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8/10/2019 49799233 Strategic Supply Chain Design
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Strategic Supply Chain Design
Massachusetts Institute of Technology
Sloan School of Management
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Strategic Supply Chain Design
1. Introduction
2.Fruit Flies & Supply Chain Evolution3.Supply Chain Design & 3-DCE
4.Customer Service and Service Supply Chains
5.Value Chain Roadmapping & Strategy Making
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3-D Concurrent Engineering & 3the imperative of concurrency
Product Process Supply Chain
Technology FulfillmentSupply Chain Supply Chain
Fulfillment Architecture Technology
Detailed
Design
Specs
Materials
Functions
Product
Architecture
Modular/
Integral
L ife Cycles
Unit
Processes
Technology
Equipment
Production
System
Objectives
Systems
People
Ca aci t
Supply
ChainArchitecture
Sourcing
Selection
Relationship
Logistics
& CoordSystem
Information
InventoryIntegration
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SC Principles to Understand
Supply ChainFocus Fulfillment Technology
Decision
Scope
Tactical
Strategic
Supply Chain Supply Chain
Costs, Cycle Times,
Inventories
Collaborative Prod Devel
Bullwhip
Revenue Management
IT System Design
Order Fulfill. ProcessLogistics System Design
Supply-Demand balance
Relationship Design
Flexibility
Clockspeed
Double Helix
Supply ChainArchitecture
Value Migration
3-DCE
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Components of Supply Chain Business Processes 5
System Design/Capabilities
Product Fulfillment
Process Architecture
Supply Chain Technology
Solution Implementation
-postponement-quick response
-lean production
-common parts/
platforms
Operational Objectives/
Customer Requirements-cost
-quality
-speed (flexibility,responsiveness)
-improvement (learning/knowledge)
External Influences
-clockspeeds (product, process)-risks (design, supply, demand)
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INTRODUCTIONS
Who are you?
What can you offer?
What do you want to learn?
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Strategic Supply Chain Design
1.Fruit Flies & Supply Chain Evolution
2.Supply Chain Design & 3-DCE
3.Customer Service and Service Supply Chains
4.Value Chain Roadmapping & Strategy Making
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Supply Chain Design in a Fast-Clockspeed World:
Study the Industry Fruitflies
Evolut ion inthe natural wo rld:
FRUITFLIES
evolve faster thanMAMMALS
evolve faster thanREPTILES
THE KEY TOOL:
Cross-SPECIESBenchmark ingof Dynamic Forces
Evolut ion in
the indust r ial wor ld:INFOTAINMENT is faster than
MICROCHIPS is faster thanAUTOS evolve faster than
AIRCRAFT evolve faster than
MINERAL EXTRACTION
THE KEY TOOL:Cross-INDUSTRY
Benchmark ingof Dynamic Forces
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CiscosEnd-to-End Integration for
Order info
flows direct to
Cisco and suppliers
Cisco Finished Product flows direct tocustomer via logistics
supplier
Basic Design Principle: Arms lengthRelationshi withFulfillment Chain Partners
Single enterprise information system
Dynamic replenishment, direct fulfillment,merge in transit
Customer orders through CiscoConnection online
New product development on-line
with supply base
Technology Supply Chain Design:Innovation through Acquisition
Customers
its Fulfillment Supply Chain
ComponentSuppliers &Distributors
Contract
Manufacturers
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Ciscos Strategy forTechnology Supply Chain Design
1.Integrate technology around the router tobe a communications network provider.
2. Leverage acquired technology with
- sales muscle and reach- end-to-end IT- outsourced manufacturing-market growth
3. Leverage venture capital to supply R&D
Basic Design Principle: Acquisition
Relationship with Technology Chain Partners
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Volatility Amplification in the Supply Chain:The BullwhipEffect
Customer
Retailer Distributor
Factory Tier 1 Supplier Equipment
Information lags
Delivery lagsOver- and underordering
Misperceptions of feedback
Lumpiness in ordering
Chain accumulations
SOLUTIONS:Countercyclical MarketsCountercyclical TechnologiesCollaborative channel mgmt.(Cincinnati Milacron & Boeing)
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Supply Chain Volatility Amplification:
Machine Tools at the tip of the Bullwhip
See "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study,"
E. Anderson, C. Fine & G. Parker Production and Operations Management,
Vol. 9, No. 3, Fall 2000, pp. 239-261.
Weare experiencing a 100-year flood. J. Chambers, 4/16/01
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LESSONS FROM A FRUIT FLY:
CISCO SYSTEMS
1. KNOW YOUR LOCATION INTHE VALUE CHAIN2.UNDERSTAND THE DYNAMICS
OFVALUE CHAIN FLUCTUATIONS
3.THINK CAREFULLY ABOUTTHE ROLEOFVERTICAL COLLABORATIVERELATIONSHIPS4. INFORMATION AND LOGISTICS SPEED DO NOT
REPEAL BUSINESSCYCLES OR THE BULLWHIP.
Bonus Quest ion :
How does clockspeed impact volatility?
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INDUSTRY CLOCKSPEED IS A COMPOSITE: 14OF PRODUCT, PROCESS, AND ORGANIZATIONAL
CLOCKSPEEDS
Mob i le Phone INDUSTRY CLOCKSPEED
THE THEMob i le Phone Mob i le Phone
product technology THE
Mob i le PhonePRODUCTION
PROCESSprocess technology
MANUFACTURING
COMPANYorganization
1
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Mobile Phone System CLOCKSPEED is amix ofTransmission Standards, Software and Handsets
Mob i le Phone Sys tem
TRANSMISSION
STANDARD
SOFTWARE
slow clockspeed APPLICATIONS HAND SETmedium clockspeed fast clockspeed
OPERATING SERVICESSYSTEM fast clockspeed
slow clockspeed
ISSUE: THE FIRMS THAT ARE FORCEDTO RUN AT THEFASTEST CLOCKSPEEDARETHE MOST LIKELY TOSTAY AHEADOF THE GAME.
16
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Automobi le CLOCKSPEED IS A MIX OFENGINE, BODY & ELECTRONICS
Automobi le
ENGINE BODYslow clockspeed medium clockspeed
ELECTRONICSfast clockspeed
ISSUE: MOST AUTO FIRMS OPERATE ATENGINE OR BODY CLOCKSPEEDS; IN THE
FUTURE THEY WILL NEED TO RUN
AT ELECTRONICS CLOCKSPEED.
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Clockspeed drivesBusiness Strategy Cadence
CORECAPABILITIES NEW PROJECTS(New produc ts,new processes,
new suppl iers)
Dynamics between New Projects and CoreCapability Development: PROJECTS MUSTMAKE MONEY AND BUILD CAPABILITIES
18
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See Leonard-Barton, D. Wellsprings of Knowledge
19
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Projects Serve Three Masters:Capabilities, Customers, & Corporate Profit
CORE
CAPABILITIES
PROJECT
DESIGN(New products,
new processes,
new suppliers)
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The Strategic Leverage of Value Chain Design:
Who let In tel Ins ide?
1980: IBM designs a product, a process, & a value chain
Customers
The Outcome:A phenomenonally successful product design
A disastrous value chain design (for IBM)
Intel
IBMI ntel I nside
Microsoft
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LESSONS FROM A FRUIT FLY:THE PERSONAL COMPUTER
1. BEWARE OF INTEL INSIDE
(Regardless of your industry)
2. MAKE/BUY IS NOT ABOUT WHETHER IT ISTWO CENTS CHEAPER TO OUTSOURCE3. VALUE CHAIN DESIGN CAN DETERMINE
THE FATE OF COMPANIES AND INDUSTRIES,
AND OF PROFIT AND POWER4. THE LOCUS OF VALUE CHAIN CONTROL
CAN SHIFT IN UNPREDICTABLE WAYS
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LESSONS FROM A FRUIT FLY:THE PERSONAL COMPUTER
1. BEWARE OF INTEL INSIDE
(Regardless of your industry)
2. MAKE/BUY IS
NOTABOUT WHETHER IT IS
TWO CENTS CHEAPER OR TWO DAYS FASTER
TO OUTSOURCE VERSUS INSOURCE.
3. DEVELOPMENT PARTNERSHIP DESIGN CAN
DETERMINE THE FATE OF COMPANIES ANDINDUSTRIES, AND OF PROFIT AND POWER
4. THE LOCUS OF VALUE CHAIN CONTROL
CAN SHIFT IN UNPREDICTABLE WAYS
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Vertical Industry Structure
with Integral Product Architecture
Computer Industry Structure, 1975-85
IBM DEC BUNCH
(See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)
Microprocessors
Operating Systems
Peripherals
Applications Software
Network Services
Assembled Hardware
AllPro
ducts
AllProducts
AllPro
ducts
H i t l I d t St t23
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Horizontal Industry Structure 23
with Modular Product Architecture
Computer Industry Structure, 1985-95
(See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)
Microprocessors
Operating Systems
Peripherals
Applications Software
Network Services
Assembled Hardware
Intel
Moto AMD etc
HP Compaq IBM Dell etc
Microsoft Mac Unix
HP Epson Seagate etc etc
Microsoft Lotus Novell etc
AOL/Netscape Microsoft EDS etc
THE DYNAMICS OF PRODUCT ARCHITECTURE 24
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THE DYNAMICS OF PRODUCT ARCHITECTURE 24ANDVALUE CHAIN STRUCTURE:
THE DOUBLE HELIX
See Fine & Whitney, Isthe Make/Buy Decision Process a Core Competence?
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THE DOUBLE HELIX
IN OTHER INDUSTRIES
TELECOMMUNICATIONS-- MABELL was Vertical /Integral BABY BELLS & LONG LINES & CELLULAR are
Horizontal/Modular TodaysVerizon is going back to Vertical /Integral
AUTOMOTIVE-- Detroit in the 1890s was Horizontal/Modular Ford & GM in the mid 1900swere Vertical /Integral TodaysAuto Industry is going back to Horizontal/Modular
TELEVISION-- RCA was Vertical /Integral
1970STHROUGH 1990Swere Horizontal/Modular
Todaysmedia giants are going back to Vertical /Integral
BICYCLES-- Safety Bikes to 1890sboom to Schwinn to SShhiimmaannooIInnssiiddee
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P&GRetailer
Retailer
Controlling the Chain Through Distribution:
The End of P&G Inside ?
Controlling the Channel Through Closeness to Customers:
consumer research, pricing, promotion, product development
Customers
Retailer
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Clockspeeds accelerate as you head downs tream,
closer to the f inal customer ;Clockspeed = f(technology push, customer pull, system complexity)
Vehicle
Electronics
Architecture
Telematics
System
AutomobileIn-Vehicle
Services
Semiconductor
Equipment
Maker
Chip makerPC MakerWeb Site
Developer
Telecom
Equipment
Handset
Platforms
New Phone
Applications
Optical
Components
29
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Media Supply Chains: An Industry at Lightspeed
Customers The box The Pipe The Content(Access, Metro, Backbone)
Land-basedTelco:
-copper POTS-fiber
-DSL
Internet, et al
PC/laptop
Wired
Phone
Page
r
News/articles/books
(newspapers &
magazines)
Wireless
phone
Video/Audio:
Movies & Art
& News & Sports
Cable
Networks
Wireless:
-broadcast TV
-CDMA, TDMA, GSM
-satellite/microwave
PDA
Communication:
voice & video & emailTelevision
Retail Outlets
-Borders:
-Blockbuster
-Seven-Eleven
BankingVCR
Education
Shopping
Delivery (e.g., Fedex)
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ALL COMPETITIVE ADVANTAGE
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ALL COMPETITIVE ADVANTAGE
IS TEMPORARY
Autos:Ford in 1920, GM in 1955, Toyota in 1990
Computing:
IBM in 1970, DEC in 1980, Wintel in 1990World Dominion:
Greece in 500 BC, Rome in 100AD, G.B. in 1800
Sports:
Bruins in 1971, Celt ics in 1986, Yankees no end
The faster the clockspeed, the shorter the reign
31
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Exercise 1:Value Chain Analysis
Consider these five industries:
-Food
-Defense aircraft
-Automobiles
-Handheld electronic organizers/communicators
-Music
At each table, pick two of these industries:
What are the key elements in the value chain?Who has power in the chain?
What are the key dynamic processes influencing chain power?
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VALUE CHAIN DESIGN:
Three Components
1. Insourcing/OutSourcing
(The Make/Buy or Vert ical Integrat ion Decis ion )
2. Partner Selection(Choice of suppl iers and partners for the chain)
3. The Contractual Relationship
(Armslength , joint venture, long-term contract ,strateg ic all iance, equ ity part icipat ion , etc.)
34
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IMPLEMENTATION OF VALUE CHAIN DESIGN:
EMBED IT IN 3-D CONCURRENT ENGINEERING
PRODUCTPROCESS
Performance
Recipe, Unit Process
Specifications Technology, &
Process Planning
Details,
Strategy
Product Architecture,
Make/Buy componentsTime, Space, Availability
VALUE CHAIN
Manufacturing System,
Make/Buy processes
35
P j t S Th M t
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Projects Serve Three Masters:Capabilities, Customers, & Corporate Profit
CORE
CAPABILITIES
PROJECT
DESIGN(New products,
new processes,
new suppliers)
36
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IMPLEMENTATION OF PROJECT DESIGN:FRAME IT AS 3-D CONCURRENT ENGINEERING
PRODUCTPROCESS
Performance
Recipe, Unit Process
Specifications Technology, &
Process Planning
Details,
Strategy
Product Architecture,
Make/Buy componentsTime, Space, Availability
VALUE CHAIN
Manufacturing System,
Make/Buy processes
ARCHITECTURES IN 3 D 37
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ARCHITECTURES IN 3-D
INTEGRALITY VS. MODULARITY
I ntegral product architectures featureclose coupling among the elements
-Elements perform many functions-Elements are in close spacial proximity
-Elements are tightly synchronized
- Ex: jet engine, airplane wing, microprocessor
Modular product architectures featureseparation among the elements
-Elements are interchangeable-Elements are individually upgradeable-Element interfaces are standardized-System failures can be localized
- Ex: stereo system, desktop PC, bicycle
38
C C C
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VALUE CHAIN ARCHITECTURE
Integral value-chain architecture
features close proximity among its elements
-Proximity metrics: Geographic, Organizational
Cultural, Electronic
- Example: Toyota city
- Example: Ma Bell (AT&T in New Jersey)
- Example: IBM mainframes & Hudson River Valley
Modular value-chain architecture features multiple,
interchangeable supplier and standard interfaces
-Example: Garment industry
-Example: PC industry
-Example: GeneralMotorsglobal sourcing
-Example: Telephones and telephone service
39
ALIGNING ARCHITECTURES BUSINESS SYSTEMS
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BUSINESS SYSTEM/SUPPLY CHAIN ARCHITECTURE
(Geog., Organ., Cultural, Elec.)
INTEGRAL MODULAR
ALIGNING ARCHITECTURES: BUSINESS SYSTEMS
& TECHNOLOGICAL SYSTEMS
Microprocessors
Mercedes
& BMWvehicles
Lucent
Nortel
Polaroid
MSFT WindowsChrysler
vehicles Cisco
Digital Rights/
Music DistributionDell PCS
BicyclesTECHNOLOGY
/PRODUCTARCHITECTURE
40
D ll S l Ch i
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Dell Supply ChainGlobal \
Regional
Procurement
Continui ty of SupplySales
Supplier
Supplier
SLCI
DellI
Customer
Materials order ing cycle
10-180+ days
Customer ful f i llment
2-5 days
Modular Product Architecture enables Modular Supply Chain
Demand
Management
Demand/
Supply
Management
Build to customer
specifications
41
D d S l Ch i M
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Demand-Supply Chain Management@ Dell
Demand Management:
Forecast = Buy = Sell
Buy to Plan, but Build to Order Inventory Velocity is a wonderful thing
Customers have immediate access to the latesttechnology.
Suppliers get their products to market quickly
Quality is improved with fewer touches.
Cash is generated through negative cash cycle.
Model efficiencies drive Market Share gain.
42
C D ll Di t W k f A t ?
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Can DellDirectWork for Autos?
Appealing to OEMson ManyDimensionsSatisfy customer need for Speed
Reduce Supply Line Inventories
Reduce mismatches anddiscounting
Direct OEM-Customer Relationships(& Data!)
Information Transparency
Adapted from Prof. J.P. MacDuffie, IMVP & The Wharton School
43
BUT
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BUT,A Car is not a Computer!!
Adapted from Prof. J.P. MacDuffie, IMVP & The Wharton School
Car~ 4000 components100 key subsystems
300 key suppliers12 month validation1,000,000
variationsIntegral
Architecture
PersonalComputer
~50 components8-10 key parts
40 key suppliers24 hour burn-in100 design
variationsModular
Architecture
DESIGNING ARCHITECTURES FOR 44
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PRODUCTS & VALUE CHAINS:
MODULARITY VS. OPENNESS
ARCHITECTURALPROPRIETARINESS
CLOSED OPEN
ARCHITECTURAL
STRUCTURE
INTEGRAL
MODULAR
INFORMATIONARCHITECTURE MUST
REFLECT BUSINESS MODEL
Pentium Chip
Mercedes VehiclesSAP ERP
Linux
IBM Mainframes
MicrosoftWindowsChrysler Vehicles
Palm Pilot
software & accessories
Phones & serviceWeb-based ERP
In/Outsourcing: Sowing the Seeds 45
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g gof Competence Development to develop
dependence for knowledge or dependence for capacity
+
Independence
Amount of
Work
Done In-house
knowledge
+/or supply
+
InternalCapability
Amount ofInternal
Learning
+
+
DependenceAmount of
Work
Outsourced
knowledge
+/or supply
+
SupplierCapability
Amount ofSupplier
Learning
+
46
Technology Dynamics in the Aircraft Industry:
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Technology Dynamics in the Aircraft Industry:
LEARNING FROM THE DINOSAURS
+
Japanese
Japanese
appeal as
subcontractors
+ +
U.S.firms
appeal as
subcontractors
Industry
Autonomy
+Japanese
industry
size &
capability
Boeing outsources
to Japan
(M itsubishi I nside?)
+
U.S.
industry
size &
capability
- 47SOURCEABLE ELEMENTS
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SOURCEABLE ELEMENTS
PROCESS ELEMENTS
ENGINEERING
ASSY
CONTROLLER
VALVETRAIN
BLOCK
TEST
I4 V6 V8 PRODUCTS
SUBSYSTEMS
48
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Strategic Make/Buy Decisions:Assess Critical Knowledge & Product Architecture
DEPENDENT FORINDEPENDENT FOR
KNOWLEDGEKNOWLEDGE & INDEPENDENT FOR
& CAPACITYDEPENDENT FOR KNOWLEDGE & CAPACITY
Adapted from Fine & Whitney, Isthe Make/Buy Decision Process a Core Competence?
ITEM
ISINTEGRAL
ITEM
ISM
ODULAR
A
POTENTIAL
OUTSOURCING
TRAP
BEST
OUTSOURCINGOPPORTUNITY
OVERKILL
IN
VERTICAL
INTEGRATION
WORST
OUTSOURCING
SITUATION
CANLIVE
WITH
OUTSOURCING
BEST
INSOURCING
SITUATION
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Qualitative analysis of strategic
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Poss ible Decisions(Knowledge & Supply
Insource
Outsource
Partner/Acquire
Part ial Inso urce
Part ial Outsou rc
Invest
Spin Off
)
Qualitative analysis of strategicimportance uses five key criteria
Customer
Importance: High
Medium
Low
Technology
Clockspeed:Fast
Medium
Value chain elements w ith high customer
im portanc e and fast clock speed are generally
strategic (unless th ere are many capable
suppl iers)
Compet i t ive posit ion is seldom the
prim ary considerat ion for strategic
imp ortance, rather it serves as atie-breakerwhen o ther criteria are
When many c apable
SlowCompetit ive
Posi t ion:AdvantageParity
in conf l ict
suppl iers exist , knowledgemay b e considered
comm odi ty and
development should beoutsourced
Architecture is considered a
Disadvantage
Capable Supp liers:NoneFew :Many
cons tra int for the sourcing decision
model, contro ls the level of
engineer ing that m ust be k ept in
hous e for integrat ion purposes
Architecture:Integral
Modulare