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Supply Networks

Lean supply networks Toyota, Honda, Hero

Agile supply networks Nokia, Cisco, Motorola

Elements of process partnership relationships


Attitudes Trust Long-term expectations Joint learning Closeness of relationship Joint coordination of activities Joint problem solving Few relationships Sharing success

Multiple points of contact

Information transparency Dedicated assets Actions

Kankei Kaisha =dedicated supplier plants, Dokuritsu Kaisha = Independent supplier plants

Agile Networks

Multi -sourcing more prevalent Through agility in manufacturing facilities Through network flexibility
Multi -sourcing more prevalent Quick integration of suppliers (template based) Planned exit at end of contract period

Supply networks agility through change in supplier groups


Flow of Products/Services Flow of Information Upstream
Second-tier suppliers First-tier suppliers

Focal level

Downstream
First-tier customers Second-tier customers

SBU A

SBU B

Plant C

x x

x
Supply side of the network Demand side of the network

Various other supply chain flexibilities such postponement, modularization of products, and more customized products

Agile Supply Networks (NOKIA- India)


Design & Development Promotion & Sales

R
A W

C
U S T

M A T L S Flows of material, information, money, and knowledge


Plastics India Supplier

Finished Goods Manufacturing Distribution Warehousing Retailing

O M E R S After-Sales Support Service Centers

Materials Supply

Components Supply

Quick supplier integration and planned exit

Template based integration of suppliers

Supplier segmentation: identifying strategic suppliers

Network Theory

Network lifecycle: Initiation, Configuration, Implementation, stabilization, transformation/dissolution Network: Mission, Positioning, Resources, Business Model Organization: relationship with network

A Network Lifecycle model

Firms view of network management

Network Strategy

Aligning Firm view and Network view

The network view framework

IKEA network

IKEA network strategy components

Alkzo Nobel case : Lack table (Future Biz)

Becker Acroma case: IKEA - Network Exit

Toyota Supplier Networks

Supply Chain Management

Partnership relationships are seen as desirable because they can reduce the transaction costs of doing business

Investment in supplier relationships - some key facts

Elements of process partnership relationships


Attitudes Trust Long-term expectations Joint learning Closeness of relationship Joint coordination of activities Joint problem solving Few relationships Sharing success

Multiple points of contact

Information transparency Dedicated assets Actions

Types of supply relationship


Close few suppliers Long-term virtual operation Partnership supply relationships

Vertical integration

Type of inter-firm contact

Transactional many suppliers

Traditional market supply Virtual spot trading Resource scope The character of internal operations activity Do nothing Do everything

When is the use of pure market mechanisms appropriate in buyersupplier relationships?


Many Market mechanisms appropriate

Number of supply alternatives

Leverage market uncertainty

Leverage needs uncertainty

Market mechanisms inappropriate

Few

Resource dimension Low Cost of changing suppliers High

The supply chain

Make-or-Buy Decisions
No firm is an island: need for buying components Factors to consider for make buy decisions

Criticality of item under consideration Cost Capacity issues including industry capacity Strategic factors and competency building Technology trends and obsolescence

Make-or-Buy Example cost of manufacturing GE Company Cost of Making Part N900: Total Cost for Cost 20,000 Units per Unit Direct material $ 20,000 $ 1 Direct labor 80,000 4 Variable overhead 40,000 2 Fixed overhead 80,000 4 Total costs $220,000 $11
Another manufacturer offers to sell GE the same part for $10. Should GE make or buy?

Make-or-Buy Example

If the $4 fixed overhead per unit consists of costs that will continue regardless of the decision, the entire $4 becomes irrelevant. If $20,000 of the fixed costs will be eliminated if the parts are bought instead of made, the fixed costs that may be avoided in the future are relevant.

Relevant Cost Comparison


Make Total Per Unit Purchase cost Direct material Direct labor Variable overhead Fixed OH avoided by not making Total relevant costs Difference in favor of making $ 20,000 $ 1 80,000 4 40,000 2 20,000 10 $160,000 $ 8 $ 40,000 $ 2 0 $200,000 0 $10 Buy Total Per Unit $200,000 $10

Vertically Integrated Products make or buy the value chain design

Make-or-Buy framework

Make or Buy

Make or Buy

Make or Buy

The classic case _ The IBM PC

The classic case _ The IBM PC

The IBM PC value chain

Make-or-Buy framework

Make or Buy strategic considerations

Kraljics Supply Matrix

Kraljics supply matrix : Risk Impact Matrix

STRATEGIC SOURCING

Consequences

Very long lead time L1 syndrome (L1 is lowest bid) Dissatisfied users Poor exploitation of vendor potential and commodity knowledge Savings - meager, short term and may be negative - based on false or inappropriate comparison

GBI Exercise Roadmap


Check Availability

Purchase Requisition

Purchase Order

Run MRP

Procurement Process
Sales Order Entry

Goods Receipt

Pick Materials

Invoice Receipt

Payment to Vendor

Receipt of Payment
Post Goods Issue

Invoice Customer

Procure to fulfill customer order

STRATEGIC PROCESSES
Commodity strategy

PUSH SOURCING FOCUS UP

Professional development Procurement Planning

DRIVE ACTIVITY LEVELS DOWN


Fewer

Establish

TACTICAL PROCESSES
Supplier selection/management Contracting and leverage Materials management Market/supplier analysis spot buys Fewer invoices Fewer suppliers Less manual work Fewer stocked items

procurement planning process Redesign strategic sourcing process Create crossdivisional, crossgeography organization

TRANSACTIONAL PROCESSES
Order Management Accounts payable Inventory control/warehousing

Paradigm Shift

What is Strategic Sourcing


The twin dimensions of strategic sourcing
For commodities of medium spend & low criticality :

Rapid sourcing

Focuses on vendor consolidation And quick hit savings

For mega commodities : Focuses on optimizing total Supply chain costs sustained savings

Commodity study

Fords A/c payable process

Ford A/c payable process

Process Improvement

Best Practice : Total cost of procurement


Cost of goods Other costs*

Total cost of procurement Many suppliers competitive market Cost of goods Other costs* Total cost of procurement L T relationships with few suppliers (Lean manufacturing)

Elements of process partnership relationships


Attitudes Trust Long-term expectations Joint learning Closeness of relationship Joint coordination of activities Joint problem solving Few relationships Sharing success

Multiple points of contact

Information transparency Dedicated assets Actions