?

3.How is Ford able to reduce its COSTS by using Dell’s Premier Pages?

Question Answer

Integrate

Website

Reduce costs

• Reduced STAFF costs- STANDARDISED purchasing process- SINGLE buyer can manage all Dell

purchases

CASE 11.9

• It only MAKES-TO-ORDER• Manages MATERIALS- Just-in-time (JIT)- Short LEAD- TIME• Low INVENTORY- Quick NEW product introduction

• Easier for customers to ORDER• DIRECT customer contact

DELL: SUPPLY CHAIN INTEGRATION

CASE 11.10

SYNCHRONISINGTHE SUPPLY CHAIN

1.How has Calyx and Corolla SYNCHRONISED its supply chain?

2.What ADVANTAGES has it gained from these developments?

CASE 11.10

Question Answer

Synchronised

Benefits

• Reduced delivery LEAD-TIME- From GROWER to CUSTOMER• No INVENTORY• Increased SALES- Better meet product DESIGN order-winner• Increased PROFITS- Can increase PRICE as better meet product

DESIGN and price is a qualifier)

• Improved flow of INFORMATION- Between GROWER and FED EX

SYNCHRONISING THE SUPPLY CHAIN

Developing supply chainsBenefits

•Reduced COSTS•Increased access to

TECHNICAL expertise

•Shorter LEAD-TIMES•Lower INVENTORIES

> KEY IDEABusinesses can DEVELOP their supply chains to • Lower COSTS• Shorten LEAD-TIMES• Reduce CASH holdings• Increase access to TECHNICAL expertise

Developing supply chainsIntegrated supply chain: The ‘one-firm’ concept

Approaches, benefits and issues

Developing supply chains

Central services vs. Harry Tuttle

Brazil

(1985)

Film clip Central Services


BrazilGilliam (1985)

ClipStartFinish

00:00:0000:08:49

What clip showsThe Central Services government operation bringing the wrong person in for questioning


The issues that exist in a traditional unintegrated and unsynchronised supply chain



Film clip Harry Tuttle


BrazilGilliam (1985)

ClipStartFinish

00:23:3900:32:23

What clip showsHarry Tuttle (a heating engineer) intercepting a call to Central Services and going to solve the problem himself


The benefits that result from integrating and synchronising a supply chain



•What kind of ORGANISATION is presented?

•What type of ISSUES result?•How would you IMPROVE it?



Aspect Central Services

TYPE of organisation

Resulting ISSUES

How to IMPROVE

AUTOCRATIC management style CENTRALISED management structure FUNCTIONAL structure

FRAGMENTED supply chain No one looking at ENTIRE chain Poor COMMUNICATION Lack of CUSTOMER focus INEFFICIENT operation

Change MANAGEMENT STYLE Move to TEAM BASED structure EMPOWER staff



•AUTOCRATIC management style•CENTRALISED management

structure•FUNCTIONAL structure•Low staff MOTIVATION•Lack of RESPONSIBILITY•Poor QUALITY•INEFFICIENT operation- High level of WASTE- High level of CONTROL•INFLEXIBLE delivery system- Unable to change SERVICE

provided- Unable to cope with VOLUME

changes

Bad points about Central Services


•How is Harry’s approach DIFFERENT?

•What are the BENEFITS?•What are the ISSUES?



Aspect Harry Tuttle

CHANGES made

Resulting BENEFITS

Resulting ISSUES

• Move to TEAM-BASED structure• Direct CUSTOMER CONTACT

• High MOTIVATION• High level of RESPONSIBILITY• EFFICIENT operation• ENTREPRENEURIAL style

• Lack of STRUCTURE• Lack of PROCESS• Lack of CONTROL



•ENTREPRENEURIAL style•High MOTIVATION•High level of RESPONSIBILITY•CELL structure- Harry performs ALL processes- Harry has direct CUSTOMER

contact

Good points about Harry Tuttle


Critical reflections

• Businesses are at the CENTRE of- MATERIAL networks; and- INFORMATION flows

• Supply chains are becoming more COMPLEX- Through increased OUTSOURCING- Becoming supply NETWORKS

• Supplier RELATIONSHIPS are key- Must have FEWER relationships- Become tested when SALES reduce

• BENEFITS is required- Huge OPPORTUNITY- Requires a completely different APPROACH

Summary

• MAKE or BUY is first key decision- Must reflect MARKET OW and Q- Understand CUSTOMERS- Build BARRIERS to entry

• ADVANTAGES of each- MAKE - control, knowledge and opportunity- BUY - focus, access and costs

• DEVELOPING supply chains- Increase customer focus, integrate, align and

synchronise

• BENEFITS of developing chains- Reduced INVENTORY- Reduced COSTS- More RESPONSIVE

Revision questions

1 A supply chain is:

a) All the steps in the supply of a service or product from its origin to its consumption

b) The steps managed by the suppliers

c) The steps managed by the organisation

Revision questions

2 The first decision in designing the supply chain is:a) Make or buy

b) Which suppliers to use

c) How to manage your suppliers

Revision questions

3 Benefits of making in-house include:

a) Increased control

b) Increased focus on core issues

c) Both a) and b)

Revision questions

4 Benefits of choosing to buy include:

a) Increased control

b) Increased focus on core issues

c) Both a) and b)

Revision questions

5 An alternative to choosing to buy is:

a) Synchronising the supply chain

b) Switching suppliers

c) Developing a joint venture

Revision questions

6 Developing an integrated supply chain involves:a) Moving from being a supply chain to a

demand chainb) Competing as a chain rather than as an

individual organisationc) Both a) and b)

Revision questions

7 The benefits of developing a supply chain include:a) Reduced inventory

b) More responsive to customer needs

c) Both a) and b)

CASE FOR TUTORIAL

ZARA

11 -managing_the_supply_chain

Business

mac advertising

developing

integrated

market order

pc advertfilmtitledirector

reduced inventoryb

clip startfinish00

supply chainb