scope and risk management for global project - …2250+lecture+8.pdf · l6. scope and risk...

GE2250 Understand Global Project for Business and Engineering Professionals

Instructor: Jiayu Chen Ph.D.

Scope and Risk Management for Global Project

© Jiayu Chen, Ph.D. 2

INTRODUCTION

Assignment Policy

• Deadline for Assignment 2

• Assignment 3


COURSE STRUCTURE

L4. Project Cost Estimation

and Budgeting

L5. Project Planning,

Control and Crashing

L6. Scope and Risk Management for

Global Project

Project Management Triangle Strategic Management

L2. Cross-culture Collaboration

L3. Organizational Structures

Culture

Organization

Global Team

New Challenges

L8. Supply Chain Management

L10. Lean Project Management

L11. Mergers and Acquisitions

L9 Leadership and Team Building

L12 Virtual Environment and

Global Team


Supply Chain


SUPPLY CHAIN

What is supply chain and supply chain management?

https://www.youtube.com/watch?v=Mi1QBxVjZAw

https://www.youtube.com/watch?v=Mi1QBxVjZAw


Supply Chain Management is the management of network of interconnected

businesses involved in the ultimate provision of goods and services required by the

end customer.

Supply chain management spans all movement and storage of raw materials, work-

in-process inventory and finished goods from point-of-origin to point-of-

consumption.

Critical aspect:

• Everyone is involved

• Systems approach to reducing costs

• Integration being the key

SUPPLY CHAIN


SUPPLY CHAIN

Raw Material

supply points Movement/

Transport

MARKETS

A

B

C

Movement/

Transport

Raw Material

StorageMovement/

TransportPLANT 1

PLANT 2

PLANT 3

Manufacturing

Movement/

Transport

WAREHOUSES

(DCs)

Finished Goods

Storage

1. Procurement

or supply system

2. Operating

System3. Distribution

System

4. Sales

or demand system


SUPPLY CHAIN


Competitive strategy: defines the set of customer needs a firm seeks to satisfy

through its products and services

Product development strategy: specifies the portfolio of new products that

the company will try to develop

Marketing and sales strategy: specifies how the market will be segmented

and product positioned, priced, and promoted

Supply chain strategy:

• Determines the nature of material procurement, transportation of materials,

manufacture of product or creation of service, distribution of product

• Consistency and support between supply chain strategy, competitive

strategy, and other functional strategies is important

SUPPLY CHAIN

Competitive and Supply Chain Strategies


SUPPLY CHAIN

Module 1: Managing the Supply Chain− Key to matching demand with supply

− Cost and Benefits of inventory

Module 2: Economies of Scale− Inventory management of a retailer

− Levers for improvement

Module 3: Safety Stock− Hedging against uncertainty

− Role of lead time

Module 4: Improving Performance− Centralization & Pooling efficiencies

− Postponement

− Optimal Service Level

Supply Chain Management Module


SUPPLY CHAIN – HOW TO MANAGE SUPPLY CHAIN

Strategic fit:

– Consistency between customer priorities of competitive strategy and supply chain

capabilities specified by the supply chain strategy

– Competitive and supply chain strategies have the same goals

Step 1: Understanding the customer and supply chain uncertainty Step 2: Understanding the supply chain Step 3: Achieving strategic fit

A company may fail because of a lack of strategic fit or because its processes and

resources do not provide the capabilities to execute the desired strategy



Identify the needs of the customer

segment being served

• Quantity of product needed in each lot

• Response time customers will tolerate

• Variety of products needed

• Service level required

• Price of the product

• Desired rate of innovation in the

product

Understanding the Customer and Supply Chain Uncertainty Step 1




Range of quantity increase Wider range of quantity implies greater

variance in demand

Lead time decreases Less time to react to orders

Variety of products required

increases

Demand per product becomes more

disaggregated

Number of channels increases Total customer demand is now disaggregated

over more channels

Rate of innovation increasesNew products tend to have more uncertain

demand

Required service level

increasesFirm now has to handle unusual surges in

demand




Order Lead Time - Time from customer order received to customer order delivered.

Order Handling Time - Time from customer order received to sales order created.

Manufacturing Lead Time - Time from sales order created to production finished

(ready for delivery).

Production Lead Time - Time from start of physical production of first

submodule/part to production finished (ready for delivery).

Delivery Lead Time - Time from production finished to customer order delivered.




Levels of Implied Demand Uncertainty

Predictable supply

and demand

Predictable supply and

uncertain demand or uncertain

supply and predictable demand

or somewhat uncertain supply

and demand

Highly uncertain

supply and demand

Eg: Salt at a

supermarket

Eg: An existing

automobile model

Eg: A new

communication device



Correlation Between Implied Demand Uncertainty and Other Attributes

AttributeLow Implied Uncertainty

High Implied Uncertainty

Product margin Low High

Avg. forecast error 10% 40%-100%

Avg. stock out rate 1% - 2% 10%-40%

Avg. forced season-end markdown 0% 10%-25%




Understanding the Customer


Lot Size

Response Time

Service Level

Product Variety

Price

Innovation

Implied Demand Uncertainty



• How does the firm best meet demand?

• Supply chain responsiveness

− respond to wide ranges of quantities demanded

− meet short lead times

− handle a large variety of products

− build highly innovative products

− meet a very high service level

• Supply chain efficiency

− cost of making and delivering the product to the customer

− Increasing responsiveness results in higher costs that lower efficiency

Understanding the Supply ChainStep 2

Responsiveness vs. Efficiency


Cost-Responsiveness Efficient Frontier


Understanding the Supply ChainStep 2



Achieving Strategic FitStep 3

This step is to ensure that what the supply chain does well is consistent with

target customer’s needs

Highly Efficient

Somewhat Efficient

Somewhat Responsive

Highly Responsive

eg: Integrated

steel mill

eg: Hanes

apparel

eg: Most automotive

production eg: Dell


Comparison of Efficient and Responsive Supply



Min product cost Modularity to allow postponement

Lower margins Higher margins

High utilization Capacity flexibility

Minimize inventory Buffer inventory

Reduce but not at expense of

greater cost

Aggressively reduce even if costs

are significant

Cost and low quality Speed, flexibility, quality

Greater reliance on low cost

modes

Greater reliance on responsive

(fast) modes


Responsive

supply chain

Efficient supply

chain

Responsiveness

spectrum

Implied

uncertainty

spectrum

Certain

demand

Uncertain

demand




SUPPLY CHAIN – DISTRIBUTION NETWORK



Distribution: the steps taken to move and store a product from the supplier

stage to the customer stage in a supply chain.

• Distribution directly affects cost and the customer experience and therefore drives

profitability

• Choice of distribution network can achieve supply chain objectives from low cost to

high responsiveness

• Distribution network performance evaluated along two dimensions at the highest

level:

− Customer needs that are met

− Cost of meeting customer needs

• Distribution network design options must therefore be compared according to their

impact on customer service and the cost to provide this level of service


• Elements of customer service influenced by network structure:

Response time

Product variety

Product availability

Customer experience

Order visibility

Returnability

• Supply chain costs affected by network structure:

Inventories

Transportation

Facilities and handling

Information




Manufacture

Retailer

Customers

Product Flow

Information Flow

Manufacturer Storage with Direct Shipping



In-Transit Merge Network

Manufacture

Retailer

Customers

Product Flow

Information Flow

In-Transit Merge

by Carrier



Manufacture

Warehouse

Storage by

retailer/distributor

Customers

Product Flow

Information Flow

Distributor Storage with Carrier Delivery



Distributor Storage with Last Mile Delivery

Manufacture

Retailer/Distributor

Warehouse

Customers

Product Flow

Information Flow




Manufacture

Retailer

Customers

Cross Dock DC

Product Flow

Information Flow

Customer Flow

Pickup site


SUPPLY CHAIN – SUPPLY CHAIN COORDINATION

Supply chain coordination – all stages in the supply chain take actions

together (usually results in greater total supply chain profits)

• Supply chain coordination requires that each stage take into account the effects of its

actions on the other stages

• Lack of coordination results when:

− Objectives of different stages conflict or

− Information moving between stages is distorted

• Level of product availability ↘• Relationships across the supply chain ↘• Profitability ↘

• Manufacturing cost ↗• Inventory cost ↗• Replenishment lead time ↗• Transportation cost ↗• Labor cost for shipping and receiving ↗



• Fluctuations in orders increase as they move up the supply chain from retailers to

wholesalers to manufacturers to suppliers

• Distorts demand information within the supply chain, where different stages have very

different estimates of what demand looks like

• Results in a loss of supply chain coordination

• Examples: Proctor & Gamble (Pampers); HP (printers); Barilla (pasta)

Bullwhip Effect



Bullwhip Effect


SUPPLY CHAIN –– E-BUSINESS

E-business is the execution of business transactions over the Internet.

Supply chain transactions that involve e-business include the flow of

information, product, and funds.

• B2B

- A business-to-business (B2B) e-business involves transactions between two companies.

• B2C

- A business-to-consumer (B2C) e-business involves transactions between a company

and a consumer.


SUPPLY CHAIN –– E-BUSINESS

Advantages of E-Business

• Cost Impact of E-Business

• Reducing Product Handling with a Shorter Supply Chain

• Postponing Product Differentiation Until after an Order Is Placed

• Decreasing Delivery Cost and Time With Downloadable Products

• Reducing Facility and Processing Costs

• Decreasing Inventory Costs through Aggregation

• Improving Supply Chain Coordination through Information



Obstacles to Coordination in a Supply Chain

1. Incentive

Obstacles

2. Information Processing

Obstacles

3. Operational

Obstacles

4. Pricing

Obstacles

5. Behavioral

Obstacles


1. Incentive Obstacles

• When incentives offered to different stages or participants in a supply

chain lead to actions that increase variability and reduce total supply chain

profits – misalignment of total supply chain objectives and individual

objectives

• Local optimization within functions or stages of a supply chain

• Sales force incentives





2. Information Processing Obstacles

• When demand information is distorted as it moves between different stages

of the supply chain, leading to increased variability in orders within the

supply chain

• Forecasting based on orders, not customer demand – Forecasting demand

based on orders magnifies demand fluctuations moving up the supply chain

from retailer to manufacturer

• Lack of information sharing



3. Operational Obstacles

• Actions taken in the course of placing and filling orders that lead to an

increase in variability

• Ordering in large lots (much larger than dictated by demand) Large

replenishment lead times

• Rationing and shortage gaming (common in the computer industry

because of periodic cycles of component shortages and surpluses)





4. Pricing Obstacles

• When pricing policies for a product lead to an increase in variability of

orders placed

• Lot-size based quantity decisions

• Price fluctuations (resulting in forward buying)



5. Behavioral Obstacles

• Problems in learning, often related to communication in the supply chain

and how the supply chain is structured

• Each stage of the supply chain views its actions locally and is unable to see

the impact of its actions on other stages

• Different stages react to the current local situation rather than trying to

identify the root causes

• Based on local analysis, different stages blame each other for the

fluctuations, with successive stages becoming enemies rather than partners

• No stage learns from its actions over time because the most significant

consequences of the actions of any one stage occur elsewhere, resulting in

a vicious cycle of actions and blame

• Lack of trust results in opportunism, duplication of effort, and lack of

information sharing





Aligning Goals and Incentives

• Profit incentive

• Align incentives across functions

• Pricing for coordination

• From sell-in to sell-through

Improving Information Accuracy

• Sharing point of sale data

• Collaborative forecasting and planning

• Single stage control of replenishment

Improving Operational Performance

• Reducing replenishment lead time

• Reducing lot sizes

• Rationing based on past sales

Strategies

Designing Pricing Strategies to Stabilize Orders

• Reducing forward buying

• From lot size-based to volume-based

• Stabilizing pricing

• Building strategic partnerships

Building Strategic Partnerships and Trust in a Supply Chain

• Designing a Relationship

• Managing Supply Chain Relationships

• Trust-based relationship

• Cooperation and trust work


SUPPLY CHAIN – LOGISTICS



Logistics

The science of planning and carrying out the movement and maintenance of forces –deals with

• Design and development, acquisition, storage, movement, distribution, maintenance,

evacuation and disposition of materials

• Movement, evacuation and hospitalization of personnel

• Acquisition or construction, maintenance, operation, disposition of facilities,

• Acquisition or furnishing of services

“Act as a supportive system which reflects the practical art of moving armies andmaterials engaged in combat to achieve the desires results.”


Diverse footprint across industries

IT / ITES ConsultingEnterpriseSolutions

BPO

Logistics Warehousing Transportation Carriers

Manufacturing Planning Sourcing Distribution

Retail MerchandisingInventory

ManagementBuying and

Sourcing




The Council of Logistics Management defines Logistics Management as:

“The process of planning, implementing and controlling the efficient, cost – effective

flow and storage of raw materials, in-process inventory, finished goods and related

information from point of origin to point of consumption for the purpose of

conforming to customer requirements”

Logistics Management

Logistic Management refers to designing, developing, producing and operating an

integrated system which is responds to customer expectations by making available the

required quantity of required quality products as and when required to offer best

customer service at the least costs.


Major features of Logistics Management

• Smooth flow of all types of goods such as raw materials, work-in-process andfinished goods

• Meeting customer expectations about product and related informationrequirements

• Real time flow of information about products’ demand and availability

• Delivery of quality product in required quantity without excessive safety stock

• Integration of various managerial functions for optimization of resources

• Movement and storage of goods in appropriate quantity

• Enhancement of productivity and profitability




Main objectives of logistics planning are:

Cost reduction: - This strategy is directed towards minimizing the variable costs

associated with the movement and storage. The best strategy is to evaluate the

alternative courses of action and select the optimum one keeping profit maximization

as the prime goal in mind.

Capital reduction: - This strategy is directed towards minimizing the level of

investment in the logistics system.

Service improvements: - This strategy recognizes that the revenue is a function of the

logistics service provided and develops an effective service strategy that is different

from the one provided by competitors.

• Production planning • Purchasing • Customer service • Site location • Other activities

• Transportation • Storage • Packaging • Materials handling • Order fulfillment • Forecasting



Logistics Management Decisions

The level of investment and the periods over which the benefits from an investment in

logistics system is realized.

Strategic

• Supply chain design• Resource acquisition• Broad scope, highly aggregated data• Long-term planning horizons

Tactical

• Production/distribution planning

• Resource allocation

• Medium-term planning horizons

(monthly, quarterly)

Operational

• Shipment routing and scheduling

• Resource routing and scheduling

• Narrow scope, detailed data

• Short-term planning horizons (daily, real-time)

Macro

Micro



Logistics in the Firm: The Micro Dimension

Logistics Interfaces with Marketing: The Marketing Mix – Four P’s



Consumer packaging– Generally, since the size, shape, weight and other physicalcharacteristics of the product impact on its storage, transportationand handling, the logistics managers should be included in anydecisions regarding these product traits.

– A minor correction in any of the above could conceivably cost (orsave) millions of dollars in logistical costs.

– Logistics costs are not necessarily paramount, but they need to beconsidered in the decision making process.

PPRODUCT



Carrier pricing– Generally, since the larger the shipment, the cheaper thetransportation rate, shipment sizes should be tailored to the carrier’svehicle capacity where possible.

Matching schedules– Quantity discounts should be tied to carrier quantity discounts.

Volume relationships– Volumes sold will affect inventory requirements

PPRICE



PPLACE

Wholesalers– Generally, since wholesalers are combining purchases for multipleretailers, the shipment sizes tend to be larger and the number oftransactions that have to be processed are fewer, with the result thatlogistics costs are smaller.

Retailers– With the exception of very large retailers who act more likewholesalers, smaller sales are the norm. These generally cost morefor transportation and order processing.



PPROMOTION

Push versus pull– The most important factor is that the logistics division is aware ofany changes in demand patterns so that it can plan for anyconsequences.

– Pull strategies tend to be more erratic.

– Push strategies tend to more predictable.

Channel competition– The more popular a product, the easier it is to persuade channelmembers to promote your product.


SUPPLY CHAIN – CASE STUDY

https://www.youtube.com/watch?v=7UxRAhTJ1CM

https://www.youtube.com/watch?v=7UxRAhTJ1CM



2 weeks 2,0000-40+1,671Fashion Imitator



Fashion Value

Pri

ce

Everyday low

quality low price



ZARA Business Model

Develop system that requires short lead times

Decrease quantities produced to decrease inventory risk

Increase the number of available styles and/or choice

1

2

3



1 Develop system

Creative Departments:Staff = 200+

Sewing:Cut fabric is shipped to

workshops to be stitched

Samples:Prototypes made in-

house and by suppliers

Spreading:Material for garments laid

out in layers and marked

Cutting:A machine cuts the fabric

according to the patterns

Finishing:Garments are pressed,

dressed and quality checked

Shipping:From logistics centres to

stores, road and air

Delivery:Garments arrive in store

within 48 hours of ordering

Design, Product and Market Cycle

1. Final design : 1 day

2. Manufacture : 3-8 days

3. Transport : 1 day

4. Selling : 17-20 days

TOTAL : 22-30 days



1 Develop system

Operations• Factory in Spain is equipped with flexible manufacturing systems for fast

turn around in designs and productions.

• Cost of labour is not cheap and focused on productivity and efficiency.

• They do have 12 days lead time.



1 Develop system

Delivery • Deliveries typically arrive one to two days after ordering with most

deliveries arriving by truck from the Spanish factories. Clothes are thenput straight onto the sales floor and are available to purchase.

• Own railway infrastructure

Pricing• As production is carried out in Spain where average wages are higher

than low cost Asian countries so factory wage costs will be higher thancompetitors, which will affect margins.



2 Decrease quantities

Infrastructure• Their factory is located in a city called La coruna, Spain. It is the city

which has the cheapest labor in the country, but when compared tosouth Asian countries the cost of labor is expensive in Spain.

• It offers flexibility and agility to push new design to the final selling point fast.

Procurement /Inbound logistics• ZARA buys its raw materials from Italy, Spain, and Greece. Reason is final

product can be push to the final selling point quickly. Suppliers have agreed to supply material within 5 days to ZARA's facility in Spain.




Facilities • they reach their target market by locating their stores in prime town-

centre locations.

• By reducing the manufactured quantity of each style, Zara createsartificial scarcity and lowers the risk of having stock it cannot sell.

• Scarcity in fashion increases desirability, which means shoppers need tobuy quickly as the item may not be available next week.

• Zara only discounts 18% of its stock in sales, which is half the industryaverage.


Inventory • Stores place orders twice per week and the supply of finished goods is

matched to store demand.

• Production is then increased or decreased in the flexible productionfacilities.

• Demand based production means there is very little inventory in Zara’ssupply chain, which results in much lower working capital requirements.





3 Increase the number

Development• Zara hired some agents and sent them to night clubs ,high class social

events to pick up latest designs so within 6 hours using technology theysent the sketches to the factory with slight differences in the design.

• It produces about 11,000 distinct items annually compared with 2,000 to4,000 items for its key competitors.

• The company can design a new product and have finished goods in itsstores in four to five weeks; it can modify existing items in as little as twoweeks.

• Shortening the product life cycle means greater success in meetingconsumer preferences.



ZARA “Competitive Advantage”

Fashionable (quality) at reasonable price

1. Based on Product Positioning:“ZARA is cheaper price than Benetton and GAP, and still being fashionable”

Fast Production

1. Ability to Design and get finish goods in stores within 4 to 5 weeks

2. Very quick to get designer-influenced products into their stores

Product Variation

1. Ability of ZARA to launch new trends, design and variation of product

2. Low Level of Inventory

3. Efficient Distribution System

4. Turnover of Product is High


SUPPLY CHAIN –– Walmart Supply Chain


SUPPLY CHAIN –– Walmart Supply Chain

https://www.youtube.com/watch?v=yZC4neLax5o

https://www.youtube.com/watch?v=yZC4neLax5o

scope and risk management for global project - …2250+lecture+8.pdf · l6. scope and risk...

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