supply chain management: from vision to implementation chapter 10: supply chain rationalization and...
TRANSCRIPT
Supply Chain Management: From Vision to Implementation
Chapter 10: Supply Chain Rationalization and Role Shifting
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Chapter 10: Learning Objectives
1. Articulate the challenge of complexity in SC design. Explain the relevance of Jim Collins’ quote, “’Stop doing’ lists are more important then ‘to do’ lists.”
2. Identify and discuss the sources of SC complexity.
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Chapter 10: Learning Objectives
3. Define SC rationalization, identify the key areas of the supply chain that must be rationalized, and discuss supply-base optimization as an example of the rationalization process.
4. Define role shifting, discussing its benefits and threats. Explain how role shifting improves the competitiveness of an individual company the entire supply chain.
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The Challenge of Complexity
Complexity increases: Confusion Cost The probability of counterproductive decision making and
diminished competitiveness.
Complexity may be necessary to drive the value proposition.
Cost of complexity can not outweigh the value.
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Sources of Complexity
1. Organizational Structure
2. Value-Added Processes
3. The Operating Network
4. SKUs
5. The Supply Base
6. The Customer Base
7. The Logistics System
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Organizational Structure
Issue: decision-making authority
Centralized – leverages scale to reduce cost
Decentralized – leverages local knowledge to build relationships and promote rapid response
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Centralized vs. Decentralized Structure
Centralized Structure
Pros Cons
Increases leverage Increased bureaucracy
Reduces duplication Reduced flexibility
Facilitates standardization Can lose touch with reality
Enables specialization
Greater control
Decentralized Structure
Pros Cons
Knowledge of local needs Reduces leverage
Better local relationships Leads to duplication
Greater responsiveness Is relatively inefficient
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Organizational Structure - Solutions
Team-based structures Policies to promote center-led, decentralized
organization Measurement systems that promote
cooperation, support local autonomy and accountability
Modern communication and database technologies
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Value-Added Processes
Processes add complexity because they: involve a number of people from different
functions; consist of a large number of distinct activities; employ a variety of capital equipment; design, produce, or deliver a wide range of
products.
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Value-Added Processes - Solutions
Standardization Error Proofing Synchronization of Material Flows
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Operating Network Operating networks add complexity because of the
number of distinct facilities that must be coordinated.
Efforts to “optimize the supply chain” using sophisticated mathematical models often fail over the long term because: operating networks evolve over time; acquisitions complicate network design; macroeconomics and political stability influence network
design.
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Operating Network - Solutions
Managers should analyze the supply chain in terms of the following questions:
1. How many facilities do we really need to achieve desired service levels?
2. Where should they be located?
3. What activities will be performed at each?
4. How will the value-added activities be coordinated and controlled?
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Company SKUs
Product proliferation adds to SC complexity. Breadth complexity
Wide range of products Low profit margin Relies on inventory turns and efficient operations
Depth complexity large number of options for the products carried High profit margin Relies on customer service and distinctive
products
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Company SKUs - Solutions
Managers wishing to reduce complexity due to product proliferation should:
Proactively manage the breadth versus depth decision
Using total cost analysis, eliminate unprofitable SKUs
Institute policies to reduce proliferation Use postponement strategies Use database and data mining tools
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Impact of Options on the Complexity
Product Characteristic Number of Options
Color: Charcoal, Field Khaki, Khaki, Cognac, Brown, Olive, Steel, Navy, and Black
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Fabric: blended 60% cotton/40% polyester or 100% cotton 2
Front: pleated or plain 2
Rise: long, regular, short, big/regular, and big/tall 5
Waist Size: 30, 31, 32, 33, 34, 35, 36, 37, 38, 40, 42, 44, 46, 48, 50, 52 inches
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Length: 27-38 inches 10
Bottom: cuffed or plain 2
Total SKUs 9x2x2x5x16x10x2 = 57,600
Simplified SKUs via Postponement: 9x2x2x5x16x1x1 = 2,880
Simplified SKUs via Data Mining: 1,300
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The Supply Base
Traditionally, American manufacturers have sourced parts from multiple suppliers to hedge against disruptions and create leverage to drive down costs.
Multiple redundant suppliers, add complexity to the supply chain.
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Single or Multiple Suppliers
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The Supply Base - Solutions
To reduce complexity, supply-chain managers may seek to reduce the number of suppliers and aggregate purchasing.
ABC Classification Systems Supplier Certifications Long-Term Partnership Style Relationships
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Supply Base Optimization Process
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ABC Suppliers Classification
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Supply Base Optimization Process
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Supplier Selection Process
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Supply Base Optimization Process
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Supply Base Optimization Process
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The Customer Base
Customers generally have greater power in supply chain relationships.
Customers use this power to demand consistently higher levels of service without additional compensation.
Customer proliferation may result in suboptimal profits.
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The Customer Base - Solutions
Managers may seek to address an unwieldy customer base by:
ABC Classification Systems Customer Relationship Management (CRM)
software to segment customers Sophisticated cost analysis to evaluate
customers
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Logistics System
Logistic systems are complex due to: The number of transportation modes available The number of different facilities involved Geographic dispersion Product proliferation Variation in demand Variation in customer requirements
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Logistics System - Solutions
Managers may seek to address logistics system complexity by:
Adopting advanced technology – ERP, DRP, CRM systems; database management; data mining.
Outsourcing – third-party logistics Insourcing – on-site third-party logistics Innovative practices
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SC Rationalization
Supply chain rationalization is the process of systematically evaluating the company’s operating network, suppliers, customers, and product offerings to find and eliminate inefficiencies and redundancies.
The goal is to efficiently allocate scarce resources to a company’s most profitable and strategically important activities and relationships.
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SC Rationalization
44 percent of companies have rationalized their supply base
38 percent of companies have performed a customer profitability analysis
28 percent of companies have streamlined product offerings
- Cap Gemini (2002)
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Chrysler’s Supply Chain
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Rationalization at Chrysler
Analysis of the supply chain to eliminate unnecessary or wasteful activities.
Step 1 – Identify and eliminate redundant suppliers. Result: Fewer SKUs and fewer and higher-
performing suppliers
Step 2 - Classify remaining suppliers on the basis of importance. Result: Discovery of potential threats and ability to
focus resources on collaborative relationships with key suppliers.
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Shifting Roles Among Members
Traditionally, roles for individual members of the supply chain were well defined.
Today, roles are far less certain.
To insure survivability, supply-chain participants must add unique value.
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Role Shifting
Role shifting enhances supply chain efficiency thereby enhancing the value proposition.
Functional shiftability – allows firms with unique capabilities to undertake additional roles.
Dis-intermediated – a company that is shifted out of the supply chain, replaced by a more capable firm.
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Role Shifting – Best Practices
Second-Tier Sourcing Contracts Supplier Certification Vendor-Managed Replenishment Supplier-Integrated Manufacturing
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Second-Tier Sourcing Contracts
Coordinated purchasing with first-tier suppliers.
Allows for aggregation of purchases.
Leverages purchasing power to reduce cost.
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Supplier Certification
Supplier certification is the formal process of working with selected suppliers to evaluate and improve supplier quality.
“Dock to Stock” – incoming shipments no longer are inspected, they go straight to inventory or the point of use.
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Supplier Certification Process
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Vendor-Managed Replenishment
Suppliers actively manage inventory for customers.
Suppliers benefit due to improved demand information and improved ability to allocate productive resources.
Customers benefit from lower labor and inventory costs, improved item availability.
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Supplier-Integrated Manufacturing
Customer firm invites suppliers to establish manufacturing facilities at the customer’s location.
Suppliers provide their own specialized equipment, manage their own inventory, and hire and train their own workers.
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A Return to the Opening Story
Based on what you have now read and discussed:1. Is all complexity bad? Why or why not? What
are the costs of complexity up and down the chain?
2. What are the sources of complexity? Why do so many managers make the decision to “just live with it”?
3. What best practices might Charlene share with Doug regarding how to deal with the challenge of complexity?