49799233 strategic supply chain design

8/10/2019 49799233 Strategic Supply Chain Design

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Strategic Supply Chain Design

Massachusetts Institute of Technology

Sloan School of Management


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1. Introduction

2.Fruit Flies & Supply Chain Evolution3.Supply Chain Design & 3-DCE

4.Customer Service and Service Supply Chains

5.Value Chain Roadmapping & Strategy Making


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3-D Concurrent Engineering & 3the imperative of concurrency

Product Process Supply Chain

Technology FulfillmentSupply Chain Supply Chain

Fulfillment Architecture Technology

Detailed

Design

Specs

Materials

Functions

Product

Architecture

Modular/

Integral

L ife Cycles

Unit

Processes

Technology

Equipment

Production

System

Objectives

Systems

People

Ca aci t

Supply

ChainArchitecture

Sourcing

Selection

Relationship

Logistics

& CoordSystem

Information

InventoryIntegration


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4

SC Principles to Understand

Supply ChainFocus Fulfillment Technology

Decision

Scope

Tactical

Strategic

Supply Chain Supply Chain

Costs, Cycle Times,

Inventories

Collaborative Prod Devel

Bullwhip

Revenue Management

IT System Design

Order Fulfill. ProcessLogistics System Design

Supply-Demand balance

Relationship Design

Flexibility

Clockspeed

Double Helix

Supply ChainArchitecture

Value Migration

3-DCE


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Components of Supply Chain Business Processes 5

System Design/Capabilities

Product Fulfillment

Process Architecture

Supply Chain Technology

Solution Implementation

-postponement-quick response

-lean production

-common parts/

platforms

Operational Objectives/

Customer Requirements-cost

-quality

-speed (flexibility,responsiveness)

-improvement (learning/knowledge)

External Influences

-clockspeeds (product, process)-risks (design, supply, demand)


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INTRODUCTIONS

Who are you?

What can you offer?

What do you want to learn?


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1.Fruit Flies & Supply Chain Evolution

2.Supply Chain Design & 3-DCE

3.Customer Service and Service Supply Chains

4.Value Chain Roadmapping & Strategy Making


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Supply Chain Design in a Fast-Clockspeed World:

Study the Industry Fruitflies

Evolut ion inthe natural wo rld:

FRUITFLIES

evolve faster thanMAMMALS

evolve faster thanREPTILES

THE KEY TOOL:

Cross-SPECIESBenchmark ingof Dynamic Forces

Evolut ion in

the indust r ial wor ld:INFOTAINMENT is faster than

MICROCHIPS is faster thanAUTOS evolve faster than

AIRCRAFT evolve faster than

MINERAL EXTRACTION

THE KEY TOOL:Cross-INDUSTRY

Benchmark ingof Dynamic Forces


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CiscosEnd-to-End Integration for

Order info

flows direct to

Cisco and suppliers

Cisco Finished Product flows direct tocustomer via logistics

supplier

Basic Design Principle: Arms lengthRelationshi withFulfillment Chain Partners

Single enterprise information system

Dynamic replenishment, direct fulfillment,merge in transit

Customer orders through CiscoConnection online

New product development on-line

with supply base

Technology Supply Chain Design:Innovation through Acquisition

Customers

its Fulfillment Supply Chain

ComponentSuppliers &Distributors

Contract

Manufacturers


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Ciscos Strategy forTechnology Supply Chain Design

1.Integrate technology around the router tobe a communications network provider.

2. Leverage acquired technology with

- sales muscle and reach- end-to-end IT- outsourced manufacturing-market growth

3. Leverage venture capital to supply R&D

Basic Design Principle: Acquisition

Relationship with Technology Chain Partners


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Volatility Amplification in the Supply Chain:The BullwhipEffect

Customer

Retailer Distributor

Factory Tier 1 Supplier Equipment

Information lags

Delivery lagsOver- and underordering

Misperceptions of feedback

Lumpiness in ordering

Chain accumulations

SOLUTIONS:Countercyclical MarketsCountercyclical TechnologiesCollaborative channel mgmt.(Cincinnati Milacron & Boeing)


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Supply Chain Volatility Amplification:

Machine Tools at the tip of the Bullwhip

See "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study,"

E. Anderson, C. Fine & G. Parker Production and Operations Management,

Vol. 9, No. 3, Fall 2000, pp. 239-261.

Weare experiencing a 100-year flood. J. Chambers, 4/16/01


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LESSONS FROM A FRUIT FLY:

CISCO SYSTEMS

1. KNOW YOUR LOCATION INTHE VALUE CHAIN2.UNDERSTAND THE DYNAMICS

OFVALUE CHAIN FLUCTUATIONS

3.THINK CAREFULLY ABOUTTHE ROLEOFVERTICAL COLLABORATIVERELATIONSHIPS4. INFORMATION AND LOGISTICS SPEED DO NOT

REPEAL BUSINESSCYCLES OR THE BULLWHIP.

Bonus Quest ion :

How does clockspeed impact volatility?


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INDUSTRY CLOCKSPEED IS A COMPOSITE: 14OF PRODUCT, PROCESS, AND ORGANIZATIONAL

CLOCKSPEEDS

Mob i le Phone INDUSTRY CLOCKSPEED

THE THEMob i le Phone Mob i le Phone

product technology THE

Mob i le PhonePRODUCTION

PROCESSprocess technology

MANUFACTURING

COMPANYorganization

1


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Mobile Phone System CLOCKSPEED is amix ofTransmission Standards, Software and Handsets

Mob i le Phone Sys tem

TRANSMISSION

STANDARD

SOFTWARE

slow clockspeed APPLICATIONS HAND SETmedium clockspeed fast clockspeed

OPERATING SERVICESSYSTEM fast clockspeed

slow clockspeed

ISSUE: THE FIRMS THAT ARE FORCEDTO RUN AT THEFASTEST CLOCKSPEEDARETHE MOST LIKELY TOSTAY AHEADOF THE GAME.

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Automobi le CLOCKSPEED IS A MIX OFENGINE, BODY & ELECTRONICS

Automobi le

ENGINE BODYslow clockspeed medium clockspeed

ELECTRONICSfast clockspeed

ISSUE: MOST AUTO FIRMS OPERATE ATENGINE OR BODY CLOCKSPEEDS; IN THE

FUTURE THEY WILL NEED TO RUN

AT ELECTRONICS CLOCKSPEED.

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Clockspeed drivesBusiness Strategy Cadence

CORECAPABILITIES NEW PROJECTS(New produc ts,new processes,

new suppl iers)

Dynamics between New Projects and CoreCapability Development: PROJECTS MUSTMAKE MONEY AND BUILD CAPABILITIES

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See Leonard-Barton, D. Wellsprings of Knowledge

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Projects Serve Three Masters:Capabilities, Customers, & Corporate Profit

CORE

CAPABILITIES

PROJECT

DESIGN(New products,

new processes,

new suppliers)

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The Strategic Leverage of Value Chain Design:

Who let In tel Ins ide?

1980: IBM designs a product, a process, & a value chain

Customers

The Outcome:A phenomenonally successful product design

A disastrous value chain design (for IBM)

Intel

IBMI ntel I nside

Microsoft

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LESSONS FROM A FRUIT FLY:THE PERSONAL COMPUTER

1. BEWARE OF INTEL INSIDE

(Regardless of your industry)

2. MAKE/BUY IS NOT ABOUT WHETHER IT ISTWO CENTS CHEAPER TO OUTSOURCE3. VALUE CHAIN DESIGN CAN DETERMINE

THE FATE OF COMPANIES AND INDUSTRIES,

AND OF PROFIT AND POWER4. THE LOCUS OF VALUE CHAIN CONTROL

CAN SHIFT IN UNPREDICTABLE WAYS

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LESSONS FROM A FRUIT FLY:THE PERSONAL COMPUTER

1. BEWARE OF INTEL INSIDE

(Regardless of your industry)

2. MAKE/BUY IS

NOTABOUT WHETHER IT IS

TWO CENTS CHEAPER OR TWO DAYS FASTER

TO OUTSOURCE VERSUS INSOURCE.

3. DEVELOPMENT PARTNERSHIP DESIGN CAN

DETERMINE THE FATE OF COMPANIES ANDINDUSTRIES, AND OF PROFIT AND POWER

4. THE LOCUS OF VALUE CHAIN CONTROL

CAN SHIFT IN UNPREDICTABLE WAYS

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Vertical Industry Structure

with Integral Product Architecture

Computer Industry Structure, 1975-85

IBM DEC BUNCH

(See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)

Microprocessors

Operating Systems

Peripherals

Applications Software

Network Services

Assembled Hardware

AllPro

ducts

AllProducts

AllPro

ducts

H i t l I d t St t23


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Horizontal Industry Structure 23

with Modular Product Architecture

Computer Industry Structure, 1985-95

(See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)

Microprocessors

Operating Systems

Peripherals

Applications Software

Network Services

Assembled Hardware

Intel

Moto AMD etc

HP Compaq IBM Dell etc

Microsoft Mac Unix

HP Epson Seagate etc etc

Microsoft Lotus Novell etc

AOL/Netscape Microsoft EDS etc

THE DYNAMICS OF PRODUCT ARCHITECTURE 24


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THE DYNAMICS OF PRODUCT ARCHITECTURE 24ANDVALUE CHAIN STRUCTURE:

THE DOUBLE HELIX

See Fine & Whitney, Isthe Make/Buy Decision Process a Core Competence?

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THE DOUBLE HELIX

IN OTHER INDUSTRIES

TELECOMMUNICATIONS-- MABELL was Vertical /Integral BABY BELLS & LONG LINES & CELLULAR are

Horizontal/Modular TodaysVerizon is going back to Vertical /Integral

AUTOMOTIVE-- Detroit in the 1890s was Horizontal/Modular Ford & GM in the mid 1900swere Vertical /Integral TodaysAuto Industry is going back to Horizontal/Modular

TELEVISION-- RCA was Vertical /Integral

1970STHROUGH 1990Swere Horizontal/Modular

Todaysmedia giants are going back to Vertical /Integral

BICYCLES-- Safety Bikes to 1890sboom to Schwinn to SShhiimmaannooIInnssiiddee

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P&GRetailer

Retailer

Controlling the Chain Through Distribution:

The End of P&G Inside ?

Controlling the Channel Through Closeness to Customers:

consumer research, pricing, promotion, product development

Customers

Retailer


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Clockspeeds accelerate as you head downs tream,

closer to the f inal customer ;Clockspeed = f(technology push, customer pull, system complexity)

Vehicle

Electronics

Architecture

Telematics

System

AutomobileIn-Vehicle

Services

Semiconductor

Equipment

Maker

Chip makerPC MakerWeb Site

Developer

Telecom

Equipment

Handset

Platforms

New Phone

Applications

Optical

Components

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Media Supply Chains: An Industry at Lightspeed

Customers The box The Pipe The Content(Access, Metro, Backbone)

Land-basedTelco:

-copper POTS-fiber

-DSL

Internet, et al

PC/laptop

Wired

Phone

Page

r

News/articles/books

(newspapers &

magazines)

Wireless

phone

Video/Audio:

Movies & Art

& News & Sports

Cable

Networks

Wireless:

-broadcast TV

-CDMA, TDMA, GSM

-satellite/microwave

PDA

Communication:

voice & video & emailTelevision

Retail Outlets

-Borders:

-Blockbuster

-Seven-Eleven

BankingVCR

Education

Shopping

Delivery (e.g., Fedex)

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ALL COMPETITIVE ADVANTAGE


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ALL COMPETITIVE ADVANTAGE

IS TEMPORARY

Autos:Ford in 1920, GM in 1955, Toyota in 1990

Computing:

IBM in 1970, DEC in 1980, Wintel in 1990World Dominion:

Greece in 500 BC, Rome in 100AD, G.B. in 1800

Sports:

Bruins in 1971, Celt ics in 1986, Yankees no end

The faster the clockspeed, the shorter the reign

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Exercise 1:Value Chain Analysis

Consider these five industries:

-Food

-Defense aircraft

-Automobiles

-Handheld electronic organizers/communicators

-Music

At each table, pick two of these industries:

What are the key elements in the value chain?Who has power in the chain?

What are the key dynamic processes influencing chain power?


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VALUE CHAIN DESIGN:

Three Components

1. Insourcing/OutSourcing

(The Make/Buy or Vert ical Integrat ion Decis ion )

2. Partner Selection(Choice of suppl iers and partners for the chain)

3. The Contractual Relationship

(Armslength , joint venture, long-term contract ,strateg ic all iance, equ ity part icipat ion , etc.)

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IMPLEMENTATION OF VALUE CHAIN DESIGN:

EMBED IT IN 3-D CONCURRENT ENGINEERING

PRODUCTPROCESS

Performance

Recipe, Unit Process

Specifications Technology, &

Process Planning

Details,

Strategy

Product Architecture,

Make/Buy componentsTime, Space, Availability

VALUE CHAIN

Manufacturing System,

Make/Buy processes

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P j t S Th M t


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Projects Serve Three Masters:Capabilities, Customers, & Corporate Profit

CORE

CAPABILITIES

PROJECT

DESIGN(New products,

new processes,

new suppliers)

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IMPLEMENTATION OF PROJECT DESIGN:FRAME IT AS 3-D CONCURRENT ENGINEERING

PRODUCTPROCESS

Performance

Recipe, Unit Process

Specifications Technology, &

Process Planning

Details,

Strategy

Product Architecture,

Make/Buy componentsTime, Space, Availability

VALUE CHAIN

Manufacturing System,

Make/Buy processes

ARCHITECTURES IN 3 D 37


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ARCHITECTURES IN 3-D

INTEGRALITY VS. MODULARITY

I ntegral product architectures featureclose coupling among the elements

-Elements perform many functions-Elements are in close spacial proximity

-Elements are tightly synchronized

- Ex: jet engine, airplane wing, microprocessor

Modular product architectures featureseparation among the elements

-Elements are interchangeable-Elements are individually upgradeable-Element interfaces are standardized-System failures can be localized

- Ex: stereo system, desktop PC, bicycle

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C C C


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VALUE CHAIN ARCHITECTURE

Integral value-chain architecture

features close proximity among its elements

-Proximity metrics: Geographic, Organizational

Cultural, Electronic

- Example: Toyota city

- Example: Ma Bell (AT&T in New Jersey)

- Example: IBM mainframes & Hudson River Valley

Modular value-chain architecture features multiple,

interchangeable supplier and standard interfaces

-Example: Garment industry

-Example: PC industry

-Example: GeneralMotorsglobal sourcing

-Example: Telephones and telephone service

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ALIGNING ARCHITECTURES BUSINESS SYSTEMS


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BUSINESS SYSTEM/SUPPLY CHAIN ARCHITECTURE

(Geog., Organ., Cultural, Elec.)

INTEGRAL MODULAR

ALIGNING ARCHITECTURES: BUSINESS SYSTEMS

& TECHNOLOGICAL SYSTEMS

Microprocessors

Mercedes

& BMWvehicles

Lucent

Nortel

Polaroid

MSFT WindowsChrysler

vehicles Cisco

Digital Rights/

Music DistributionDell PCS

BicyclesTECHNOLOGY

/PRODUCTARCHITECTURE

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D ll S l Ch i


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Dell Supply ChainGlobal \

Regional

Procurement

Continui ty of SupplySales

Supplier

Supplier

SLCI

DellI

Customer

Materials order ing cycle

10-180+ days

Customer ful f i llment

2-5 days

Modular Product Architecture enables Modular Supply Chain

Demand

Management

Demand/

Supply

Management

Build to customer

specifications

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D d S l Ch i M


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Demand-Supply Chain Management@ Dell

Demand Management:

Forecast = Buy = Sell

Buy to Plan, but Build to Order Inventory Velocity is a wonderful thing

Customers have immediate access to the latesttechnology.

Suppliers get their products to market quickly

Quality is improved with fewer touches.

Cash is generated through negative cash cycle.

Model efficiencies drive Market Share gain.

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C D ll Di t W k f A t ?


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Can DellDirectWork for Autos?

Appealing to OEMson ManyDimensionsSatisfy customer need for Speed

Reduce Supply Line Inventories

Reduce mismatches anddiscounting

Direct OEM-Customer Relationships(& Data!)

Information Transparency

Adapted from Prof. J.P. MacDuffie, IMVP & The Wharton School

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BUT


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BUT,A Car is not a Computer!!

Adapted from Prof. J.P. MacDuffie, IMVP & The Wharton School

Car~ 4000 components100 key subsystems

300 key suppliers12 month validation1,000,000

variationsIntegral

Architecture

PersonalComputer

~50 components8-10 key parts

40 key suppliers24 hour burn-in100 design

variationsModular

Architecture

DESIGNING ARCHITECTURES FOR 44


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PRODUCTS & VALUE CHAINS:

MODULARITY VS. OPENNESS

ARCHITECTURALPROPRIETARINESS

CLOSED OPEN

ARCHITECTURAL

STRUCTURE

INTEGRAL

MODULAR

INFORMATIONARCHITECTURE MUST

REFLECT BUSINESS MODEL

Pentium Chip

Mercedes VehiclesSAP ERP

Linux

IBM Mainframes

MicrosoftWindowsChrysler Vehicles

Palm Pilot

software & accessories

Phones & serviceWeb-based ERP

In/Outsourcing: Sowing the Seeds 45


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g gof Competence Development to develop

dependence for knowledge or dependence for capacity

+

Independence

Amount of

Work

Done In-house

knowledge

+/or supply

+

InternalCapability

Amount ofInternal

Learning

+

+

DependenceAmount of

Work

Outsourced

knowledge

+/or supply

+

SupplierCapability

Amount ofSupplier

Learning

+

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Technology Dynamics in the Aircraft Industry:


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Technology Dynamics in the Aircraft Industry:

LEARNING FROM THE DINOSAURS

+

Japanese

Japanese

appeal as

subcontractors

+ +

U.S.firms

appeal as

subcontractors

Industry

Autonomy

+Japanese

industry

size &

capability

Boeing outsources

to Japan

(M itsubishi I nside?)

+

U.S.

industry

size &

capability

- 47SOURCEABLE ELEMENTS


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SOURCEABLE ELEMENTS

PROCESS ELEMENTS

ENGINEERING

ASSY

CONTROLLER

VALVETRAIN

BLOCK

TEST

I4 V6 V8 PRODUCTS

SUBSYSTEMS

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Strategic Make/Buy Decisions:Assess Critical Knowledge & Product Architecture

DEPENDENT FORINDEPENDENT FOR

KNOWLEDGEKNOWLEDGE & INDEPENDENT FOR

& CAPACITYDEPENDENT FOR KNOWLEDGE & CAPACITY

Adapted from Fine & Whitney, Isthe Make/Buy Decision Process a Core Competence?

ITEM

ISINTEGRAL

ITEM

ISM

ODULAR

A

POTENTIAL

OUTSOURCING

TRAP

BEST

OUTSOURCINGOPPORTUNITY

OVERKILL

IN

VERTICAL

INTEGRATION

WORST

OUTSOURCING

SITUATION

CANLIVE

WITH

OUTSOURCING

BEST

INSOURCING

SITUATION


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Qualitative analysis of strategic


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Poss ible Decisions(Knowledge & Supply

Insource

Outsource

Partner/Acquire

Part ial Inso urce

Part ial Outsou rc

Invest

Spin Off

)

Qualitative analysis of strategicimportance uses five key criteria

Customer

Importance: High

Medium

Low

Technology

Clockspeed:Fast

Medium

Value chain elements w ith high customer

im portanc e and fast clock speed are generally

strategic (unless th ere are many capable

suppl iers)

Compet i t ive posit ion is seldom the

prim ary considerat ion for strategic

imp ortance, rather it serves as atie-breakerwhen o ther criteria are

When many c apable

SlowCompetit ive

Posi t ion:AdvantageParity

in conf l ict

suppl iers exist , knowledgemay b e considered

comm odi ty and

development should beoutsourced

Architecture is considered a

Disadvantage

Capable Supp liers:NoneFew :Many

cons tra int for the sourcing decision

model, contro ls the level of

engineer ing that m ust be k ept in

hous e for integrat ion purposes

Architecture:Integral

Modulare

49799233 strategic supply chain design

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