SC strategy and design Flashcards
- Strategy: What are the supply chain strategic choices while expanding abroad? (What do we mean about strategy?)
o - What is strategy, supply chain strategy, and where is it formulated?
o - Which strategic choices are the most appropriate for cross-border supply chains?
Ghemawat, 2007: If you only think about responsiveness and efficient you are constraint as you only think global (aggregation) vs. local (adaption). Another functional response to the challenge of cross-border integration: arbitrage.
These strategic choices are not enough for representing the variety of cross-border SC expansion decisions
Some companies are finding large opportunities for value creation in exploiting (exploiting differences across borders is in this article to make use of for example cheap labour and specialized skill in foreign countries), rather than simply adjusting to or overcoming, the differences they encounter at the borders of their various markets. When companies do exploit the differences across country borders, we increasingly see value chains spanning multiple countries.
Ghemawat argue that you should look at aggregation (economies of scale and scope – standardising), adaption (adapt to markets – local presents) and arbitrage (lower labour costs – exploitation of differences between different markets).
The AAA triangle
SC strategy is according to Ghemawat about cost vs. effectiveness…Operation, production and logistics at the functional level, but the three A’s are formulated at the corporate level
Aim of the paper
The paper provides a framework for choosing a globalization strategy. The strategies to choose from at the corporate level are Aggregation, Arbitrage and Adaption. The framework is called the AAA triangle.
Adaptation refers to a strategy where the company deploys a global strategy wherein it enters a new national market by starting local operations in that country and delivers a service or product that is customized for the local country.
Aggregation refers to a strategy where the company deploys a global strategy wherein the company tries to capitalize on economies of scale by replicating the success of its product or service from home country and tries to market this standardized product or service in the new country.
Arbitrage refers to a strategy where the company deploys a global strategy wherein, as the name implies, a company tries to distribute its production process into various locations worldwide depending on the competitive advantage its sees it can benefit from each of these locations.
Companies that do a lot of advertising will need to adapt to the local market. Those that do a lot of R&D may want to aggregate to improve economies of scale, since many R&D outlays are fixed costs. For firms whose operations are labor intensive, arbitrage will be of particular concern because labor costs vary greatly from country to country. By calculating these three types of expenses as percentages of sales, a company can get a picture of how intensely it is pursuing each course
→ In general, large corporate with presence in various countries use a combination of each of the above three strategies however it is critical to understand the complete framework of each of these strategies to effectively deploy them.
Most companies will emphasize different A’s at different points in their evolution as global enterprises, and some will run through all three. However, Companies benefit from focusing on one or two of the A’s. While it is possible to make progress on all three A’s –especially for a firm that is coming from behind – companies usually have to focus on one or at most two A’s in trying to build competitive advantage.
Hence, supply chain strategy is according to Ghemawat about cost vs. effectiveness, whereas operation, production and logistics are at the functional level.
Critique of the paper or critique in the paper
• Strategies are not mutually exclusive and will therefore overlap in practice. The author does not fully describe how this overlap will evolve in practice.
• Strategies are very broad and can be interpreted, implemented, applied in many different ways.
Global SC follows an arbitrage strategy
Global corporation follows an aggregation strategy
MNC typically follow a adaptation strategy
- Structure: What are the supply chain structural choices while expanding abroad?
o - What are the different structural options available to organizations that expand abroad? What is the difference between Global Supply Chains and MNCs?
o - Which structures are the most appropriate for cross-border expansion?
Rudberg and Olhager (2003):
Aim of the paper : This paper sets out to analyse manufacturing networks and supply chains to establish a foundation that can be used to integrate parts of the two research areas. The two research areas are examined based on two structural decision categories in an operations strategy i.e. facilities and vertical integration
Research on manufacturing networks has used an intra-firm operations management perspective, focusing on configuration and coordination of manufacturing sites. Manufacturing network research is mainly interested in the manufacturing nodes in the network and not necessarily in the transactions between them. Logistics research on supply chains has, on the other hand, mainly focused on managing material and information flows, as well as financial flows, between sites. Supply chain research is mainly interested in the links between the nodes in the value network.
The facility issues are closely related to the manufacturing network theory and the configuration of networks, whereas vertical integration policy areas correspond to supply chain theory and the coordination issues of the network
The traditional policy areas related to facilities are:
- Size: deals with capacity issues in terms of economies and diseconomies of scale
- Location: How to design the network of facilities, irrespective of the type of interdependence between facilities,
- Specialization/focus: Can be of two basic types i.e. product focus Process focus.
Vertical integration is discussed in terms of:
• Direction and extent (the boundaries of the firm and whether the organization should broaden (forward/backward integration) or narrow (outsource) the span of its operations)
• Balance (Deals with the resulting vertically linked activities, in terms of how dependent the suppliers and customers are on the firm, relative how dependent the firm is on its suppliers and customers. “Perfect balance” depicts the situation where one captive supplier produces 100 % of a firm’s requirements for a given part while the firm, in turn, consumes all of the supplier’s output.
• 4 different types of organizational structures
Configuration:
Value networks are examined based on two dimensions: the number of organizations within the system analysed, and the number of sites within each organization in the system. Based on these two dimensions, four different types of networks are defined
The type of coordination required is contingent upon how the network is configured:
• Plant: The need for coordination is extremely limited. Rather it is a question of utilizing the existing resources.
• Intra-firm network: Multiple sites that cooperate in sequence or in parallel, with a vertically or horizontally focused network, need to be optimized in order for the intra-firm network to reach its true competitive potential
• Supply Chain: Coordination is an important issue in a supply chain with multiple organizations, each participating with a single site. The typical coordination approach to such supply chains is synchronization
• Inter-firm network: (the most complex environment). The coordination problems are “beyond” optimization, and synchronization. The level of coordination in such an inter-firm network is typically reduced to harmonization; dealing with the coordination of the use of facilities, people, finance, and systems.
→ More sites/organizations → more complexity → more difficult coordination issues.
Another factor is the quality of available information for managers (which e.g. ERP systems can help to improve).
Figs.2 and 3 shed some light on the concept of outsourcing parts of an operations network. The outsourcing of a manufacturing stage in a previously internally controlled chain of operations implies a move from quadrant two to three → the ambition regarding the level of coordination is reduced from optimizing to synchronizing, i.e. a certain level of co-ordination imperfection is expected. Thus, it is likely that one or more competitive priorities, such as quality, delivery speed and reliability, cost and flexibility will experience reduced performance
Solutions addressed to the problem
- The paper presents a typology for the analysis of network systems resulting in four basic network configurations.
- Coordination of activities within the network is contingent upon the configuration, thus resulting in four coordination approaches.
- Strategic configurations: Which strategic configurations are best suited for the setup of cross-border business processes?
o - What are the different strategic configurations available in terms of supply chain business processes
o - Are these strategic configurations applicable in the cross-border context if so, which one is the best?
Configuration → A way to structure business processes
Fisher argue that you must think of the products you have i.e. functional vs. innovative in order to decide on which strategy to use i.e. efficient vs. responsive
You configure you SC to match your demand or product type
Efficient vs. responsive vs. agile vs. risk hedging (Lee, 2002)
Demand uncertainty and supply uncertainty → configure you SC to match both Supply and Demand characteristics of the market
Are globalisation and LEAN compatible?
• JIT delivery and low inventories
• Flexible manufacturing
• Close relationships with suppliers and customers
Probably not as we create slack (buffer, inventory)
Levy:
• Purpose of the paper: examination of the implementation of lean production in an international value chain
Conclusion:
• Lean production s difficult and expensive to implement in an international SC
• Lead times are longer and inventory levels higher in international supply chains compared to domestic examples.
• CCT (case company) used global sourcing strategy for finished computer system, but this made it almost impossible to implement JIT delivery
• However, CCT achieved some success in implementing Design For Manufacturability (DFM) and in achieving very high—quality levels (components of lean production) → it required significant investments in travel, communications and technology during early stages of new product introduction
Final conclusion:
• Lean production requires frequent, rapid flows of information and goods along the value chain, which is costly and difficult when value chain activities are geographically dispersed
• Sea shipment over long distances makes JIT impossible, air freight too expensive
• International communication is less effective due to time-zone differences, language and cultural barriers, lack of face to face contact
• Managers must take into consideration frequent disruptions along supply chain resulting in costly air shipments, high inventories or stock outs → striving at improving quality problems, delayed deliveries, engineering change orders, poor sales forecasts
Are globalisation and AGILE compatible?
• Firms that operate in complex environments such as international markets, face challenges in implementing the measures necessary to increase their agility.
o These challenges stem from the expense associated with the complex operations and management structures necessary to support the desired attributes”
Agility might neither be compatible to globalisation
Which one is the best for cross-border expansion, Lean or Agile?
For answering this question, see article with: Christopher, M., Peck, H. and Towill, D. R. 2006. “A taxonomy for selecting global supply chain strategies.” The International Journal of Logistics Management 17 (2): 277-287.
But if you think of lean and agile as strategy then it is possible
But what is the difference of having lean and agile as a strategy vs. lean and agile production facilities?
Christopher et. al. bring in Supply characteristics i.e. lead time and thereby they bring in characteristics of a global SC → so whenever you bring in time and distance then you can think about global SC
Aim of the paper
To address the question of supply chain design for global operations → We have to thing about the value-adding activities of the service/product
The paper provides a guide to select the appropriate global supply chain, based on two dimensions:
- Replenishment lead-times
- Predictability of demand.
“One size does not fit all”. Manufacturing strategy should be tailored to match the required order winning criteria of each market.
There are functional products with stable and predictable demand patterns and long lifecycles; and there are innovative products with unpredictable demand and short lifecycles → The goal is to minimise the risk from failed products while maximising the benefits from successful innovations, before margins fall due to competitors copying the product.
Example of mismatch
Global SC can be classified attending to:
• Products: standard and special.
• Demand: stable or volatile.
• Replenishment lead times: short or long.
Special products are those innovative (unstable demand) while standard are functional (stable demand) so we can combine products and demand types into a single dimension: predictability. Predictability and replenishment lead times create a matrix that is the base of this article. Hence, the resulting pipeline type should be match with the supply-demand characteristics of the product range and market characteristic.
The two approaches complement each other and ideally, a hybrid approach will be adopted. A firm can also separate the demand of a product into base and surge demand, and adopt a different SC strategy for each.
Because the strategy may change throughout a product´s life cycle, it is necessary to make a continuous assessment of the product range and market characteristics.
Findings
When choosing a SC strategy, it should be after a careful analysis of the demand and supply characteristics of the various products and markets that a firm serves.
Critique of the paper or critique in the paper
The case study focuses on apparel industry and research in other industries and especially within services would be beneficial to test the matrix created here.
