Value/Supply Chains and Management

Value Chain

(Wiki)

• History:
  • Concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.[1]
  • The French Physiocrat's Tableau économique is one of the earliest examples of a value chain. Wasilly Leontief's Input-Output tables, published in the 1950s, provide estimates of the relative importance of each individual link in industry-level value-chains for the U.S. economy.
• Definition
  • Firm Level
    • A chain of activities for a firm operating in a specific industry.
    • The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level.
    • Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of the independent activity's value.
    • Difference of cost and the value chain. The diamond cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond.
    • Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business, e.g. ISO 9001.
  • Industry Level (Supply Chain)
    • A physical representation of the various processes that are involved in producing goods (and services), starting with raw materials and ending with the delivered product (also known as the supply chain).
    • It is based on the notion of value-added at the link (read: stage of production) level. The sum total of link-level value-added yields total value.
• Characteristics of Value Chain
  • Coordination and collaboration
  • Investment in information technology
  • Changes in organizational processes
  • Committed leadership
  • Flexible jobs and adaptable, capable employees
  • A supportive organizational culture and attitudes
• Activities of a Value Chain
  • Main Activities
    • logistics
    • operations (production)
    • outbound logistics
    • marketing and sales (demand)
    • services (maintenance).
  • Support activities
    • administrative infrastructure management
    • human resource management
    • technology (R&D), and
    • procurement where The costs and value drivers are identified for each value activity.
• Significance
  • Used as Analysis Tool as part of Strategic Planning
  • Capturing the value generated along the chain
    • For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation.
    • By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system.
  • Driver of Lean Approaches to Maintenance
    • successfully used in large Petrochemical Plant Maintenance Organizations to show how Work Selection, Work Planning, Work Scheduling and finally Work Execution can (when considered as elements of chains) help drive Lean approaches to Maintenance
  • Tool for Change Management in Maintenance Value Chain
    • More user friendly than other business process tools.
  • Used in Development Sector
    • Value chain analysis as a means of identifying poverty reduction strategies by upgrading along the value chain.
    • Development practitioners have begun to highlight the importance of developing national and intra-regional chains in addition to international ones.[5]

Value Chain Frameworks

• Supply-Chain Operations Reference SCOR Framework
  • By the Supply Chain Council with over 700 member companies, governmental, academic, and consulting groups participating in the last 10 years
  • is a process reference model for supply-chain management, spanning from the supplier's supplier to the customer's customer.[3] It includes delivery and order fulfillment performance, production flexibility, warranty and returns processing costs, inventory and asset turns, and other factors in evaluating the overall effective performance of a supply chain.
  • de facto universal reference model for Supply Chain including
    • Planning
    • Procurement
    • Manufacturing
    • Order Management
    • Logistics
    • Returns
    • Retail
  • Product and Service Design
    • Design Planning
    • Research
    • Prototyping
    • Integration
    • Launch and Revision
  • Sales (congruent to the Porter framework)
    • CRM
    • Service Support
    • Sales
    • Contract Management
• Design-Chain Operations Reference (DCOR) framework
  • product design as a standard to use for managing their development processes.
  • process elements
  • vast database of standard process metrics aligned to the Porter model,
  • a large and constantly researched database of prescriptive universal best practices for process execution.
• Value Reference Model (VRM)
  • developed by the trade consortium Value Chain Group offers an open source semantic dictionary for value chain management encompassing one unified reference framework representing the process domains of product development, customer relations and supply networks.
  • The integrated process framework guides the modeling, design, and measurement of business performance by uniquely encompassing the plan, govern and execute requirements for the design, product, and customer aspects of business.
  • Next generation Business Process Management that enables value reference modeling of all business processes and provides product excellence, operations excellence, and customer excellence.
  • Six business functions of the Value Chain:
    • Research and Development
    • Design of Products, Services, or Processes
    • Production
    • Marketing & Sales
    • Distribution
    • Customer Service
• Relationship Based Model
  • by the The Global Supply Chain Forum (GSCF)
  • [http://scm-institute.org/Our-Relationship-Based-Business-Model.htm
• Process Classification Framework (PCF)
  • By the The American Productivity & Quality Center (APQC)
  • SM is a high-level, industry-neutral enterprise process model that allows organizations to see their business processes from a cross-industry viewpoint.
  • Used as an open standard to facilitate improvement through process management and benchmarking, regardless of industry, size, or geography. The
  • PCF organizes operating and management processes into 12 enterprise level categories, including process groups, and over 1,000 processes and associated activities.

Supply Chain

(Wiki)

• Definition
  • a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.
  • Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable.
  • Supply chains link value chains

Supply Chain Management

From (Wiki)

Definitions:

• (Harland, 1996)
  • Management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers .[1]
  • Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain).
• (APICS Dictionary)
  • "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally."
• (Mentzer et al., 2001)
  • Systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole .[2]
• Hines (2004:p76)
  • A customer focused definition "Supply chain strategies require a total systems view of the linkages in the chain that work together efficiently to create customer satisfaction at the end point of delivery to the consumer. As a consequence costs must be lowered throughout the chain by driving out unnecessary costs and focusing attention on adding value. Throughout efficiency must be increased, bottlenecks removed and performance measurement must focus on total systems efficiency and equitable reward distribution to those in the supply chain adding value. The supply chain system must be responsive to customer requirements." [3]
• (Lambert, 2008)
  • Global supply chain forum - supply chain management is the integration of key business processes across the supply chain for the purpose of creating value for customers and stakeholders .[4]
• Council of Supply Chain Management Professionals (CSCMP)
  • supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management.
  • It also includes the crucial components of coordination and collaboration with channel partners, which can be suppliers,intermediaries, third-party service providers, and customers.
  • In essence, supply chain management integrates supply and demand management within and across companies.
  • More recently, the loosely coupled, self-organizing network of businesses that cooperate to provide product and service offerings has been called the Extended Enterprise.

Characteristics of Supply Chain Management (Must solve these problems)

• Supply chain execution
  • means managing and coordinating the movement of materials, information and funds across the supply chain.
  • The flow is bidirectional
• Problems to be Solved
  • Distribution Network Configuration:
    • number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers.
  • Distribution Strategy:
    • questions of operating control (centralized, decentralized or shared);
    • delivery scheme, e.g., direct shipment, pool point shipping, cross docking, DSD (direct store delivery), closed loop shipping;
    • mode of transportation, e.g., motor carrier, including truckload, LTL, parcel; railroad; intermodal transport, including TOFC (trailer on flatcar) and COFC (container on flatcar); ocean freight; airfreight;
    • replenishment strategy (e.g., pull, push or hybrid); and
    • transportation control (e.g., owner-operated, private carrier, common carrier, contract carrier, or 3PL).
  • Trade-Offs in Logistical Activities:
    • Trade-offs may increase the total cost if only one of the activities is optimized.
    • For example, full truckload (FTL) rates are more economical on a cost per pallet basis than less than truckload (LTL) shipments. If, however, a full truckload of a product is ordered to reduce transportation costs, there will be an increase in inventory holding costs which may increase total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. These trade-offs are key to developing the most efficient and effective Logistics and SCM strategy.
  • Information:
    • Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, potential collaboration, etc.
  • Inventory Management:
    • Quantity and location of inventory, including raw materials, work-in-progress (WIP) and finished goods.
  • Cash-Flow:
    • Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain.
• Management Components
  • Planning and control
  • Work structure
  • Organization structure
  • Product flow facility structure
  • Information flow facility structure
  • Management methods
  • Power and leadership structure
  • Risk and reward structure
  • Culture and attitude

Activities/functions/ Processes of Supply Chain Management

Theories Related to Supply Chain Management

• Resource-Based View (RBV)
• Transaction Cost Analysis (TCA)
• Knowledge-Based View (KBV)
• Strategic Choice Theory (SCT)
• Agency Theory (AT)
• Institutional theory (InT)
• Systems Theory (ST)
• Network Perspective (NP)
• Materials Logistics Management (MLM)
• Just-in-Time (JIT)
• Material Requirements Planning (MRP)
• Theory of Constraints (TOC)
• Total Quality Management (TQM)
• Agile Manufacturing
• Time Based Competition (TBC)
• Quick Response Manufacturing (QRM)
• Customer Relationship Management (CRM)
• Requirements Chain Management (RCM)

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Supply Chain + Business Process Integration

• Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information.

• Customer service management and Customer Relationship Management process
  • concerns the relationship between the organization and its customers.
  • Customer service is the source of customer information.
  • It also provides the customer with real-time information on scheduling and product availability through interfaces with the company's production and distribution operations.
  • Customer relationships are built through:
    • determine mutually satisfying goals for organization and customers
    • establish and maintain customer rapport
    • produce positive feelings in the organization and the customers
• Procurement process
  • Strategic plans are drawn up with suppliers to support the manufacturing flow management process and the development of new products.
  • The desired outcome is a win-win relationship where both parties benefit, and a reduction in time required for the design cycle and product development.
  • Activities related to obtaining products and materials from outside suppliers involve resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers on matters of scheduling, supply continuity, hedging, and research into new sources or programs
• Product development and commercialization
  • customers and suppliers must be integrated into the product development process in order to reduce time to market.
  • As product life cycles shorten, the appropriate products must be developed and successfully launched with ever shorter time-schedules to remain competitive.
  • Managers of the product development and commercialization process must:
    • coordinate with customer relationship management to identify customer-articulated needs;
    • select materials and suppliers in conjunction with procurement, and
    • develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination.
• Manufacturing flow management process
  • The manufacturing process produces and supplies products to the distribution channels based on past forecasts.
  • Manufacturing processes must be flexible to respond to market changes and must accommodate mass customization.
  • Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency in meeting customer demand.
  • Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations.
• Physical distribution
  • This concerns movement of a finished product/service to customers.
  • In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g., links manufacturers, wholesalers, retailers)
• Outsourcing/partnerships
  • Outsourcing the procurement of materials, components and services that traditionally have been provided in-house.
  • The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage, and outsource everything else.
• Performance measurement
  • Taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can both be correlated with firm performance.
  • As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow.
  • Internal measures are generally collected and analyzed by the firm including
    • Cost
    • Customer Service
    • Productivity measures
    • Asset measurement
    • Quality
  • External performance measurement is examined through
    • customer perception measures
    • "best practice" benchmarking
  • The SCOR Supply-Chain Operations Reference model, developed by the Supply Chain Council, measures total supply chain performance.
• Warehousing management
  • As a case of reducing company cost & expenses, warehousing management is carrying the valuable role against operations. In case of perfect storing & office with all convenient facilities in company level, reducing manpower cost, dispatching authority with on time delivery, loading & unloading facilities with proper area, area for service station, stock management system etc.