Chapter 1 Flashcards
SCM Typology
What is SCM in the broader sense?
cross company vertical cooperation in value chain
external supply chain
inter-organizational supply chain
activities: manufacturing/distributing complex products to customers
What is SCM in the narrow sense?
chain of suppliers/cross company value chain
customer driven/demand chain
internal supply chain
intra-organizational supply chain
activities: network processing of service/production
and utilization within company
What are the benefits of SCM?
GIFR
-Gain competitive advantage
-Improve quality, flexibility, reliability of delivery
-Facilitate seamless coordination & communication
-Reduction of costs & processing time
Why is SCM needed?
GIFR
-Global trade volatility
-Int. trade disputes & crises
-Flexible & expedient supply network
-Robust value creation process
What is depth of value added?
IVIS ->MBC
involvement->value creation-> internally/ outsourced->shifts
refers to the extent to which a company is involved in the various stages of the value creation process for its products and services. It indicates how much of the production and value-adding activities are performed internally and how much are being outsourced for external partners and suppliers.
In recent years there have been significant shifts on how companies approach this process. The shifts involve: core competence, value creation architectures
Make, Buy, Cooperate
Make= when a company performs most of the production process in-house. Including raw material processing, manufacturing, assembly, distribution.
Buy= when a company outsources many of its production processes and value-adding activities to third party suppliers and partners
Cooperate= when a company collaborates with other firms to perform value-adding activities. This can involve joint ventures, strategic alliance or partnerships. Reason = higher degree of success & goal achievement
What is the VRIO framework?
TED
tool->evaluate R&C->determine SCA
strategic analysis tool used to evaluate company’s resources and capabilities to determine their potential for creating sustainable competitive advantage.
Value Rarity Imitability Organization
Value- determine if respond to risks and opportunities (value can change over time e.g. technology)
Rarity- assess if resources unique & rare (if not competitive advantage is temporary)
Imitability- determine if difficult to imitate & substitute (if too costly then not considered imitable)
Organization-assess if company has necessary structures, processes, management systems
What is value proposition?
BED
benefits=VP -> effective collaboration in VCP=VP enhanced ->definition of collaboration
VP is the benefits offered by a company to its customers
VP is enhanced when companies (actors) collaborate effectively in the value creation process.
During collaboration, they can create innovative, high quality products/ services that offer greater value to customers.
During collaboration, activities activities are broken down into individual tasks & their interfaces are carefully managed to ensure smooth value creation
What are the metrics, motivation, types of cooperation
Metrics: NDiDeDuRACCCS
Number of partners: multilateral, bilateral, trilateral
Direction: horizontal, vertical, lateral
Degree of integration: full organizational integration, shared management (how tightly companies are bound together)
Duration: short-term, long-term
Range of decision making: decision making scope
Area: value adding activities scope
Competencies: complementary, redundant (skills provided by partners)
Commitment intensity: verbal agreement, majority equity participation (autonomy parties give-up)
Coordination: explicit, implicit
Spatial Dimension: local, global
Type: FIND
Form of Coordination: implicit (self-organization), explicit (central coordination body)
Intensity of ties: agreement type, contract, capital participation
Numbers of partners: bilateral, multilateral, trilateral
Direction of cooperation: horizontal, vertical, lateral
Motivation: MRRCTS (markets)
Market: enforcement of standards, overcoming market barriers
Risk: risk pooling, protection from take-overs
Resources: access to scarce production factors (capital, technology), knowledge exchange
Costs: synergy effect through pooling of tasks, outsourcing process optimization & streamlining
Time: shortening of product development cycles, faster response to environmental changes
System competence: complementary services for product portfolio, internationalization of knowledge
What is Otto’s SCM Typology?
Otto’s typology categorized supply chains according to concepts and challenges. The key concepts are value creation processes, group of companies and extended inter-company organizations
Value Creation Process:
This aspect focuses on value adding activities in production and service provision, and is related to Porte’s value chain concept.
Porter’s value chain:
Profit margin is the financial gain a company makes from its activities. The margin is the difference between the costs incurred in performing value activities and the market value of these activities. A company can increase its profit margin by optimizing these value activities to reduce costs or increasing market value. To assess contribution of individual value-adding activities Porter categorizes them into two main aspects.
Primary activities: the main activities in supply chain that directly contribute to creating and delivering product or service:
- Operations
- Marketing & sales
- Inbound/ Outbound Logistics
- Services
Secondary activities: provides necessary support to ensure that primary activities function efficiently
- Procurement
- Technology development
- HR management
- Firm infrastructure
Otto’s Value creation process
Value creation process deals with making or improving products or services through a series of planned and logical steps. These steps follow specific rules and timelines to ensure quality and efficiency. The system of systems model (SOS Model) helps organize these processes by breaking them down into three types of tasks: control tasks, operational tasks, service tasks
Control tasks: oversee and guide operational and service tasks to ensure that they align with strategic goals and perform optimally
- Planning
- Controlling & reporting
- Provision of resources
- Personnel management
Operational tasks: tasks that implement plans made within the framework of control tasks. They directly create value by transforming inputs to outputs. They influence competitiveness by linking activities, decisions, information and material together.
- Procurement
- Innovation
- Marketing & sales
- Order fulfillment
- Production
- Order processing
Service tasks: support tasks for management and execution of control and operational tasks, ensuring they run smoothly and effectively
- Logistics
- IT
- Personnel services
- Accounting & finance services
Group of companies:
Otto emphasizes on the important role of cooperation for companies to achieve common goals in supply chain processes. He highlights different institutions such as strategic alliance, joint ventures, consortia and networks.
Cooperation is needed because of a common customer orders, specific division of labor among the companies and integration into a vertically aligned network.
Strategic alliance:
-reason: variation in markets & market requirements
-definition: a formalized, long-term relationship with one or more companies.
-motivation: to compensate for their own weaknesses by cooperation, leading to long-term improvement of competitive position
-requirements: prescribed cooperative goals that outline legal & financial dependencies, institutionalized strategic leadership
Joint venture:
-definition: horizontal (cross-border) cooperation between 2 or more companies
procedure: set up dedicated new and independent business entity. Equity stakes are equal.
Consortia:
-definition: vertical and horizontal partnerships focused on completing specific tasks, usually limited to the duration of project and is governed by detailed contracts.
Networks
-definition: diverse cooperative business practices consisting of at least 3 partners with strong relationships & collective goal approach based on trust (rather than formal contracts)
-goal: competitive advantage
-characteristics: go beyond traditional business boundaries, beneficial for SMEs
Extended inter-company organization:
Otto suggests viewing companies as extended network that spans multiple companies. This shifts traditional idea of competition, which saw each company competing on its own to a new concept where various companies compete against each other. Modern customers demand personalized products that require complicated production processes, The traditional methods wouldn’t be handle complex production offerings hence requires reliable and flexible suppliers throughout the supply chain.
What is Bechtel’s Typology?
Bechtel and Jayram highlight that there is no consensus on the supply chain concept and identify multiple schools of thought.
FLIIF
Functional chain awareness school:
-focuses on a chain of functional areas from supplier to end user, emphasizing on the advantages of a holistic, cross-company view.
Linkage/Logistics school:
concentrates on logistical challenges and optimizing interfaces between chain members to reduce inventories and associated problems.
Information school:
centralizes the importance of information flow, emphasizing that consistent and continuous information is critical for supply chain functionality.
Integration (process) school:
highlights the importance of cross company process orientation, aiming to optimize through compression, acceleration or cost reduction to satisfy customer
Future school:
focuses on cooperation within supply chain and suggests replacing the term “supply chain” with “seamless demand pipeline” to reflect its cooperative nature.
What are the 2 dynamic effects in Supply Chain?
Bullwhip effect:
identified by Jay Forrester in 1950s, occurs upstream in a supply chain.
It demonstrates that small changes in consumer purchasing habits can cause major reactions in the supply chain ->significant demand swings in raw material.
The further back in the supply chain the stronger the effect.
Reasons: QLOPS
Quality allocation and bottle neck tactics:
-production bottlenecks are managed by distributing available quantities proportionally->
Customers may place extra orders to ensure they get what they need, anticipating bottlenecks.
Local processing of Demand Info: Each stage of the supply chain relies on the info from the next stage
->each actor prepares forecasts based on this info
->leading to delayed responses and inaccurate demand estimates->this creates a self perpetuating cycle of misjudgment.
Order bundling/Lotting:
orders from multiple periods are often combined to optimize processing ->leading to longer intervals and higher quantities of group orders -> group orders (packages&pallets) means suppliers can’t respond in real time.
Price fluctuations & quantity discounts:
Pricing strategies can cause customers to buy more than needed -> so current demand doesn’t match actual need. These patterns are recorded as “seasonal effects” in forecast.
Subjective misperception of information: optimistic assessments by customers or producers -> can lead to disproportionately high orders-> results in significant inefficiencies in an uncoordinated supply chain
Repercussions: RPL
Poorly utilized/overloaded capacities: fluctuating demand->leads to uncertain inventory levels->
making it hard to respond to actual customer needs.
Rising transport costs: fluctuating demand-> increases transportation costs.
Long lead times: fluctuating demand->extends lead times throughout the supply chain.
Clock speed effect:
-Occurs downstream in a supply chain.
-Innovation dynamics plays a significant role.
-The closer the supply chain actor is to the end consumer the higher the competitive density.
-It is challenging to find solutions. Developing new products takes longer and costs more, but the time to gain market advantage through innovation is getting shorter.
-A company’s success in a competitive market depends on how innovative its suppliers and other upstream partners are in the supply chain.
What are the actors in the broader sense of SCM?
crucial: SMRE
-suppliers
-manufacturers
-retailers
-end consumers
other: FLGS
-financial service providers
-logistics service provider
-government bodie
-stakeholders
What is the scope of narrow sense SCM?
PWPS
-procurement
-warehousing
-production
-sales
What is the scope of broader sense SCM?
SS PWPS RC
-sub-supplier
-supplier
-procurement
-warehousing
-production
-sales
-retail
-customer
What is vertical integration and examples?
high depth of value=high degree of vertical integration
where a company controls multiple stages of the supply chain, from materials to final product delivery.
low depth of value = less vertical integration
where companies focus on specific stages of production and relying on others suppliers for other stages.
CFR & SMTC
companies decide their depth of value added / vertcal integration based on strategic goals, core competencies, costs, flexibility, risk management,
changes can occur due to shifts in strategic focus, market conditions, technological advancements or competitive pressures
example:
QRM IFTH
Benetton: high depth of value added, high vertical integration
!!! high control over quality, faster response time, higher profit margins BUT requires significant investment in facilities, technologies and HR!!!!
CFC QSD
Gerry Webber=low depth of value added, low vertical integration
!!!! reduce costs, increase flexibility and focus on core competencies BUT less control over quality and supply chain disruptions!!!
