SUPPLY CHAIN

- Because fulfilling your value proposition and strategy depend on it

o How the Company delivers its strategy and value proposition
- The way your operations are able to meet the KSF while providing profitability
- Understanding the relationship between efficiency and responsiveness.

3 levels of analysis
• Operation level
• Supply network level
• Individual process
Why is supply chain important to strategy
- COSTS
- REVENUE
- RISK
- EFFECTIVE INVESTMENT
- BUILD CAPABILITIES

To satisfy the needs of the end customer.

• Each operation in the chain must contribute to the desired mix of:
• Quality
• Speed
• Dependability
• Flexibility
• Cost
• It has a “team” view for while every operation’s performance may be
adequate, the whole chain’s may be poor.

4 Vs
Right Supply Chain
- It´s All About Meeting Demand:
- Flow of Real Time Sales and Marketplace Information
- Speedy and Flexible processes that can respond to changes
- Speedy and Flexible Suppliers who can respond to changes
- Where to position inventory
- Good logistics
- Capacity to retrieve, analyse and act upon real-time data
-
AAA
- REDUCING THE RISK OF DISRUPTION IN SUPPLY CHAIN
o BY COLLABORATING AND REDESIGNING THE WAY YOU OPERATE
- Because the pace of change is increasing and so are market expectations

• Agile is about having the processes to react to short term occurences that change
our demand or supply
• Adaptability is about developing processes that allow the company to adapt over
time as market structures and strategies evolve.
• Objective of Adaptability: Adjust supply chain to accommodate market
changes.
• Create different supply chains for different products (like Zara does)
• For highly customised, low volume, short live cycle (and high margin)
products use vendors close to your main markets
• For standard, high-volume, long life cycle (and usually low margin)
products use manufacturers in low-cost countries

• Alignment is about making sure that the interests of all firms in the supply chain
ensure that the supply chain’s performance is optimised when each maximises its
own interests.
• Objective of Alignment: Establish incentives for SC partners to improve
performance of the entire chain.
•

Reduce risk and improve performance

1) Segment SC
• Zara: Responsive sourcing from high-cost nearby European locations and Low-cost
suppliers in Turkey and Asia.
• Choose depending on Volume, Product Variety and Demand Uncertainty
2) Regionalize SC
a. Impact of losing supply is restricted to affected region. E.g., when tsunami hit
Japan, plants world-wide were affected because they had no backup supplier.
b. Reduces risk of rising fuel prices
c. Reduces transportation costs by locating supplier/factories nearer.
3) Reduce concentration of resources
a. Having one supplier, centralizing inventory, resources, etc can reduce costs in
the short term.
b. Having common parts across product lines reduces costs.
 i. However it increases the costs of recurrent risks

AGILITY
• Continuously provide supply chain partners with data on changes in supply and
demand so they can respond promptly
• Collaborate with suppliers and customers to redesign processes and products that
give you a head start over competitors
• Finish products only when you have accurate information on customer preferences
• Keep a small inventory of inexpensive, non bulky product components to prevent
manufacturing delays

VMI = reduce information distortion

- Reduces lead time

How does Seven-Eleven implement the 3 As?

 Information systems to track demand changes, sales, customer profile.
 Dis-incentivise trucks to be late. Be late, pay penalty.
 Consolidated trucks.
 Cross-docking.
 Trust your partners. Save time by not verifying contents.
 Involve suppliers as you start in a new market.

Each A responds to a different need and are OUTCOMES of the processes implemented.
• Agile is about having the processes to react to short term occurences that change
our demand or supply
• Adaptability is about developing processes that allow the company to adapt over
time as market structures and strategies evolve.
• Alignment is about making sure that the interests of all firms in the supply chain
ensure that the supply chain’s performance is optimised when each maximises its
own interests.

FLEXIBLE (responsive)
- Better info, shorter lead time
- Source of good information
- Smaller MOQ improves capacity to plan
- Short lead times are more useful the higher the demand variability
- BUT!
o We have to be careful about where and how much to invest to increase this
capacity: diminishing returns
o In the absence of short lead-times, improved market information can help
-
OUTSOURCING
- Because it will allow you to focus on your core competences
- First: identifying what is core to your business
- Then: finding the right fit with an outsourcing partner
- WHEN to outsource?
o When the process is not-core (but how do you know what is and is not core?)
o When the process is very standard
o When they can do it better that us: DHL is responsible for all of LEGO’s
logistics in Europe
- Right partner
o Make an outsourcing decision based on strategic goals, not tactical urgency
 Chose a parner that has similar mentality
 Money making logic
 Approach to solving problems
o UNDERSTAND THEIR CAPABILITIES
 CARRY OUT DUE DILIGNECE
o Retain domain knowledge
o Design an exit strategy
o Communicate fully with current employees
o Build joint company-vendor teams
o Invest in robust selection process
o Define appropriate performance measures
o Provide the right incentives
o Assess insurance coverage
o COLLABORATIVE
- The Service Level Agreement can be useful to get out of a relationship, but not to
manage it.
- Define the incentive mechanisms to be put in place before the contract is written

CSR
 In order to be an integral part of the business, its measurement should be a business
performance practice.
 Where a company sits determines the type of CSR effort. The more upstream, the
more on CO2 reduction and compliance. The more downstream, mor on social value
and Brand reputation.
 Value creation should be the ultimate goal, rather that wealth redistribution.
 Companies’ beheviour is increasingly being dictated by societal expectations and,
thus, companies much engage these stakeholers.
 To have a meaningful impact, players up and down the value chain must be engaged
in the intitiatives, specially regarding carbon footprint.
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