Suppy Chain Mgt Intro

8/14/2019 Suppy Chain Mgt Intro

1/261

Introduction to SupplyChain Management

Dr. Dale S. RogersCenter for Logistics Management

University of Nevada

MGRS 474/674

Dr. Dale S. RogersCenter for Logistics Management

University of Nevada

MGRS 474/674


2/261

Seminar Goal

s Establish an understanding of the role and function ofsupply chain management strategies in the context ofthe technology marketplace.

s Develop a more thorough understanding of the

critical interrelationships that compose the supplychain.

s Concept of supply chain system design

s Introduce and ask participants to identify anopportunity to establish or improve supply chains.


3/261

Future of Competition

My Supply Chain vs. Your SupplyChain

SupplierSupplier InboundInbound

TransportTransportOutboundOutbound

TransportTransportDistributionDistributionManufacturingManufacturing UltimateUltimate

CustomerCustomer




CustomerCustomer


4/261

is the process of planning, implementing

and controlling the efficient, cost effectiveflow 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.

[Council of Logistics Management, 1986]

1986 CLM DEFINITION OF LOGISTICS


5/261

SUPPLY CHAIN MANAGEMENT

is the integration of key business processes

from end user through original suppliers, that

provides products, services, and information

that add value for customers and

other stakeholders.

[The International Center for Competitive Excellence, 1994]

[Global Supply Chain Forum, 1998]


6/261

1998 CLM DEFINITION OF LOGISTICS

.is that part of the supply chain process that

plans, implements, and controls the efficient,effective flow and storage of goods, services,

and related information from the point-of-

origin to the point-of-consumption in order to

meet customers' requirements.

[Council of Logistics Management, 1998]


7/261

Supply

ChainBusiness

Processes

Tier 1Supplier

Tier 2Supplier

SUPPLY CHAIN MANAGEMENTIntegrating and Managing Processes Across the Supply Chain

LogisticsPurchasing Marketing & Sales

R&D

CustomerConsumer/End-user

CUSTOMER RELATIONSHIP MANAGEMENT

CUSTOMER SERVICE MANAGEMENT

DEMAND MANAGEMENT

ORDER FULFILLMENT

MANUFACTURING FLOW MANAGEMENT

PROCUREMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS

PRODUCT FLOWProduction Finance

Manufacturer

Information Flow

Source: Douglas M. Lambert, Martha C. Cooper, Janus D. Pagh, Supply Chain Management: Implementation Issues and Research Opportunities, TheInternational Journal of Logistics Management, Vol. 9, No. 2, 1998, pp. 2.


8/261

Customer Relationship

Management Process! Customer focus teams develop and implement

customer partnering programs.

! Product/service agreements are established.

! New customer interfaces are used to better predict

customer demand and improve the way customers

are serviced.

! Teams identify and eliminate sources of productionvariability.

! Key performance evaluation criteria (both company

performance and customer account profitability) areused to measure results.

Required BehaviorsRequired Behaviors

Customer relationships are managed by customer focus teams which

negotiate mutually beneficial product / service agreements with large,strategically significant customers.

ustomer RelationshipManagement


9/261

Customer ServiceManagement Process

! Customer Service provides a single source ofcustomer information, a point of contact for

administration of the product / service agreement.

! Instant promising/availability information isconveyed via the supply/demand manager

interface.

! On-line/real-time product and pricing information

assists customers with order placement.

! On-line/real-time access to order status

information is available to support customer

enquiries.


Maximizing customer service means providing a focused point of contactfor all customer enquiries in order to insulate them from the complexity of alarge, multi-divisional corporation.

Customer ServiceManagement


10/261

Demand ManagementProcess

! Demand requirements and supply capabilities are

continuously modeled using point of sale and key

customer data.

! Market requirements and production plans are

coordinated on an enterprise-wide basis.

! Multiple sourcing and routing options are

considered at the time of order receipt.! Worldwide on-line/real-time inventory availability

check and promising capacity is employed.

! Demand and production rates are synchronised and

inventories are managed globally.


In demand management, customer demand is continuously gathered,compiled and renewed in order to match our supply capability withrequirements in the market.

DemandManagement


11/261

Fulfilment Process

! Customer need dates and requirements drive

the process.

! Manufacturing, distribution, and transportation

plans are integrated.

! Strategic alliances with channel partners and

carriers are formed to meet requirements and to

reduce total-delivered-cost of the product to

customers.


Customer orders that are 100% on-time, accurate, and complete require anintegrated supply and delivery system that is responsive, flexible andcustomer-driven.

Fulfillment


12/261

Manufacturing Flow

Management Process! Production must shift from a supply/push method

of operation to a demand/pull method based on

customer needs.

! Manufacturing processes must flexibly respond to

market changes with rapid changeover capabilities

for mass customisation.

! Minimum lot sizes are planned to move toward a

make to order environment.! Production priorities are driven by required delivery

dates.

! Specific supply strategies are developed for each

customer segment.


Rapid response to changing market conditions implies maximum flexibility

in production planning and manufacturing capabilities.

Manufacturing Flow

Management


13/261

Procurement

Procurement Process

Relationships with major suppliers are corporately managed in strategicalliances while purchase order transactions become simplified andintegrated with the supply process.


! Strategic plans of suppliers and company are

aligned to focus resources on holding down costs

and developing new products.

! Supplier categorisation and management is

implemented on a corporate global basis, with

purchasing in a strategic contracting role.

! Purchase order transactions are integrated with

the supply process to improve productivity and all

areas of supplier performance.


14/261

SUPPLY CHAIN NETWORK STRUCTURE

Members of the Focal Companys Supply Chain

n

2

3

1

2

1

1

n

2

1

3

n

1

21

n

2

n

1

2

n

1

Tie

r3

ton

cus

tom

ers

Consumers/E

nd-customers

n

Tier

3

tons

uppliers

InitialSupp

liers

Focal Company

Tier 1Customers

Tier 2Customers

Tier 3 toConsumers/

End-CustomersTier 2

SuppliersTier 1

Suppliers

Tier 3 toInitial

suppliers

n

1

n


15/261

2) What processes should belinked with each of these

key supply chain members?

1) Who are the key supplychain members with whom

to link processes?

3) What level of integration andmanagement should be applied

for each process link?

Supply ChainBusinessProcesses

Supply ChainNetworkStructure

Supply ChainManagementComponents

SUPPLY CHAIN MANAGEMENT FRAMEWORK:

Elements and Key Decisions

Source: Douglas M. Lambert, Martha C. Cooper, and Janus D. Pagh, Supply Chain Management: Implementation Issues and Research Opportunities, TheInternational Journal of Logistics Management, Vol. 9, No. 2, 1998.


16/261

Managed Process Links

Monitor Process Links

Not-Managed Process Links

Non-Member Process Links

n

2

3

1

2

n

1

1

n

2

1

3

n

n

1

1

21

n

2

n

1

2

n

1

n

1 n

Tier 1Customers

Tier 2Customers

Tier 3 toConsumers/

End-CustomersTier 2

SuppliersTier 1

Suppliers

Tier 3 toInitial

suppliers

n

1

TYPES OF INTER-COMPANY BUSINESS PROCESS LINKS

InitialSu

ppliers

Ti

er3

tons

uppliers

Tie

r3

ton

cus to

mers

Consumers

/End-customers

Members of the Focal Companys Supply Chain

Non-Members of the Focal Companys Supply Chain

Focal Company


17/261

The Global Supply Chain Forum, The Ohio State University -- Do not reproduce, cite or quote without written permission.

Alternative 1) Integrate with and activelymanage Link 2.

Alternative 2) Monitor the procedures of

Company B and Company C for integratingand managing Link 2.

Alternative 3) Not involved, leave theintegration and management up toCompany B and Company C.

FocalCompany Company B Company C

Link 1 Link 2

THE FOCAL COMPANYS ALTERNATIVES FOR

INVOLVEMENT WITH LINK 2


18/261

SUPPLY CHAIN MANAGEMENT: THE DISCONNECTS

Tier 1Supplier

Tier 2Supplier

LogisticsPurchasing Marketing & Sales

R&D

CustomerConsumer/

End-Customer

CUSTOMER RELATIONSHIP MANAGEMENT

CUSTOMER SERVICE MANAGEMENT

DEMAND MANAGEMENT

ORDER FULFILLMENT

MANUFACTURING FLOW MANAGEMENT

PROCUREMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS

PRODUCT FLOWProduction Finance

Manufacturer

Information Flow


19/261

Company A Product Development Supply Chain

Customer Management

Company B Strategy Development Business Management

Market Development Product Development Manufacturing Capability Development Order Fulfillment

Company E Customer Relationship Management Customer Order Fulfillment Business Planning Manufacturing & Supply Product Development Procurement

Company D Business Process

- Marketing Planning- Prospecting- Exploring Needs- Developing Solutions- Decision- Presenting & Closing

- Delivering- Demonstration Results

Company F Supply Chain Account Planning

Company C Selling Process Customer Order Fulfillment

Manufacturing & Supply New Product Creation Procurement

REPRESENTATIVE BUSINESS PROCESSES

IDENTIFIED IN SELECTED CASE COMPANIES


20/261


21/261

AN ILLUSTRATION OF A SUPPLY CHAIN SHOWING EACH

INTEGRATED AND MANAGED BUSINESS PROCESS LINK

Product Development andCommercialization Process

Demand Management Process

Customer Relationship Management Process

Order Fulfillment Process

Not-Managed Business Process Link.

Focal Company.

Selected Members of the

Focal Company's Supply Chain.

Managed Demand Management Process Links

Managed Order Fulfillment Process LinksManaged Product Develop./Commercial Process LinksManaged Customer Relationship Manag. Process Links


22/261

AN ILLUSTRATION OF A SUPPLY CHAIN COMBINING ALL THEINTEGRATED AND MANAGED BUSINESS PROCESS LINKS

Managed Customer Relationship Manag. Process Links

Not-Managed Business Process Links.

Focal Company.

Selected Other Membersof the Focal Company'sSupply Chain.

Managed Product Develop./Commercial. Process Links

Managed Order Fulfillment Process Links

Managed Demand Management Process Links


23/261

IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT

Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminatethe functional barriers that artificially separate the process flows.

Information Architecture, Data Base Strategy, Information Visibility

Technical Logistics PurchasingFinance &

Accounting

Sales &

Marketing

BusinessProcesses

Typical

FunctionsSilos

Manufac-

turing

C

UST

OME

RS

DemandManagement

NetworkPlanning

CapabilityPlanning

SourcingDemandPlanning

CustomerRelationshipManagement

Requirements

Definition

Manufacturing

Strategy

Sourcing

Strategy

Customer

Profitability

Account

Management

Requirements

Definition

Customer ServiceManagement

PerformanceSpecifications

CoordinatedExecution

AccountAdministration

TechnicalService

Manufacturing FlowManagement

Production

Planning

Integrated

SupplyManufacturingProcess

Stability

FulfillmentDistribution

ManagementPlantDirect

SelectedSupplier(s)

DistributionCost

SpecialOrders

ProductDevelopment andCommercialization

ProcessSpecifications

MaterialSpecifications R & D Cost

ProductDesign

BusinessPlan

MovementRequirements

PriorityAssessment

CostTo Serve

TradeoffAnalysis

ProcessRequirements

EnvironmentalRequirements

Packaging

Specifications

Prioritization

Criteria

S

UPP

LIE

RS

ProcurementIntegratedPlanning

SupplierManagement

MaterialsCost

MaterialSpecifications

OrderBooking

InboundFlow

Cost


24/261

CHARACTERISTICS OF

SUPPLYCHAIN MANAGEMENT

! Strategy and policies shared acrosssupplychain

! Fully coordinated supply chain cash tocash

! Integrated business processes for entiresupply chain


25/261

THE MOVE TOWARDSTRADE MARKETING

To:To:

Building Stronger Partnerships Through Multiple LinkagesBuilding Stronger Partnerships Through Multiple Linkages

MIS

R&D

MKT

LOG

ACCT

MIS

R&D

MKT

LOG

ACCT

Customer Supplier

From:From:

Traditional Buyer/Supplier RelationshipTraditional Buyer/Supplier RelationshipMIS

R&D

MKT

LOGACCT

MIS

R&D

MKT

LOGACCT

Buyer Seller


26/261


27/261

FUTURE RESEARCH OPPORTUNITIES:

PROCESSES What are the operational definitions of the key business

processes and what are the relationships among the processes?

What are the relationships among the processes and thefunctional silos? What is the tolerance for sub-optimization?

How do you obtain buy-in from the functional areas in order toimplement a process approach within the firm?

How can the various participants in a company be encouraged towork toward a common goal? Marketing and manufacturingreward structures often tend to be counter to one another yet thefirm has overall profitability goals.

Does the answer lie in similar reward structures, rewards tied tooverall performance, or will process teams accomplish much ofthis?

Beyond internal integration, how does inter-organizational change

management be implemented?


28/261

How should the existing supply chain be mapped?

Should the map include all connected firms or only the value-adding firms?

Are there other means of determining who should and should notbe part of the supply chain map? For example, should only the

most critical members be mapped?

What are the implications for good SCM practice based upon theshape of the supply chain, that is horizontal structure, verticalstructure and focal company position in the supply chain?


SUPPLY CHAIN MAPPING


29/261


30/261

What metrics should be used to evaluate the performance of theentire supply chain, individual members or subsets of members?

What are the potential barriers to implementation and how shouldthey be overcome?

What characteristics of managing the supply chain are related tohigher performance of the supply chain, subsets of firms in the

supply chain, and the individual firms? Since the processes mayvary by link, these measures may need to be both processspecific and global.


METRICS


31/261

What is the process to take the map of the existing supply chainand modify it to obtain the best supply chain given the desiredoutputs?

How frequently should the supply chain structure be reviewed?What approaches could be used to perform the evaluation?

Which approaches are appropriate for different supply chainforms and situations?

How should the firm analyze the network to determine if there is abetter configuration?

How does building a stronger relationship with one member affect

the management time allocable to other members? Should a third party manage some relationships to free resources

for this closer relationship, which thus, changes the membershipof the network? Is it an iterative process?


NETWORK REDESIGN


32/261

What determines with whom to link business processes?

What are the steps to take to determine with whom to link?

What are the critical factors to the firm's success and that enablethe firm to link with specific companies?

What are the barriers to forming these relationships? Should thedecision process vary based on whether Tier 1 or Tier ncompanies are the focus?

For Tier n companies, what critical factors imply a closerrelationship of managed or monitored links to key members toassure supply, quality, and service?

What are the compelling reasons to have closer ties withcompanies beyond the first tier?


INTEGRATION


33/261

What determines the processes to link with these key members?

How should the firm decide which internal process to link withwhich suppliers and customers?

What decision criteria determine whose internal businessprocesses prevail across all or part of the supply chain?


PROCESS INTEGRATION


34/261

What determines the type/level of integration that should beapplied to each process link? It is important to provide firms withsome guidelines regarding what level of managementcomponents to apply to achieve the desired relationship andmanagement of a link. More components and/or a higher level ofeffort on a component may be required to achieve a desired levelof integration of a process link.

What constitutes a low level versus a high level of a specificmanagement component?

What is the relationship among the management components forsuccessful SCM?

Do changes in the physical and technical componentsautomatically require changes in the managerial and behavioralcomponents?

FUTURE RESEARCH OPPORTUNITIES:IMPLEMENTATION OF MANAGEMENT COMPONENTS


35/261


36/261

SUCCESSFUL SCM IS BASED ON DETERMINING:

Who are the key supply chain

members with whom to integrateprocesses?

What are the supply chain processes

to link with these key members? What type/level of integration should

be applied to each of these process

links?


37/261

LOGISTICS MANAGEMENT DEFINED

Counci l o f Logis t ic s Management (1986)

the process of planning, implementing and controllingthe efficient, cost effective flow and storage of rawmaterials, in-process inventory, finished goods, andrelated information from point-of-origin to point-of-consumption for the purpose of conforming to customerrequirements.


38/261

SUPPLY CHAIN MANAGEMENT

is the integration ofkey business processes

from end user through original suppliers, that provides

products, services, and information

that add value for customers

and other stakeholders.

[The International Center for Competitive Excellence, 1994][Global Supply Chain Forum, 1998]


39/261


40/261


41/261


42/261


43/261

Sub-Optimization

s Local optimizations result fromorganizations optimizing own resultsrather than the total supply chain.

s Systems approach is critical.s Performance measurements and

reward systems must be synchronizedwith supply chain objectives.


44/261

UCS Operations & Program S pport Vision


45/261

...Racing as a team for marketdifferentiation in supply chainmanagement.

UCS Operations & Program Support Vision

Partnering with our clients aroundthe globe, serving their needs forfuture success...


46/261


47/261

Computing History

s 1833 Charles Babbage developed a calculating machine with input, storage

and outputs 1848 George Boole's work on mathematics (Boolean algebra) is the basis

for all binary operations

s 1878 W. T. Odhner used pin-wheels for the next generation of mechanical

calculating machines

s 1886 Herman Hollerith (founder of IBM) had the idea of using punchedcards to keep and transport information

s 1886 Dorr E. Felt built the first successful key-driven (as opposed to dial)calculator

s 1891 William S. Burroghs invented the first robust calculating machine andstarted the office calculation industry


48/261


49/261

Burroughs Calculating Machines


50/261

Burroughs Calculating Machines

s

Small, portable - 25lbs.

s Square keys added

wings to thefingers

s Faster keying

1949

1920s

Elements in the Framework of


51/261

Supply Chain Management

BusinessProcesses

Supply Chain

Management

ManagementComponents

Supply Chain

Structure


52/261

Supply Chain Strategy

Manufacturing

TransformationStrategy

Logistics

Strategy

Product

Strategy

Demand

ManagementStrategy

MarketingStrategy


53/261

SupplierSupplier

PlantsPlants SupplierSupplier

OwnedOwned

WhsesWhsesCompaqCompaq

PlantsPlants

OrderOrder

FulfillmentFulfillment

CustomerCustomer

EDIEDI

ReplenishmentReplenishmentEDI JITEDI JIT

SignalsSignalsBTOBTO

SignalsSignals OrdersOrders

THE CUSTOMER PULLS PRODUCT THROUGH THE SUPPLY CHAIN

Supply Chain Strategy


54/261


55/261

Selecting Supply Chains

Company

Customer Customer CustomerCustomer

Supplier Supplier Supplier

A firms supply chain is much more like an uprooted tree than a chain

Not all supply chains are appropriate for ECR.

El t f S l Ch i


56/261

Elements of Supply Chain

Management

CustomerService

Management

DemandManagement

CustomerRelationshipManagement

OrderFulfillment

Procurement

ManufacturingFlow

Management

ProductDevelopment

andCommercialization


57/261


58/261

Customer Service

s

Single point of contact - one face to thecustomer

s Current information about the order

s Production and distribution status

s Product information


59/261

Demand Management

s

Synchronize flow of products andmaterials to customer demand

s Forecasting

s Reduction of variability


60/261

Manufacturing Flow


61/261

Manufacturing Flow

Management

s

Making products that customer wantss Flexible manufacturing


62/261

Procurement

s

Managing relationships with strategicsuppliers

s Not just bid &buy

s Should not be order placers

s Support manufacturing flow

management and new productdevelopment


63/261


64/261

Burroughs ComputersBurroughs built splendid machines attracted a

loyalty that surpassed even IBMs.What made the Burroughs computers so good was

the then-unique idea that the software people,

the programmers, needed to participate indesigning the computers from the beginning.

In most firms, engineers came first, programmers

second. Burroughs went much further than theother firms in bringing programmers in quickly.Source: Joel Shurkin, (1996). Engines of the Mind, pp. 273-274.


65/261


66/261

Planning & Control

s

Key to moving organization or supplychain in right direction.

s Joint planning

s Planning important during allevolutionary phases

s

Control is best performing metrics.

AVERAGE INVENTORY INVESTMENT UNDER


67/261

Inve ntory

Averagecycle

inventory

A. With variable demand

Ss(

afetytock50)

yAverageinve nto r(150)

200

100

8 10 20 30 40

Days

CONDITIONS OF UNCERTAINTY

AVERAGE INVENTORY INVESTMENT UNDER


68/261

Inve ntory

Averagecycle

inventory

B. With variable lead time

Safetystock(40)

Averageinventory(140)

200

100

10 20 30 40Days

12

CONDITIONS OF UNCERTAINTY


69/261


70/261

FACTORS INFLUENCING SAFETY STOCKS

Forecast error

Exposure to stockout

Lead time

Service level requirement

RELATIONSHIP BETWEEN INVENTORY


71/261

INVESTMENT AND CUSTOMER SERVICE LEVELS

75 84.1 90.3 94.5 97.799.9 100

675

728

780

850

1025

Service percentage

Inventoryinvestmentinunits


72/261


73/261

Organizational Structure

s

Is the organization designed to facilitateor hinder supply chain management ?

s Cross-functional teams.

s Interorganizational teams.


74/261


75/261


76/261

Product Structure

s How is new product introductioncoordinated across the supply chain?

s How does product fit with other other

products?s Product complexity


77/261


78/261

Power & Leadership Structure

s Channel captain

s Source of power


79/261

Risk and Reward Structure

s How are risks and rewards sharedacross supply chain?

s How are risks and rewards shared

through out the organization?s What are the risks and rewards?

s What should suppliers and customersrisk?


80/261

Culture & Attitude

s Compatibility of corporate cultures.

s How are employees valued?

s What are values of the firm?

Supply Chain Management as a


81/261

Strategic Weapon

s Finance companys Outsourcing for nearly 100 years

Process Focus versus


82/261

Traditional Functions

s Focus of every process is on meetingthe customers needs.

s Traditional functional approach does not

focus on meeting the customers needs.


83/261


84/261

Balanced Scorecard


85/261

Strategic Framework

Communicating&

Linking

Balanced

Scorecard

ClarifyingVision &

Strategy

StrategicFeedback

and Learning

Planning &TargetSetting

Product Development &


86/261

Commercialization

s Measuring development cost for new components

s Measuring development time for new componentss Determining component-level specs

s Determining new introduction plans for products

s Sharing component-level specs

s Determining new product introduction performance objectives

s Sharing estimated lifecycles for products

s Determining product-level specs

s Sharing new product introduction performance objectives

s Sharing new introduction plans

s Sharing product-level specs

s Measuring product quality

i l C i


87/261

Virtual Corporations

Brand Owner

Raw Material/Assembly

Supplier

HumanResourceServiceSupplier

Financial

ServicesSupplier

ManufacturerSupplier

LogisticsServices

Supplier

Marketing

ServiceSupplier

InformationServiceSupplier

Distributor


88/261

T i M i i M


89/261

Turning Metrics into Moneys What measurements should a supply chain

manager focus on?

s Which performance measurements best translateinto bottom-line achievement?

s For many managers, the measurements that are

used to determine their performance are notreally appropriate.

s Measurements are often developed for ease of

use and not really good gauges of success.

T diti l M t


90/261

Traditional Measurements

s Standard costing systems

s Management by variances can bethe enemy of good supply chain

management.

Shift


91/261

Shift

s Shift from treating financial (cost)figures as only foundation forperformance to one of a broader set of

metrics.s Long-term success is not just based on

profitability. Rather it is based on

adherence to principles.

Wh M t i T k ?


92/261

Where are Metrics Taken?

s Might not be good enough tomeasure within the firm.

s Measure entire supply chain.




CustomerCustomer


93/261

R d fi T k


94/261

Redefine TasksIn knowledge and service work, however, the first

questions in increasing productivity - and working

smarter - have to be, What is the task?What are we trying to accomplish? Whydo it all?

The easiest, but perhaps also the greatest,productivity gains in such work will come fromdefining the task eliminating what does not needto be done.

Source: Peter Drucker, The New Productivity Challenge, Harvard Business Review , November-December 1991, p. 4.


95/261


96/261

Frequency of Measurement


97/261

Frequency of Measurements Frequency of

reportedinformation shouldfollow operations

cycle.s Flood of data not

much better than a

drought.


98/261


99/261


100/261


101/261


102/261

Whiz-Kid Failure


103/261

Whiz-Kid Failure

s Organized,

systematic,measurement of thewrong things can

lead to the undoingof many years ofgood, hard work.

s Systems can bedangerous.


104/261


105/261

Oracle is not a Silver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver Bullet


106/261

Oracle is not a Silver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver Bullets Results from ERP implementations

mixed.

ss TrueTrueTrueTrueTrueTrueTrueTrue information integration is positive.

s Supply chain management personneloften lose functionality after ERPimplementation.

s Drains resource

s What will you get from Cornerstone?

Planning Systems


107/261

Planning Systems

s For aftermarket parts, planning systems

critical.

s Can take you down wrong path.

s Systems weakest link will drivebehavior.


108/261

Enterprise Resource Planning

PackagesP C


109/261

PackagesPros

s Links planning,

scheduling, andtransactions to financials

s Singular database

s

Links with customers/vendors of similar ERP

Cons Lacks functional demand

planning & scheduling

Very expensive when

modifications are needed

Implementation can takeyears

Packages: Baan, SAP, Oracle, DAI, American Software,

JD Edwards, D&B Software, PeopleSoft,

MarCam, Ross Systems, Daly & Wolcott

Enterprise Resource Planning

Systems


110/261

Syste s

s Motivation is from top management

s Many logistics managers believe thatthey have to give up functionality when

moving to an ERPs In-the-box versus Out-of-the-box


111/261

Process ChangeIt d t b fi h d th t t


112/261

gs It used to be a firm changed the systems to

match current business processes. Today,

many ERP installations have moved firmsto change business processes to matchthe new system.


113/261

Data Manipulation Tools


114/261

p

s Good supply chain managers do not

have to rely on IT to get data analysiscompleted.

s

Need to be able to use tools such as: Excel

Access

Planning tools


115/261

When the Priests arent Satisfied


116/261


117/261

Customer Perspective


118/261

CustomerAcquisition

Customer

Profitability

MarketShare

CustomerRetention

Customer

Satisfaction

Balanced Scorecard

FinancialObj ti


119/261

CustomerRelationships and

Measures

Vision &

Strategy

Objectives&

Measures

InternalBusiness

Processes

Learning

&Growth

Balanced Scorecard

Strategic FrameworkClarifying


120/261

Communicating&

Linking

Balanced

Scorecard

ClarifyingVision &

Strategy

StrategicFeedback

and Learning

Planning &

TargetSetting

Supply Chain ClassificationsMargin


121/261

Margin

High Low

LongLife Cycle

Products

Short

Life CycleProducts

Niche Commodity

Fashion

Inventory holding

costs are stable

Inventory holding

costs change overproduct life cycle

of product

Rolex Lumber

X-Mas trees,

DressesBread,

Dresses

What is the Value of

Integration?


122/261

s Identify Supply

Initiativess Quantify Impact on

Profits and/or

Capitals Quantify Impact on

Value

Economic Value Added

Net

Operating

Profit

AfterTaxes

Capital

Charge-

Economic

ProfitEconomic Value is created when a company deploys its

capital to create value in excess of capital costs

Profit > cost of capital

Economic Value Added


123/261

s Change in Economic Profit from year to

the next.s Economic profit

NOPAT capital charge

What is EVA?


124/261

s EVA = Return - cost of capital employed

s EVA is the value created by a business overand above the required rate of return oninvestors (Shareholders) capital.

s EVA is a business performance measure thatgives the total economic view.

s EVA is a decision making tool.

s EVA links business planning/performancewith required shareholder return.

EVA Best Explains Changes in

Stock Market Value


125/261

Earnings per share 18%

Cash flow 22%

Return on Equity 35%

EVA 50%

Management of the Capital (Assets)

Invested in the Business is as Critical as the

Management of the Cost.


126/261

s Capital includes the assets employed in

running the businesss Working Capital includes Cash,

Inventory, Receivables, Payabless Fixed Assets include Land, Buildings,

Equipment, Vehicles

Logistics EVAs Will generally be negative is considered


127/261

independently from revenue generation.

No revenue/no profit Operating expenses

Major capital investment required in fixed assets andlease commitments

s Logistics must be part of the business designthat creates EVA within the business unit.

Provide the logistics solution

Minimize costs to maximize profits

Minimize asset investment/Maximize assetproductivity

Logistics Can Be A Major

Contributor to EVAImprovement


128/261

ps Cost

s Services

s Asset Management


129/261


130/261

Benchmarking


131/261

Flow SubstitutionsInformation


132/261

Inventory

Information

Finance

Source: Professor Hau Lee, Stanford University

Forecast improvements,signaling

Consignment, credit terms, return policy

Pricing, deals, data sales

Perfect Quality is Defined by

Whom?s When is the order frozen?


133/261

s When is the order frozen?

s Speed of information versus speed ofmanufacturing

s Quality of product includes customer

satisfaction

Formalizations Group members

l l d t d


134/261

clearly understand

culture and missions Understand

positioning

s Rules & proceduresgive freedom

Supply Chain MeasurementsArea Measurement TypeService Fill rate linear

Cost Logistics cost linear


135/261

Productivity Asset/Utilization Inventory linear

Productivity Asset/Utilization Recycling linear

Productivity Asset/Utilization Throughput number of items sold linearTime Response time linear

Time Cash-to-cash linear

Time Operating expense cost to convert inventory to

throughput

linear

Productivity Asset/Utilization &

Service

ROA with 100% customer satisfaction linear

Service & Time Order aging curve curve

Service & Time Line fill rate by time curve

Value Economic profit linear


136/261

Service Defections

Wh t i th t f l i t ?


137/261

s What is the cost of losing a customer?

s What is the cost of a lost sale?

s What are defectors telling you?

s Watch the doors Do you have a Zero defections

culture?

Performance vs. Variety vs.

Lower CostLower Cost


138/261

Performance Variety

New Model of Service

s Value investments in people as much as investments


139/261

s Value investments in people as much as investments

in machines, and sometimes more.s Use technology to support efforts of men and women

on front lines - and not just to monitor or replacethem.

s Make recruitment and training as crucial forsalesclerks and housekeepers as for managers andsenior executives.

s

Link compensation to performance for employees atevery level, not just for those at the top.

Design for .s DFM - Design for Manufacturability

s DFSCM - Design for Supply Chain


140/261

s DFSCM Design for Supply ChainManagement

s DFR - Design for Responsiveness

s Design for Postponement

s DFRL - Design for Reverse Logistics

Even

s DFS - Design for Service

Design for Service

s Put customers first s Expanding IT


141/261

s Put customers first.

s Focus on where andhow customersinteract with

company.s Value strategy

s Flattened

organization

s Expanding IT

systemss Shifted from

Manufacturing to

assembly.s Concentrate on

customers.

s Selective hiring &liberal training.

Design for Responsiveness

StagesActivity Transactional Interactive Interdependent

Info Sharing Information ond d

Some sharing of process

i f i

Extensive sharing of

i f b h


142/261

component and product

specs shared

information process info at both

strategic and tactical

levelsDecision Making Design decisions made

independently

Some collaboration with

partners to influence

des ign choices

Supply chain structures,

component specification,

and detailed design

developed by consensus

and negotiation between

partners

Performance

measures

Performance measures

by product development

not related to supply

chain performance

Some use of

performance measures to

track time-to-availability

and total lifecycle costs

Extensive use of

performance measures

tied to sharing of

rewards and risks

Technology Separate designdatabases and systems

Some sharing of

analytical tools and

accounting databases

Extensive use of

technology to facilitate

fast decision-making


Service Guarantees


143/261

s Commit to error-free service.

s Unconditional

s Easy to understand and communicate.

s Meaningful

s Easy to invoke.

s Easy to collect.

Customer Service Dimensions

s Care and concern - employee friendliness


144/261

s Care and concern employee friendliness,

courtesy, and warmth.s Initiative - employees ability and willingness

to jockey the system on customer behalf.

s Problem solving - figuring out solutions tocustomer problems whether unusal orroutine.

s Recovery - going the extra yard.

Cost of Lost Customer

s Costs 5 times more to replace a


145/261

s Costs 5 times more to replace a

customer than retaining one.

Service Recovery

s Measure the costs of service recovery.


146/261

s Measure the costs of service recovery.

s Break the silence.s Anticipate needs for recovery.

s Act fast.

s Train employees.

s Empower the front line.

s

Close the loop.s Brilliant recoveries.

Order Management Cycle

OrderGeneration

Order Planning,Sales

forecasting,Capacityplanning

PostSales

Service


147/261

OrderSelection

andPrioritization

OrderReceipt

andentry

CostEstimation

andPricing

Scheduling

OrderFulfillment

Billing

Returnsand Claims

Relationships Between

Competitors

conflict


148/261

s These c ha rac teriza tions c an be thought

of as a c ontinuum tha t ranges fromc onflic t as the most competitive mod e to

c ollusion where there is a tota l absenc e of

competition.

conflict

competition

coexistence

cooperation

collusion

Identifying a service strategy

s What attributes of service are - and will


149/261

at att butes o se ce a e a d

continue to be - most important to ourtarget markets?

s On which important service attributes isthe competition weakest?

s What are the existing and potential

service capabilities of our company?

Defining a service strategys What are the companys integral service competencies? What are

the critical knowledge and skills that define and drive the firm bothphilosophically and practically?


150/261

p p y p y

s What are the companys service incompetencies? What are theknowledge and skill weaknesses?

s What are the companys resource strengths and weaknesses?Finances, facilities, technologies, human and other resources

s

What is the companys service reputation? How do customers,noncustomers, and employees view service performance?

s What is the companys belief system? What is valued in theorganization? What is the companys core culture?

s

What is the companys service strategy? What is the reason forbeing today?

Service Checklist

s Is our service strategy clear & compelling to all of ouremployees?

s Does our service strategy deliver genuine value to customers?


151/261


s Does our service strategy emphasize excellent service quality?

s Do we live our service strategy in this company?

s Does our service strategy demand superior achievement?

s Does our service strategy differentiate our company from

competitors?

s Do we reinforce our service strategy with explicit servicestandards that guide and energize employees?

s Do we reinforce our service strategy with appropriate symbols?

Push/Pull Boundary


152/261

Suppliers Manufacturing Distributor Retailer

Push/Pull Boundary

Postponement is the delay of the point of productdifferentiation to a point further downstream in the

supply chain.

Profitable Customers

s Up to 70% of a firms typical customers


153/261

p yp

are not at all profitable.s At a pharmaceutical distributor, only

30% of customers were profitable.

Top 30% generated 261% of the profits

Top 10% generated 151% of the profits

Remaining 70% lost 161% of top 30 profitsSource: Hope & Hope, (1995) Transforming the Bottom Line. Harvard Business School Press

Real Costs of Inventory

s At other electronics firms, inventory is a


154/261

serious concern to managementbecause real costs have been growing.

s Do we know what real costs of inventoryare?

Life-Cycle Management


155/261

s Selecting & implementing supply-chain

management strategies appropriate tolife-cycle stage.

Electronics Product Life Cycle

4


156/261

42

Development Volume Shipments End of Life

Life Cycle Support

Chasm


157/261

Inventory Carrying Costs

s consist of expenses such as:


158/261

cost of money, insurance,

taxes,

shrinkage,

warehousing, and

obsolescence.

Inventory Driven Carrying

Costs100%

Product

Salvaged


159/261

Time

50%

0%

Product

Introduction

And Volume

Sales

Product

Obsolescence

BargainBasement

Discounts

Product Responsibility Curve


160/261

Product Life Cycle

Product Responsibility Curve

BirthEnd of Life

End ofResponsibility


161/261

Supply Chain ChallengesIncreasing

Product Variety

InformationDistortion(Bullwhip Effect)

Logistics

Complexities

Geographical Increasing demand Complex global


162/261

Geographical

marketpreferences, localgovt regulations

Increasing demand

variability upstreamin supply chain

Complex global

supply chains withmultiple sites, flows,borders, modes

Diverse customer

preferences

Beer-game,

whiplash effect

Complexities in

labor management,laws, cultures

Short & overlappingproduct life cycles

What you see is notwhat they see

Bullwhip impactworsens with longcycle times


Symptoms: Curses & Paralyses

Variety Proliferation

InformationDistortion

Logistics

ComplexityForecastingnightmare

Inventory piling up Long lead times


163/261

High mfg cost Service degradation High Logistics costs

High inventories Wasteful resources Excessive overhead

Poor customer

service

Poor capacity

planningHigh obsolescence Inefficient scheduling& transportation

High product support& service costs

Misinformed marketvalue


LEAP (Leading Edge Advanced

Procurement)s Total cost of ownership


164/261

s Facilitate virtualizations ERS - Evaluated Receipt Settlement -

pay in X days after receipt of goods

s Life cycle management

s Supply chain integration

s Eliminate transaction processing

s Web-based procurement (Ariba, etc.)

Invoice Payment

s In Europe, shared services center


165/261

processes 200,000 invoices/years Soon to be 350,000 invoices/year

Types of Organizational

Problemss Technical - routine or possibly expert


166/261

methods exist.s Adaptive - routine methods do not exist

and challenge is to effectively mobilize

community to solve the problem.

s Hybrid - problem requires a combination

of technical and adaptive leadership tobe solved.


167/261

Solving Problems

Action Technical or Routine Adaptive

Direction Define problem Identify adaptivechallenge


168/261

Protection Shield org from threat Let org balanceexternal pressures

Orientation Clarify roles torespond

Challenge currentroles and resistpressure

Managing Conflict Restore order Expose conflicts

Maintain Norms Maintain norms,social network

Challengeunproductive norms;modify social network

Source: Dr. Corey Billington, Hewlett-Packard

2,000/200,000 Problem

s At Ford, FCSD buyers looking for 2,000


169/261

parts with many special requirementswhile Assembly plants want 200,000with less hassle to the supplier.

s Purchasing job much tougher.

s Must emphasize other issues besides

cost savings.s Creativity required.


170/261

Computer Business Increasingly

Complex & Competitives Technology

Rapid Innovation

Differentiated to commodity

s Product

Multiple channelstructures


171/261

product

Short product life cycles

30% reduction per year inresale value

Demand distortion

Collapse of the middle

s Customer

Increasinglysophisticated

Demanding uniqueconfigurations

Product proliferation

s Supply Chain

Transition from vertically-integrated to network

structure Globalization

Concentration of suppliers

Integration Opportunities

s Compress supply chain structure

s Collaboration planning forecasting &

l i h


172/261

replenishments Joint capacity planning

s Product development is an integration

opportunity

Integration Opportunities

s Compress Supply Chain

Internal postponement

E t l t t

s Collaboration, Planning,Forecasting & Replenishment

C ll b ti d d l i


173/261

External postponement Sales agent

Direct

Collaborative demand planning Synchronized order fulfillment

& replenishment

Joint capacity planning

s Product Development is IntegrationOpportunity

Supply Chain structural analysis

Design for postponement/manage

product variety

Use standard & intergenerational parts &suppliers

Demand Plannings Today, distributors build financial plans which drive

category and assortment planning, driven by saleshistory.

M f t b ild fi i l l b d k t


174/261

s Manufacturers build a financial plan based on marketdemand and / or account projections that driveproduction planning.

s These processes all affect the ability to execute atshelf level, yet the business processes and systemsare not integrated.

s The lack of integration creates natural disconnects inthe supply chain causing excessive response times,costs and inventory.


175/261

CPFR Critical Metrics

s Results-orientedmetrics

Out of stock on store

shelf

s Process-orientedmetrics

Order forecast

accuracy


176/261

shelf Inventory turns

consolidated acrossvalue chain

Total value-chain cycletime

Sales forecastaccuracy

Profitability Return on assets

accuracy Order fill rates to each

inventory holdinglocation

Cycle time for eachprocess activity

Process cost

Collaborative Planning,

Forecasting, & Replenishments Method to improve alignment of supply and demand.


177/261

Supply-Demand MismatchShort product life

cycles

Product shortages

Independent planning

& execution decisions

Supply-Demand AlignmentShared forecasting &

demand

Synchronized order

fulfillment

Joint capacity planning

s Supply-Demand alignment can significantly impactbottom-line.


Forecasting, & Replenishments In Stanford University study, collaborative planning is

estimated to reduce each segment of the PC industry

inventory investment 10 to 25 percent and increase


178/261

inventory investment 10 to 25 percent and increaseEVA from $135 to $330M.

s Turns improve 33%

Source: Andersen & Stanford CDDN Study, 1997.

Collaborative Plannings Forecasting, order fulfillment and capacity planning

are opportunity areas within Collaborative Planningthat partners are using to improve supply chain

performance


179/261

performance.Forecasting

SynchronizedOrder

Fulfillment

JointCapacityPlanning

Collaborative Planning Stages

Activity Transactional Interactive InterdependentInfo Sharing Minimal info shared for

demand forecastingSome sharing of demandinfo (e.g., historical

sales, forecast

assumptions)

Extensive sharing ofdemand and promotional

info

Decision Making Demand forecast Some collaboration with Demand forecast


180/261


Decision Making Demand forecastdeveloped independent

of partners

Some collaboration with

partners to influence

demand forecast

Demand forecast

developed by consensus

and negotiation among

partners

Performance

measures

No performance

measures used

Some use of

performance measures to

track forecast accuracy

Extensive use of

performance measures

linked to shared risks

and rewards among

partners

Technology Limited use oftechnology

Some use of EDI to

share/transmit demand

info

Extensive use of

technology including

EDI, web, demand

planning tools


Forecasting, & Replenishments Improves alignment of supply & demand

s Moves firm from transactional toi d d i i i


181/261

s Moves firm from transactional tointerdependent activities

s Positive bottom-line impact

s Large value creation resulting fromsynchronization and fewer assets

Integration Issues

s Some passive interfaces, but very little

true integration


182/261

true integration.s Where there are points of integration,

these points often allow no reaction time

to correct divergent paths to the extentof satisfying consumer demand.

Integrate Business Processess Jointly managed business processes must be defined.

Leverage the competencies, systems and resources of each tradingpartner

Facilitate collaboration on planning , forecasting, and replenishment


183/261

p g , g, p

s Standards for the sharing of information (data formats)must be defined to facilitate the collaboration process.

s Methods of integrating results of collaboration intooperational systems of both the distributors and suppliersmust be developed.

s

Key performance measures for joint, co-managed supplychain activities must be defined and agreed upon.


184/261

Aggregate Forecasting &

Replenishments Data aggregated to product family or

brand level by week or month byi


185/261

brand level, by week or month, byregion

s Data inaccuracy hidden by aggregation

processs Conventional DRP or push-based

planning

Inventory Management MethodsBus

Plan

Aggregate

Forecasting

Vendor Managed

Inventory

Jointly Managed

InventoryAssembleData

Syndicated data &historical sales

POS, whsewithdrawl data,,syndicated data

POS data byproduct, store &week

Sales

Forecst

SF at high level of

detail

Product,Cus DC, by

week

Store level by week

by product


186/261

Orderforecast

Focus on mfgsupport within firm

Focus on retailerDC by invenotry &cost targets

Time-phasedreplenishment ofstores & all DCs

OrderGen

Retailer assumes100% fulfillment

Pull from storereplenishment orconsumer dmd

Either party basedon store level salesthat are timephased

Order

Fulfillment

Available at

supplier DC

Priority to VMI

customer fromsupplier DCs

From DC or mfg

depnding onintegration plan

Source: CPFR Draft, 1/98

Compressed Supply Chain

s May change which firm or organization within thefirm own sales and customer relationships

s May change which firm or organization within thefirm own order fulfillment and final configuration


187/261

firm own order fulfillment and final configuration

s Reduces inventory investment

s Increases value by providing a clearer signal of

customer demands Greater flexibility through delayed product

differentiation

s Utilizes postponement

Internal Postponement

s Internal postponement reduces inventory investment bydelaying product differentiation and final configurationfrom traditional manufacturing site to internal

distribution centers


188/261

s Delays customization of finished goods and installationof the most expensive and fastest-depreciatingcomponents

s Delayed customization allows supply chain toaccommodate more demand variability with lessinventory

s Raw increases & FGI decreases resulting in overallreduction in inventory

Design Principles

s Process Design Principles

Keep the view of entire supply chain in mind...extend to the

process customers customer; suppliers supplier...


189/261

s Question everything.

Why is this process done at all?

Why is it done here?

Why is it done by that person?

Why is it done in this sequence?

Adding value or adding cost?

Is the customer willing to pay for it?

Product Development

s Opportunity to integrate supply chain

s

Improves procurements Firms that design products with supply


190/261

p ps Firms that design products with supply

chain performance issues in mind can

improve time to availability

Order Fulfillment StagesActivity Transactional

Interactive InterdependentInfo Sharing Limited to basic order

infoSome sharing ofinventory availability

and shipment info

Extensive sharing ofinventory, shipment and

sell-through info

Decision Making Independent orderdecisions Phantom

Demand

Some negotiation of

order decisions among

partners

Synchronized ordering

decisions driven by

shared replenishment

policies, channelinventory data and POS


191/261

inventory data and POS

data (VMI/JMI)

Performance

measures

Limited performance

measures

Some shared

performance measureslike lead times, on-time

delivery, and inventoryavailability

Extensive use of

performance measurestied to shared risks and

rewards

Technology Limited use oftechnology

Some use of technology

to track orders and

material flow

Extensive use of

technology to allow real-

time tracking or ordersand material and

automatic replenishment


Capacity Planning StagesActivity Transactional Interactive InterdependentInfo Sharing Limited capacity info Some sharing of

capacity info for

materials,

manufacturing, and

logistics resources

Extensive sharing ofcapacity info including

ability to flex up or

down

Decision Making Independent of partnersand reactive short-termcommitments

Some shared decision-making about material

contracts manufacturing

Extensive use of sharedcapacity decisions

characterized by flexible


192/261

commitments contracts, manufacturing

and logistics resources;

may include outsourcing

characterized by flexible

contracts, outsourcing,

and contingency

planning

Performance

measures

Limited to internal

partners

Some measures related

to reliability and quality

Extensive use of

performance measurestied to sharing of

rewards and risks

Technology Limited to internalpartners

Some use of technology

to share info like EDI

Use of transaction and

decision support systemsthat provide support for

capacity planning


Ten Dimensions of Service

QualityTangibles: Appearance of physical facilities, equipment, personnel, and

communication materials.

Reliability: Ability to perform the promised service dependably and accurately.

Responsiveness: Willingness to help customers and provide prompt service

Competence: Possession of the required skills and knowledge to perform theservice.


193/261

Courtesy: Politeness, respect, consideration, and friendliness of contactpersonnel.

Credibility: Trustworthiness, believability, honesty of the service provider.

Security: Freedom from danger, risk, or conflict.

Access: Approachability and ease of contact.

Communication: Keeping customers informed in language they can understandand also listening to them.

Understanding the Customer: Making the effort to know customers and theirneeds.

From: Zeithaml, Parasuraman, and Berry. (1990). Delivering Quality Service. New York: The Free Press

Predictions - 1994

s Information technology critical

s

Look for nichess Convergence


194/261

s Convergence

s Outsourcing will increase

s Focus Speed - Time-Based Competitions Prerequisite Service Quality

s Global Challenge

How has the Business changed

since 1994?s More sophisticated

s

Systems much bigger issues Getting into businesses that would not have 5


195/261

s Getting into businesses that would not have 5years ago

s International demandss Customers want more better, faster, cheaper

s Customers say they want to be more

integrateds Value-added services growing

New Value-Added Services

s Offerings that used to be value-added

services are now considered to be anormal part of everyday business


196/261

normal part of everyday business.

s New value-added services such as

inventory financing

Add Services that Enhance Core

Businesses and IncreaseCapabilities

q Understand Mission - Articulate Service


197/261

Philosophy

q Set Multiple and Measurable Objectivesq Assist Customer in Understanding

Possibilities

q Concentrate on Winnersq Benchmark

Long-Term Competitive Edge

s With rare exception, products cannot be thesource of long-term competitive edge.

s Superior products can usually provide only atemporary advantage


198/261

s Service-based strategies are more permanent

Market Share vs. Customer Share

TOTAL

9%

13%


199/261

" Often price-based

" Rarely establishes loyalty

" Easy to defect

28%

50%

Built on relationship withcustomers

Allows a more tailoredsolution

Increases switching costs

Understand Profits


200/261

q Know how profitable each customer

isq Know how profitable all your

Differentiate Customers, Not

Just Services

q Make sure all levels of firm knowyour customers.


201/261

you custo e s

q Determine which customers are

more valuable than others.q Make sure you know the value of

retaining each customer.

Share of Customer

q Identify potential customers

Basic servicesValue added services


202/261

q Link customers identities to their

transactions with youq Learn about your customers

businesses with competitors

q Collaborate with customers

Partnerships

s Some firms believe that they are involved in realpartnerships.

s To customers, partnershipping does not implyequality.


203/261

equa ty

s Honest disclosure of costs

s Co-manage productivitys Profit sharing

s Incentives


204/261

Satisfying Customerss Customers select third party logistics firms based on

customer service, knowledge, management strength,systems, location and price. While most customersstress issues other than price, reasonable cost isalways expected.

As value standards rise so do customer


205/261

s As value standards rise, so do customerexpectations. You can stay ahead only by moving

ahead.s Producing an unmatched level of a particular kind of

value requires a superior operating model - amachine- dedicated to just that kind of value.


206/261

1994 Selection FactorsFactor Mean Std DevService quality 6.44 0.98

Reliability 6.41 0.97On time performance 6.32 0.98Good communication 6.02 1.16Customer support 5.93 1.18Speed of service 5.90 1.04Flexibility 5.87 1.17

Management quality 5.83 1.14Willingness to customize service 5.67 1.17Order cycle time 5.66 1.31Price 5 65 1 20


207/261

Price 5.65 1.20Easy to work with 5.54 1.25Location 5.52 1.30Cost reduction 5.43 1.34Vendor reputation 5.40 1.28Special expertise 5.33 1.33Systems capabilities 5.09 1.36Personal relationships 5.02 1.47Technical competence 4.96 1.43Variety of available services 4.81 1.40

Early notification of disruptions 4.58 1.77Decreased labor problems 4.56 1.64Decreased asset commitment 4.55 1.49Increased competition 4.36 1.51Global capabilities 3.00 1.75

1999 Selection FactorsScale of 1 to 7

Factor MeanService quality 6.36Reliability 6.29On time performance 6.20

Price 5.98Flexibility 5.81Cost reduction 5 80

Factor MeanSpecial expertise 5.37Vendor reputation 5.34Easy to work with 5.33

Systems capabilities 5.30Technical competence 5.15Personal relationships 4 92


208/261

Cost reduction 5.80Management quality 5.78Speed of service 5.73Order cycle time 5.68Good communication 5.67Customer support 5.62Location 5.61

Customize service 5.53

Personal relationships 4.92Variety of services 4.86Early notification disruptions4.64Decreased assets 4.61Decreased labor problems 4.58Increased competition 4.32Global capabilities 3.08

Int erna t iona l demands

s 3rd par t ies have to

prepare to serve

internationalmarkets.


209/261

s Man y customers

wan t to move tofewer providers

Flexibility

s 3rd par t ies cannot easily define

themselves much anymore. Theyhave to be flexible, quick, and n imble.


210/261

Special Qualities of Services

$ Intangilibility

$ Inseparability


211/261

$ Heterogeneity

$ Perishability

Intangibility of Services

q Cannot be stored

q Cannot be protected

through patentsq Cannot be readily

displayed or

q Stress tangible cues.

q Use personal sourcesmore than non-personalsources.

q Simulate or stimulateword of mouth

Marketing Problems Marketing Strategies


212/261

displayed orcommunicated

q Prices are difficult toset

word-of-mouthcommunications.

qCreate strongorganizational image.

q Use cost accounting tohelp set prices.

q Engage in postpurchase

communications.

From: Zeithaml, Parasuraman, Berry. Problems and Strategies in Services Marketing. Journal of Marketing, (Spring 1985)

Inseparability of Services

q

Customer involved inproduction.

q Other customers

qEmphasize selection andtraining of public contact.

q Manage customers.



213/261

involved in production.

q Centralized mass

production of servicesdifficult.

q Use multisite locations


Heterogeneity of Services

q Standardization andquality control difficult toachieve.

q Industrialize service(standardizing certaincommon services).



214/261

q Customize service.


Perishability of Services

q Services cannot be q Use strategies to copewith fluctuating demand

Marketing ProblemsMarketing Strategies


215/261

inventoried. with fluctuating demand.

q Make simultaneous

adjustments in demandcapacity to achievecloser match between thetwo.


Relationships Between

Competitorsconflict

competition


216/261

s These c harac teriza tions c an b e thought of as a

c ontinuum that ranges from c onflic t as the mostc ompetitive mode to c ollusion where there is a tota l

absenc e of c ompetition.

coexistence

cooperation

collusion

Service Mapping

s Visualize the interaction of the customer and theservice system from the point of view of the

customer.s Insure that all aspects of the service system add

value to the customers experience of the service


217/261

value to the customer s experience of the servicewhich the company intends to deliver.

s Identify the points at which the service system mightbreak down, or otherwise fail to produce the intendedvalue for customers.

Service Map Format

Activities which can be directlyperceived by customers, including

customer interaction

Line of visibility


218/261

Activities which are invisible tocustomers

y

Service Process Fail Points

s Process does not add value to customers.

s Customer involvement does not supportservice concept.

s Inadequate integration between customer


219/261

s Inadequate integration between customerinvolvement and the service system.

s Operations infrastructure is poorly defined.

Does Not Add Value

s No clear vision of level of service

s

Vision not accepted totally within theorganization

N t ti it d i d ith


220/261

s Not every activity designed with

objective of service speed in mind

Customer Involvement Does

Not Support Service Concepts Interaction with customer is cluttered

s

Too many steps for customers Too complex


221/261

Inadequate Integration BetweenCustomer Involvement and the Service

System

s Poor communication linkages between

first line customer service providers andthe rest of the organization.


222/261

g

s

Potential customer needs notanticipated and integrated into theservice system

Operations Infrastructure IsPoorly Defined

s Systems and procedures overlycomplicated.

s System designed according to criteriawhich have little to do with meeting


223/261

which have little to do with meeting

customer needs.

Service-Profit Chain Audit

s How do we define loyal customers?

s Do measurements of customer profitability include

profits from referrals?s What proportion of business development

expenditures are directed to the retention of existing


224/261

expenditures are directed to the retention of existingcustomers?

s Why do our customers defect?

s Are customer satisfaction data gathered in anobjective, consistent, and periodic fashion?

s Where are the listening posts for obtaining customerfeedback in your organization?


s How is information concerning customer satisfactionused to solve customer problems?

s How do you measure service value?s How is information concerning customers

perceptions of value shared with those responsible


225/261

perceptions of value shared with those responsiblefor designing a product or service?

s To what extent are measures taken of differencesbetween customers perceptions of quality deliveredand their expectations before delivery?


s Do the organizations efforts to improve externalservice quality emphasize effective recovery from

service errors in addition to providing a service rightthe first time?

s How do you create employee loyalty?


226/261

s Have we made an effort to determine the right levelof employee retention?

s Is employee satisfaction linked to customersatisfaction with enough frequency to establish trends

for management use?


s To what extent are measures of customersatisfaction, customer loyalty, or the quality and

quantity of service output used in recognizing andrewarding employees?

s Do employees know who their customers are?


227/261


228/261

Service Laws

s First Law of Service

Satisfaction = Perception - Expectations

s Second law of Service

Its Hard to Play Catch-Up Ball


229/261

It s Hard to Play Catch Up Ball

Waiting


230/261

Waiting is frustrating, demoralizing,agonizing, time consuming, andincredibly expensive. Federal ExpressCommercial

Principles of Waiting

s Unoccupied time feels longer than occupiedtime.

s Pre-process waits feel longer than in-process waits.

s Anxiety makes waits seem longer.

s Uncertain waits are longer than known,finite waits.


231/261

s Unexplained waits are longer than

explained Fwaits.

s Unfair waits are longer than equitable waits.

s The more valuable the service, the longer Iwill wait.

s Solo waiting feels longer than groupwaiting.

Service Defections

s What is the cost of losing a customer?

s

What is the cost of a lost sale?s What are defectors telling you?

s Watch the door


232/261

s Watch the door

s Do you have a Zero defectionsculture?

Loyalty

s Loyalty integral to to firms basic business strategy.

s Economic benefits.

s Select the right customers.s Demand management

s Who can you deliver superior value to?


233/261

y p

s Customers build trust with employees - notexecutives

Loyalty Measures

s Understand cause-and-effect relationships betweenloyalty and profits.

s Retention rates Share of purchases

s Repeat purchases


234/261

s Referralss Customer acquisition costs

s Customer service employee retention

New Model of Service

s Value investments in people as much as investmentsin machines, and sometimes more.

s Use technology to support efforts of men and womenon front lines - and not just to monitor or replacethem.

M k it t d t i i i l f


235/261

s Make recruitment and training as crucial forsalesclerks and housekeepers as for managers andsenior executives.

s Link compensation to performance for employees at

every level, not just for those at the top.

Identifying a service strategy

s What attributes of service are - and willcontinue to be - most important to ourtarget markets?

s On which important service attributes is


236/261

the competition weakest?s What are the existing and potential

service capabilities of our company?

Defining a service strategys What are the companys integral service competencies? What are

the critical knowledge and skills that define and drive the firm bothphilosophically and practically?

s What are the companys service incompetencies? What are the

knowledge and skill weaknesses?s What are the companys resource strengths and weaknesses?

Finances, facilities, technologies, human and other resources

s What is the companys service reputation? How do customers,


237/261

p y p ,

noncustomers, and employees view service performance?s What is the companys belief system? What is valued in the

organization? What is the companys core culture?

s What is the companys service strategy? What is the reason for

being today?

Service Checklist

s Is our service strategy clear & compelling to all of ouremployees?


s Does our service strategy emphasize excellent service quality?

s Do we live our service strategy in this company?

s Does our service strategy demand superior achievement?

s Does our service strategy differentiate our company fromtit ?

Suppy Chain Mgt Intro

Documents

Transcript of Suppy Chain Mgt Intro