Managing Customer Managing Customer SatisfactionSatisfaction

Week 4Week 4

Managing Supply RelationshipsManaging Supply Relationships

Unit objectivesUnit objectives

Identify the main types of supply relationshipsIdentify the main types of supply relationships Define supply chains, explore service Define supply chains, explore service

applications & discuss main issues in supply applications & discuss main issues in supply chain management (SCM)chain management (SCM)

Identify the use and management of Identify the use and management of intermediariesintermediaries

Identify the main types of supply partnerships Identify the main types of supply partnerships and how they can be managed effectivelyand how they can be managed effectively

Evaluate the role of service level agreementsEvaluate the role of service level agreements

IntroductionIntroduction

Purpose: describe the Management of the Purpose: describe the Management of the relationships involved in delivering service relationships involved in delivering service to the end customerto the end customer

SCM grew out of manufacturers’ need to SCM grew out of manufacturers’ need to synchronize all the elements in the SC:synchronize all the elements in the SC: Increase product availability Increase product availability Respond quickly to changes in consumer Respond quickly to changes in consumer

demanddemand Maintain or reduce inventory levelsMaintain or reduce inventory levels

A simple supply chainA simple supply chain

Types of supply relationshipsTypes of supply relationships

Service supply chains or networksService supply chains or networks Management through intermediariesManagement through intermediaries Management through supply Management through supply

partnershipspartnerships

Service supply chainsService supply chains

Service provider’s concerns: cost & qualityService provider’s concerns: cost & quality Service providers have several supply chains, Service providers have several supply chains,

e.g., supermarket:e.g., supermarket: Cleaning serviceCleaning service Legal services and auditingLegal services and auditing Food items through wholesalers, distributors, Food items through wholesalers, distributors,

producer (direct)producer (direct) Supplier and customer levels are called “tiers”: Supplier and customer levels are called “tiers”:

first-tier (direct contact with service provider), first-tier (direct contact with service provider), second-tier, etc.second-tier, etc.

Multi tiered supply chain

Management through Management through intermediariesintermediaries

‘‘Middlemen’ or distributers, agents, Middlemen’ or distributers, agents, dealers who manage part of the SCdealers who manage part of the SC E.g., car manufacturers have dealersE.g., car manufacturers have dealers

Disintermediation—reducing the number Disintermediation—reducing the number of intermediariesof intermediaries The Internet and disintermediationThe Internet and disintermediation Outsourcing—increasing the number of Outsourcing—increasing the number of

intermediariesintermediaries

Holiday supply chains and disintermediation

Managing service supply chainsManaging service supply chains

A supply chain is a network that joins A supply chain is a network that joins together internal and external suppliers together internal and external suppliers with internal and external customerswith internal and external customers

Supply chain management (SCM) is Supply chain management (SCM) is concerned with managing the network and concerned with managing the network and flow of information, materials, services, & flow of information, materials, services, & customers through the networkcustomers through the network

Managing service supply chainsManaging service supply chains

Information is essential to anticipate and meet Information is essential to anticipate and meet demanddemand

In practice, information is not always shared In practice, information is not always shared (supplier power, producer power)(supplier power, producer power)

Reasons why there is always inventory in the SCReasons why there is always inventory in the SC Processes require work in progress (cannot produce Processes require work in progress (cannot produce

one item at a time)one item at a time) Inventory must be available to meet demand with Inventory must be available to meet demand with

100% accuracy (processes are inflexible & unreliable)100% accuracy (processes are inflexible & unreliable) SCM is targeted at reducing inventorySCM is targeted at reducing inventory Figure 5.2, pg. 144Figure 5.2, pg. 144

The value of SCMThe value of SCM

The value of SCMThe value of SCM Provides the benefits of vertical integrationProvides the benefits of vertical integration Eliminates long-term overhead & inflexibility of Eliminates long-term overhead & inflexibility of

managing all the activities of SCM within one managing all the activities of SCM within one organizationorganization

SCM approachesSCM approaches

The basis of SCM lies in the development The basis of SCM lies in the development of strong buyer-supplier partnerships of strong buyer-supplier partnerships

Helper (1991), ten year study of US auto Helper (1991), ten year study of US auto industry: industry: weak suppliers weak suppliers powerful buyers powerful buyers Increasing use of JIT manufacturing process Increasing use of JIT manufacturing process

Information exchange in supply Information exchange in supply partnershipspartnerships

Categories (4)Categories (4) Voice—partnership, collaboration, long-term, joint Voice—partnership, collaboration, long-term, joint

R&DR&D Exit—traditional (adversarial), competitive pricing, Exit—traditional (adversarial), competitive pricing,

short term, buyer still searching for lowest priceshort term, buyer still searching for lowest price Unlikely—unlikely that a long-term relationship is Unlikely—unlikely that a long-term relationship is

possible, buyer may not want to become dependent possible, buyer may not want to become dependent on one supplieron one supplier

Stagnant—sense of commitment but relationship Stagnant—sense of commitment but relationship has not developedhas not developed

Figure 5.4, pg. 148Figure 5.4, pg. 148

Key elements of SCMKey elements of SCM

Management of the SC in its entirety using Management of the SC in its entirety using measures to assess performancemeasures to assess performance

Buyer/supplier partnerships to share Buyer/supplier partnerships to share benefitsbenefits

Reduction of the number of suppliers Reduction of the number of suppliers Increased exchange of informationIncreased exchange of information Possibility of redirecting activities to the Possibility of redirecting activities to the

most effective position in the SCmost effective position in the SC

Benefits of SCMBenefits of SCM

Reduction in the total cost of inventoryReduction in the total cost of inventory Reduced administration overheads Reduced administration overheads

involved in managing multiple involved in managing multiple relationshipsrelationships

Collaboration in scheduling & process Collaboration in scheduling & process improvementimprovement

Faster response to changes in market Faster response to changes in market demanddemand

Purchasing functionPurchasing function

Procurement/purchasing responsible for Procurement/purchasing responsible for managing the SCmanaging the SC

Identify internal customer’s needsIdentify internal customer’s needs Translate needs into specificationsTranslate needs into specifications Manage the delivery of goods & servicesManage the delivery of goods & services Assess customer satisfactionAssess customer satisfaction Communication with suppliersCommunication with suppliers

Sourcing through invoicingSourcing through invoicing ‘‘Cinderella’ operationCinderella’ operation

PWC study: 10% reduction of costs = 50% PWC study: 10% reduction of costs = 50% increase in profit marginincrease in profit margin

E-procurementE-procurement

Disintermediation—desktop procurementDisintermediation—desktop procurement Benefits:Benefits:

Customer satisfaction (more work but greater Customer satisfaction (more work but greater control)control)

Process compliance (more reliable since Process compliance (more reliable since easier for individuals to use—transparency)easier for individuals to use—transparency)

Cost reduction (reduced ‘just in case’ Cost reduction (reduced ‘just in case’ purchasing)purchasing)

Lean manufacturingLean manufacturing

Toyota production system to eliminate waste Toyota production system to eliminate waste (muda): anything that creates no value for the (muda): anything that creates no value for the customer (Toyoda & Ohno)customer (Toyoda & Ohno)

Value must be defined by the customerValue must be defined by the customer Remove non-value producing activities from the Remove non-value producing activities from the

value streamvalue stream Create flow – pipeline vs. batched workCreate flow – pipeline vs. batched work Pull vs. push – demand drivenPull vs. push – demand driven

McD replenishes burgers as customers buys themMcD replenishes burgers as customers buys them Strive for perfection – developing a culture of Strive for perfection – developing a culture of

continuous improvementcontinuous improvement

Applying lean thinking to Applying lean thinking to service operationsservice operations

Ohno’s 7 sources of Ohno’s 7 sources of mudamuda Over-production ahead of demandOver-production ahead of demand Waiting for the next process stepWaiting for the next process step Unnecessary transport of materialsUnnecessary transport of materials Over-processing or parts due to poor process Over-processing or parts due to poor process

design or technologydesign or technology Excessive inventoriesExcessive inventories Unnecessary movement of employeesUnnecessary movement of employees Defective productionDefective production

Barriers to SCM improvementBarriers to SCM improvement

Lack of systems capability—inability to Lack of systems capability—inability to pass information about demand along the pass information about demand along the SCSC

Complacency (Toyota?)Complacency (Toyota?) Information used for conflicting purposesInformation used for conflicting purposes

—sales forecasts—sales forecasts MistrustMistrust Power games—fear of being overwhelmed Power games—fear of being overwhelmed

by a more powerful partnerby a more powerful partner

Managing through intermediariesManaging through intermediaries

Why use intermediaries?Why use intermediaries? Closeness to customerCloseness to customer Local knowledgeLocal knowledge Focused expertise Focused expertise (Microsoft, 5.3, pg. 155)(Microsoft, 5.3, pg. 155)

Poor service marginsPoor service margins Insufficient capacity (subcontracting)Insufficient capacity (subcontracting)

Forms of service: Forms of service: Military modelMilitary model

The Commandos—highly trained, self-directed, The Commandos—highly trained, self-directed, complex projects (software)complex projects (software)

The Regulars—less comprehensively skilledThe Regulars—less comprehensively skilled Part-timers—provided by the customersPart-timers—provided by the customers Mercenaries—not part of the parent Mercenaries—not part of the parent

organization, may not share its cultureorganization, may not share its culture Enemies—not on the same side, parent Enemies—not on the same side, parent

company may have decided not to provide company may have decided not to provide serviceservice

The military model

Motivating mercenariesMotivating mercenaries

Financial incentivesFinancial incentives PunishmentsPunishments Providing expertiseProviding expertise Training—McDonald’s Hamburger Training—McDonald’s Hamburger

UniversityUniversity IS & IT supportIS & IT support

AlliancesAlliances

TypesTypes Focused or complex—level of involvementFocused or complex—level of involvement Joint venture—forming a new companyJoint venture—forming a new company Partnership—forming a strategic alliance Partnership—forming a strategic alliance

Service level agreementsService level agreements

SLAs are contracts between the service supplier SLAs are contracts between the service supplier and purchaser (B2B) considered to be an and purchaser (B2B) considered to be an integral part of the developing relationship integral part of the developing relationship between the twobetween the two

Activities:Activities: Setting a service specificationSetting a service specification Dealing with routine issuesDealing with routine issues Development of the relationship—on-going review Development of the relationship—on-going review

and revision and revision SLAs are tailor madeSLAs are tailor made

Strategic alliance success factorsStrategic alliance success factors