Relationship Management & Technology Issues

Value creation through supply chain integrations:

relationship management & technology issues

Prof. Xiande Zhao Director, Center for Supply Chain Management & Logistics Li & Fung Institute of Supply Chain Management/ Logistics

Chinese University of Hong Kong

http://lf-scml.baf.cuhk.edu.hk/index/

http://www.cuhk.edu.hk/

Xiande Zhao, Center for Supply Chain Management & Logistics

Enhancing competitive advantages

through supply chain integration

What is Value and how do you create value?

What is Supply Chain Integration (SCI)?

What are the different types of SCIs?

Cases and Research Findings on SCIs

What are the key factors that influence SCI? Relationship Management Issues:

– Trust,– Relationship Commitment

Technology Issues


Some Basic Questions

How do you win over your customers?

What is value?

How do you provide better value to your customer?


What is value?


Some Basic Questions

How do you provide better value to your customer?


What are the Order Qualifiers and Order Winners?

Exhibit 2.5Exhibit 2.5


Time Line for Operations Strategies


What can we do to enhance our capabilities in:

Delivery speed/Dependability?

Flexibility?

Services?

Innovation?


The Answer is:

Supply chain Integration (SCI)


What is Supply Chain Integration?

the degree to which the firm can strategically collaborate with their supply chain partners

and collaboratively manage the intra- and inter-organization processes to achieve the effective and efficient flows of

• Product and services,• Information, • Money, • Decisions

With the objective of providing the maximum

value to the customer at low cost and high speed


How LI & FUNG Adds Value?

Li & Fung does the high-value-added front-and back-end tasks front end back end

design quality control

engineering testing

production planning logistics

it organizes the lower-value-added middle stages through its network of 7,500

suppliers, 2,500 of which are active at any one time.

raw material and component sourcing managing production


What are some of the major types of integrations?


Strategic Integration

• Focus on core competencies

• Outsource other activities

• Leverage over the strength of the strategic partners to gain competitive advantages

• Jointly develop strategies with partners

• structure the strategic goals and objectives into consensus and contractual agreements

• share resources, rewards and risks across organizations in order to achieve competitiveness.

SCI


Internal Integration

Linking the internally performed work by different functional units into a seamless process to support customer requirements

• Cross-functional team work: managers of cross functional teams use information from multiple sources to and are empowered to make immediate decisions.

• Standardization: Establishment of cross-functional policies and procedures to facilitate synchronous operations

• Simplification: Identification, adoption, implementation, and continuous improvement of best practices

• Compliance: Adherence to established operational and administrative policies and procedures

SCI


External Integration

the degree to which a firm can partner with its key supply chain members (customers / suppliers)

• to structure their inter-organizational practices, procedures and behaviors

• into collaborative, synchronized and manageable processes in order to fulfill the customer requirement.

SCI


Customer Integration

Building lasting and distinctive relationships with customers of choice

• development of customer specific programs designed to generate maximum customer success.

• customer focus to continuously match changing expectations

• Accommodation of unique and/or unplanned customer requirements

SCI


Supplier Integration

Linking externally performed work into a seamless congruency with internal work process

• development of a common vision of the total value creation process and planning clarity concerning shared responsibility

• linkages of systems and operational interfaces to reduce duplication, and redundancy while maintaining operational synchronization.

• extended management to include the supplier’s suppliers

SCI


Information Integration

the degree to which a firm can coordinate the activities of information sharing and combine core elements from heterogeneous data management systems, content management systems, data warehouses, and other enterprise applications into a common platform in order to substantiate the integrative supply chain strategies.

• Commitment and capabilities to facilitate supply chain resource allocation through seamless transactions across the total order to delivery cycle

• Capability to exchange information across internal factional boundaries in a timely, responsive and usable format

• Capability to exchange information with external supply chain partners in a timely, responsive and usable format

• Collaborative Forecasting and Planning: Customer Collaboration to develop shared visions and mutual commitments to jointly generated action plans. SCI


Some cases of SCI

Luen Thai’s D2S supply chain model

ASTEC’s SCI with Customers and Supplier

Ford Motor Company’s integration with its suppliers


Manufacturing生产

Logistics物流

Store零售店

Design & Development设计及开发

Sourcing采购

Information Technology Platform 信息科技平台

Logistics and Compliance Platform 物流及推行平台

Winning Model: Design and Logistics Driven致胜模型﹕由设计及物流所推动

Winning Model in the New Era新时代的致胜模型

Pioneering the New Model新模型的先驱联泰


雅达电子产品

DC/DC Industry standard pin-out

Series (10W - 150W)

- Industry standard pin-out - High efficiency - Zero load operation

AC - DC Family1W – 6KW

DC - DC Modules1W - 1200W

Adapter (7.5W - 100W) - Multi - O/P - Wide-range AC input - OVP, S/C protection - High efficiency - High MTBF

Lower Power Series

(25W - 350W)

- Auto ranging input- Build-in EMI filter- Active power factor correction- Multi - O/P- Medical safety approval- OVP, OCP

Medium Power Series

(400W - 1200W)

- Wide-range AC input- C-share- Power factor correction- Multi - O/P- Warning signal

DC/DC module (50W-300W)

- Secondary side control- 24V, 48V, 300V input- High efficiency- Low noise/ripple

Fast Transient VRM (100W)

- Programmable output- High efficiency

Server PSU (250W - 3000W)

- Active power factor correction - N+1 parallel redundant operation, hot pluggable - I2C port for Vital Product Data and fault status - Built-in fans (in series) with temperature controlled speed

Mobile phone charger

(2W-5W)

- standard/Custom design - constant current

AC, DC Router 1360W

- N+1 redundancy- Hot plug, hot swap- Current share on all outputs- Status signals- EEprom


Example: Nokia customer hub process

ASTEC

Bao’an, China

Hub Planning

• 1 week trans-shipment

13 weeks Forecast

Pick & pack inventory

HUB

Nokia manufacturing facilities

Periodic Inventory ReportWeekly total Pull Report

Hungary

Nokia in Europe

Finland

Germany

• 6 weeks in-transit time

ISR

Forecast

Production Requirements

Outbound Shipment

Invoicing based on pull information

Global Commodity Manager

Goods flowInformation flow



FORD’s Case


Distant Suppliers

Other Plants

Logistic Centre

Local Suppliers

Almussafes Ford Plant

Seq/JIT

Seq/JIT

DAD

DAD

Industrial Park

Seq/JIT

Logistic Operator

Seq/JIT

Seq/JIT

Logistic Operator

Seq/JIT

Supply chain nodes of Ford


Relationships and flows

Products & services flow; Information & knowledge flow; and Financial flow

Goods, services,

revenue

Information &

Knowledge

J.I.T. Supplier

Sequence Supplier

D.A.D. Supplier

Dealer

OEM (Original

Equipment Manufacturer)

Carriers

Planning & Sequence Info

$

Order

Goods

$

Planning & Sequence Info. $

Sub Assemblies (JIT & Seq)

Parts (O.C.)

Planning Info.

Sub Assembly Info.

$ Constraints

Constraints

Parts (O.C.)/Empties

Sequence Sub Assemblies

Parts (O.C.)/Empties

Planning & Sequence

Info

$

Constraints

Goods Info

J.I.T. Sub Assemblies

Sub Assembly Info.

Sub Assembly Info.

D.A.D. Sub Assemblies

Logistic Operator

$

Routes & Materials info.

Traditional Supplier

Parts

Planning Info

$

Order

Delivery Note

Delivery Note Delivery

Note Time Windows & Materials info.

Time

Windows &

Materials

Info


The V-CHAIN Virtual Enterprise Reference Model, the TO-BE Model, has been conceived as the framework needed to obtain an integrated problem solving approach

SuppliersAssembler

Logistics Operator

(Operator for Planning and Sequencing)

Other actors

Carriers

VEVE BUSINESS REFERENCE MODEL: OVERVIEW BUSINESS REFERENCE MODEL: OVERVIEW


Our Research on Relationship Management and Supply Chain Integration in China

Research Questions:

How do SCI influence supply chain performance and the financial performance of the firm?

How do trust and relationship commitment influence supply chain integration (supplier integrations (SI, CI and II)?


Research Methods

Surveys of manufacturers in 12 industries and 5 cities : Chongqing, Tianjin, Guangzhou, Shanghai, and Hong

Kong. Respondents are people who are most knowledgeable on

SCM, customer and supplier relationships Top three industries:

– Metal, Mechanical & Engineering. Textile and Apparel, Electronics & Electrical

Response rate:

617 usable questionnaires from 4,569 contacted companies (13.5%) or 1356 questionnaires (45.5 %) sent out.


Internal Integration (II)

1. Data integration among internal functions 2. Enterprise application integration among internal functions 3. Integrative inventory management4. Real-time searching of the level of inventory 5. Real-time searching of logistics-related operating data6. The utilization of periodic interdepartmental meetings among

internal functions7. The use of cross functional teams in process improvement8. The use of cross functional teams in new product development9. Real-time integration and connection among all internal functions

from raw material management through production, shipping, and sales


Customer Integration (CI)

1. The level of linkage with major customer through information network

2. The level of computerization for our major customer ordering3. The level of sharing of market information from our major customer4. The level of communication with our major customer5. The establishment of quick ordering system with our major customer6. Follow-up with our major customer for feedback7. The frequency of periodical contacts with our major customer8. Our major customer shares Point of Sales (POS) information with us9. Our major customer shares demand forecast with us10. We share our available inventory with our major customer11. We share our production plan with our major customer


Supplier Integration (SI)

1. The level of information exchange with our major supplier through information network

2. The establishment of quick ordering system with our major supplier3. The level of strategic partnership with our major supplier4. Stable procurement through network with our major supplier5. The participation level of our major supplier in the process of procurement and

production6. The participation level of our major supplier in the design stage7. Our major supplier shares their Production Schedule with us8. Our major supplier shares their production capacity with us9. Our major supplier shares available inventory with us10. We share our production plan with our major supplier11. We share our demand forecast with our major supplier12. We share our inventory level with our major supplier13. We help our major supplier to improve their process to better meet our needs


SCI & I ndustry

3

3. 5

4

4. 5

5In

tern

alIn

tegr

atio

n

Cust

omer

Inte

grat

ion

Supp

lier

Inte

grat

ion

Scor

e

Metal , Mechani cal& Engi neeri ng

El ectroni cs &El ectri cal

Texti l es &Apparel

Total


Perf ormance & I ndust ry

33. 5

44. 5

55. 5

6Fi

nanc

ial

Supp

lyCh

ain

Cust

omer

-or

ient

ed

Supp

lier

-or

ient

ed

Per f ormance

Scor

e Metal , Mechani cal& Engi neer i ngEl ect roni cs &El ect r i calText i l es &ApparelTotal


What are some of the patterns of supply chain integrations?

Taxonomy of SCI

1.5

2.5

3.5

4.5

5.5

6.5

Internal Integration Customer Integration Supplier Integration

Medium UnbalancedIntegration

High UnbalancedIntegration

Low BalancedIntegration

High BalancedIntegration

Medium BalancedIntegration


Perf ormance & SCI S

1. 52. 53. 54. 55. 56. 5

Fina

ncia

l

Supp

lyCh

ain

Cust

omer

-or

ient

ed

Supp

lier

-or

ient

ed

Perf ormance

Scor

e

Medi um Unbal ancedHi gh Unbal ancedLow Bal ancedHi gh Bal ancedMedi um Bal ancedTotal


What influences Integration?

Trust

Has been shown to significantly influence supply chain cooperation because:

trust is a useful lubricant in maintaining cooperation, avoiding conflicts and

opportunistic behaviors

trust can significantly contribute to the long-term stability of a supply chain relationship

Trust increases the transaction specific investment


What are some of the major types of trust?

Competence TrustRefers to the technical and managerial

expertise that the trustee is capable of performing and will perform their roles as expected

Contractual Trust Refers to an expectation that a trustee can

be relied upon to maintain the ethical standard and carry out a verbal or written promise


What are some of the major types of trust?

Calculative TrustRefers to a trustor’s expectation that the

trustee’s costs of cheating or engaging in opportunistic behavior are greater than the benefits of such actions

Affective Trust Refers to the mutual expectations of open

commitment to one another, and the commitment is regarded as a willingness to do more than is formally expected


What is Relationship Commitment?

Relationship commitment can be defined as the willingness of a party to invest resources into a relationship

It indicates the propensity for relational continuity and the establishment of long-term relationship


What are the major types of relationship commitment?

Affective Commitment:

can be defined as one party’s identification with and emotional attachment to the goals and values of another party, and willingness to secure the relationship

Affective commitment is based on a generalized sense of liking, loyalty and belongingness towards the exchange partner and an enduring desire to continue a relationship for enjoyment


What are the major types of relationship commitment?

Calculative Commitment:

can be viewed as one party’s identification with the benefits and costs of the relational exchange, and willingness of maintaining the relationship for satisfying his needs


Relationship Between Trust, Relationship Commitment and Process Integration?

Business Sense & Judgment

Ability & Expertness

Predictability

Confidence

Benevolence

Integrity

Calculative Trust

Competence Trust

Contractual Trust

Affective Trust

Calculative Commitment

Affective Commitment

Supply Chain Integration

?

-

+

+

++

+

+

+

++

+


Conclusions

Supply chain integrations (II, CI and SCI) significantly influence supply chain performance and the financial performance of the manufacturer.

Customer integration and internal integration seem to have great impact on performance than supplier integration.

To enhance integrations with customers and suppliers, manufacturers need to build trusts and enhance relationship commitments with them.

Affective relationship commitment is much more effective than calculative relationship commitment in enhancing SCIs

The use of expert power is much more effective than the use of reward or coercive power

Without trust and relationship commitment, technology is of no use


THANK YOU

Li & Fung Institute of Supply Chain

Management/Logistics

http://lf-scml.baf.cuhk.edu.hk/index/

Q & A