Lecture 2 ©BHan_2022
EBU6609 Logistics and Supply Chain Management
TOPIC 2: SUPPLY CHAIN ORGANISATION – PROCESS THINKING
MS. BING HAN
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Learning Objectives
1. Identifyanddescribethechallengescreated
by functional thinking.
2. Discusstheanatomyofatypicalprocess. 3. Describetheflowsthatcompriseaprocess.
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Learning Objectives
4. Explaintheroleofsystemthinkinginprocess design and management. Discuss the requirements and impediments to system’s analysis.
5. Describethecompanyasaseriesofinteractive decisions made across functional boundaries and resources types.
6. Explainprocessreengineering,describinghowit can be used to design world-class processes.
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Process Management
It’s a shift from competing on what we make to how we make it.
– , President of CSC Index on the need for process thinking
Functional thinking limits cooperation and impedes creative thinking.
Process management promotes collaboration, facilitating customer satisfaction at low cost.
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Process Management
Process Management requires companies to:
1. Recognise the limiting nature of functional structures
2. Instil process thinking throughout the company
Process integration remains rare
◦ estimates less than 10% of companies
have made a serious and successful effort
Requires major changes to measurement, job design, management roles, and organisational structure
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Functional organisation
一Groups resources into specific departments which perform specific tasks to help the company achieve desired goals.
Research and Development – translates customer needs into tangible products. The goal is to design appealing, easy-to-make products with shorter concept-to-market lead times.
Purchasing acquires the right materials at the right price for use in operations. Sourcing’s goal is to select the right suppliers and then build the right relationships with them.
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Functional organisation
Production transforms inputs into a more highly valued and :desirable product or service. The goal: to use capital, energy, 三knowledge, and labour are used to build processes that make
Logistics moves and stores goods so they are available for use in operations or for sale to customers. Logistics seeks to leverage critical activities like transportation, warehousing, and order processing to make sure materials and products are where they need to be when they need to be at the lowest cost.
Marketing identifies customer needs and communicates to the customer how the company can meet those needs. Marketing’s objective is to perform a liaison role between the company and its customers.
low-cost, high-quality goods.
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(Dys)functional Behaviour Functional structures result in a failure to see beyond
the department level to the end user.
Decisions are made to achieve local, functional optimum without regard to impact on the remainder of the company.
Due to inherent conflicts between department goals and measurements, departments are compelled to take dysfunctional actions.
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Functional organisation Goals
Process Thinking
Process thinking aligns decisions with corporate strategy and coordinates actions across functions.
Each process consists of a set of flows and value-added activities.
{ ◦ Information Flow ◦ Physical Flow
◦ Financial Flow
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Value-Added Process – Development
Value-Added Process – Materials Acquisition
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Systems Thinking
Systems thinking is the holistic process of considering both the immediate local outcomes and the longer- term system-wide ramifications of decisions. It requires:
i1. A Holistic View
2. InformationAvailabilityandAccuracy
3. Cross-Functional and Interorganisational Teamwork
4. Measurement
5. Systems Analysis
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1. Holistic View
Managers do not see all of the interrelationships, nor do they understand all of the trade-offs that occur within organisations.
Process visibility is a prerequisite to systems thinking.
Holistic understanding of the system is more important when trying to coordinate the efforts of two or more companies.
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2. Information Availability & Accuracy
A tremendous amount of data must be collected, analyzed, and translated into knowledge before well-informed, holistic decisions can be made.
This is being facilitated by:
◦ Bar Codes and Radio Frequency Identification (RFID) ◦ Data Warehousing and Data-Mining
◦ Enterprise Resource Planning (ERP)
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3. Cross-Functional Teams
Company, department, or sub-unit loyalty can make holistic decision making difficult across the supply chain.
Cross-functional and Inter-organisational teams help to improve flow of information and builds trust between organisations and functional areas within organisations.
Co-location promotes spontaneous discussion and collaborative decision making.
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4. Measurement
Often times compensation, recognition, and reward systems are at odds with holistic long term decision making.
People will not make holistic decision when measured on local or functional outcomes.
Aligning measurement and compensation systems to support the organisation’s long term objectives is one of the biggest challenges companies face today.
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5. Systems Analysis
Systems thinking requires that companies and their employees understand their place in the larger chain. Therefore, the following must be addressed:
◦ Establish the Core Goal
◦ Define System Boundaries
◦ Determine Interrelationships
◦ Determine Information Requirements ◦ Perform Trade-Off Analysis
◦ Consider System Constraints
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Systems Analysis
Systems Analysis
Establish the Core Goal – to insure all participants efforts lead to the same outcome a well-thought-out and communicated goal is required.
Define System Boundaries – defines who is and who is not a member of the collaborative group. This should be done at a level that can most effectively achieve the group’s goal.
Determine Interrelationships – different members of the collaborative group perform different tasks.
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Systems Analysis
Determine Information Requirements – without accurate, relevant, and timely information good decision making is impossible. We must therefore identify what information is necessary and then design a system to capture, analyze, and provide it to the correct decision makers.
Perform Trade-Off Analysis – decisions at one location will impact the performance at another, it is important that these trade-offs be explored before a decision is made.
Consider System Constraints – systems have constraints that limit their ability to obtain their goals.
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A Process View of a Company
Decisions made throughout an organisation should focus on using available resources to create customer value.
l1. Customer focus defines the company’s value proposition and drives competency.
2. Competency guides functional decision making.
3. Competency development dictates resource
allocation.
4. Information and performance systems align efforts on the system’s goal.
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Company as Value-Added System
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Strategic Linkage
The role of strategy is to direct the use of resources to develop the correct competencies to drive the firm’s value proposition.
◦三Value Proposition – the value that the firm promises to
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◦ Competencies – the skills and processes that collectively
deliver the promised value.
◦ Core Competency – what the company is so good at that it drives competitive advantage.
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Integrating SCM and Strategy
What makes Dell and Wal-Mart successful? It’s the business model, and supply chain is an enabler. That’s why you’re seeing this growing importance of supply chains. People realize this is the weapon of the future.
– . ., IBM
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Strategic Thinking: Traditional View
A valid business model must answer two
questions:
1. What is our business?
◦ Who are our customers?
◦ What is the real value that we offer them?
2. How can we do it better than anyone else?
◦ Unique organisational capabilities
◦ Almost always process based
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Supply Chain Strategy
Seeks to leverage the resources and skills of diverse companies in the supply chain to deliver exceptional value to the end customer.
Addresses:
◦ How the capabilities of other chain members can
be used to create value for the end customer
◦ How their own strategy and actions impact the ability of the supply chain to create value for the end customer
Supply Chain Strategy
Rather than “What is our business?” the SC strategist inquires:
What is the overall supply chain’s value proposition? How does our company uniquely help the chain
deliver on its value proposition?
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Supply Chain Strategy
Rather than “How can we do it better than anyone else?” the SC strategist asks:
0 What valued capabilities do other members of the chain possess?
0 How can we bring these complementary competencies together in a
way customers value?
: What type of relationships should we maintain with other members of the supply chain?
Are any customer-valued competencies missing? If so, who is best positioned to develop them?
△ Howmuchofthevalue-addedprocessshouldwecontrol?
SCM Impact on Strategic Thinking
Great firms will fight the war for dominance in the marketplace not against individual competitors in their field but fortified by alliances with wholesalers, manufacturers, and suppliers all along the supply chain. In essence, competitive dominance will be achieved by an entire supply chain, with battles fought supply chain versus supply chain.
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Aligning Strategy with Systems
Innovation
Delivery Flexibility Quality
Cost Leadership
Goals Value- Added System
Short concept-to-market cycle time
Technologically advanced products
Unique service options
Availability despite demand uncertainty
Rapid, consistent delivery
Availability High-quality
product/service
Responsiveness to customer i.e., ability to handle small orders and expedited shipments
Minimum cost – but ensure an “acceptable”
service level
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Aligning Strategy with Systems
Innovation
Delivery Flexibility Quality
Cost Leadership
Purchasing
Identify and develop suppliers who can assure:
Design expertise Technological support
Flexibility to changes in specs
Process capabilities
Identify and develop suppliers who can assure:
Rapid, consistent delivery
Certified quality Full line availability Responsiveness
Identify and develop suppliers who can assure:
Productivity/low prices
Learning curve efficiencies
Scale/scope economies
Quantity price discounts
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Aligning Strategy with Systems
Innovation
Delivery Flexibility Quality
Cost Leadership
Production
Work closely with R&D; i.e., concurrent engineering
Support process engineering
Shop floor control— due-date performance
Shorten cycle times Cross-train workers
Extensive process control
Reduce inventories
Reduce inventories
Increase repetitiveness
Increase part commonality
Utilize low-cost labor
Increase worker productivity
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Aligning Strategy with Systems
Innovation
Utilize technology including bar codes, satellite tracking, electronic data interchange, and automated picking/packing to offer customized services
Delivery Flexibility Quality
Use private fleet or dedicated contract carrier to assure on-time delivery
Use information technology to increase responsiveness and ability to handle unexpected events
Implement process control and other quality improvement approaches
Cost Leadership
Use low-cost transport
Use high utilization and/or multiple car rates
Use volume contracts
Minimize inventory
Centralize decision making
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Resource Management
Every company must manage five resources:
◦ People – determine the productivity and quality of the system; provide the creativity and passion that determines success; requires education and training
◦ Technology – includes hardware and software; used effectively improves productivity
◦ Materials – all goods and services used in the value-added process for the creation of output
◦ Infrastructure – physical bricks and mortar assets used in the 言value creating process.
◦ Capital – necessary to finance continuing operations Coordinated decision making regarding resource allocation
across functions is the key to competitive advantage.
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Information Sharing
Communicates strategic objectives and organisational roles. Typical types and uses of data are:
Customer-related – defines goals, value propositions, and competencies
Firm capabilities and processes – strengths and weaknesses so that an effective strategy can be developed and implemented
Competitors’ strategies and capabilities – anticipate competitive threats as well as competitors’ reactions to the company’s own strategic moves
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三Information Sharing (con’d)
External operating environment – identify potential threats and opportunities such as new markets or the emergence of a new technology
SC operating information – used to make good day- to-day decisions: how many and type of suppliers needed to support the production schedule
“Success stories” – creates momentum for process integration
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Performance Measurement
Performance measurement systems must:
1. be aligned with strategic objectives; and 二2. clearly communicate expectations and
responsibilities. peoplefaratym.mg havesame
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Performance Measurement
Well designed performance systems:
◦ create understanding of strategic and tactical objectives
◦ promote behaviours consistent with achieving objectives
◦ document actual results, monitoring progress toward goals
◦ benchmark capabilities vis-à-vis competitors’ abilities and customers’ expectations
◦ motivate continuous improvement
Information-Measurement Integration
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Process Reengineering
Process Reengineering is the radical redesign of
business processes using systems thinking and 二information technology.
…activity of simplifying and reshaping the process with goals of achieving the desired outcomes in shorter time-frames at less cost, e.g. from linear ‘one- after-the-other’ to ‘in-parallel’ [2]
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Reengineering vs. Restructuring
◦ Reengineering builds the process from scratch focusing on desired customer outcomes.
◦ Restructuring replaces resources with technology changing the basic process design or challenging whether the process should be done.
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Steps to Process Reengineering
1. Identify Desired Outcomes – processes are redesigned to fulfil specific customer needs.
2. Make Processes Visible – process mapping identifies activities, resources, and performance dimensions helping management to understand the as-is process.
3. Assign Responsibility for Work – responsibility for redesign should be at the level where work is done; employees understand the process and have untapped ideas for improving it.
4. Leverage Technology – technology makes it possible to achieve outcomes in new ways.
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Reengineering Systematically suggests that companies:
1. 2. 3. 4.
Look for role models outside your industry. Identify and defy a constraining assumption. Make the special case into the norm.
Rethink the following dimensions of work:
1. What results the work delivers
2. Who performs the work
3. Where work is done
4. When work is performed
5. Whether the work should be done
6. What information the work requires
7. How thoroughly the work is performed
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Reengineering Example – Progressive
Dimensions of Work
What results the work delivers
Who performs the work
Where work is done
When work is performed
Whether the work should be done
What information the work requires
How thoroughly the work is performed
Progressive’s Immediate Response Claims Handling
Fast, convenient claims processing
Call center representative works with a claims
On site at the customer’s location
Within nine hours of the initial claim
Yes—claims processing drives customer
Accurate repair costs for the vehicle in the specific market
Repair costs are a major expense; therefore, damage estimates must be complete and accurate
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Further Readings
1. Christopher, p113
2. Leenders, et al. pp58-89
3. http://www.supplychainquarterly.com/topics/Procurement/scq201102 map/
4. VW’s process optimisation process: https://www.youtube.com/wa
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