Value creation through supply chain integrations: relationship management & technology issues

1. 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/

2. 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

3. Some Basic Questions • How do you win over your customers? • What is value? • How do you provide better value to your customer?

4. What is value?

5. Some Basic Questions • How do you provide better value to your customer?

6. What are the Order Qualifiers and Order Winners? Exhibit 2.5

7. Time Line for Operations Strategies

8. What can we do to enhance our capabilities in: • Delivery speed/Dependability? • Flexibility? • Services? • Innovation?

9. The Answer is: • Supply chain Integration (SCI)

10. 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

11. How LI & FUNG Adds Value? Li & Fung does the high-value-added front-and back-end tasks front endback 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

12. What are some of the major types of integrations?

13. SCI 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.

14. 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

15. 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.

16. 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

17. 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

18. 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.

19. 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

20. Information Technology Platform 信息科技平台 Logistics and Compliance Platform 物流及推行平台 Winning Model in the New Era新时代的致胜模型 Winning Model: Design and Logistics Driven 致胜模型﹕由设计及物流所推动 Manufacturing 生产 Design & Development 设计及开发 Sourcing 采购 Logistics 物流 Store 零售店 联泰 Pioneering the New Model 新模型的先驱

21. 雅达电子产品 Mobile phone charger (2W-5W) - standard/Custom design - constant current 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 AC, DC Router 1360W - N+1 redundancy - Hot plug, hot swap - Current share on all outputs - Status signals - EEprom AC - DC Family 1W – 6KW 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 DC - DC Modules 1W - 1200W DC/DC Industry standard pin-out Series (10W - 150W) - Industry standard pin-out - High efficiency - Zero load operation 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

22. Nokia in Europe ASTEC Forecast Global Commodity Manager 13 weeks Forecast Invoicing based on pull information Nokia manufacturing facilities Hub Planning ISR Outbound Shipment Periodic Inventory Report Weekly total Pull Report Production Requirements Pick & pack inventory HUB Hungary • 1 week trans-shipment Finland Bao’an, China Germany • 6 weeks in-transit time Goods flow Information flow Example: Nokia customer hub process

24. FORD’s Case

25. Supply chain nodes of Ford Other Plants Distant Suppliers Logistic Centre Industrial Park Local Suppliers DAD Seq/JIT Seq/JIT Seq/JIT Seq/JIT DAD Logistic Operator Logistic Operator Seq/JIT Seq/JIT Almussafes Ford Plant

26. Products & services flow; Information & knowledge flow; and Financial flow Goods, services, revenue Information & Knowledge Relationships and flows Part s (O.C.) /Empties Sequence Carriers Sequence Sub Supplier Assemblies Traditional Routes & Supplier Material s info. Time Windows & Materials Info Parts Sub Logistic Assembly $ Operator Info. Planning J.I.T. Sub Info Assemblies $ Planning & Parts Sequence (O.C.) /Empties Delivery Planning & Info Order Note Sequence Info. Delivery $ Note Time Parts Constraints $ Windows & Sub Assemblies (O.C.) M a terial s (JIT & Seq) D.A.D. Sub Assemblies info. Delivery Note OEM $ D.A.D. Planning Info. (Original Planning & Sequence Info J.I.T. Supplier Sub Assembly Info. Equipment Constraints Supplier Manufacturer) Constraints Sub Assembly Info. $ Order Goods $ Goods Info Dealer

27. 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 Suppliers VE BUSINESS REFERENCE MODEL: OVERVIEW Logistics Operator Carriers (Operator for Planning and Sequencing) Assembler Other actors

28. 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)?

29. 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.

30. Internal Integration (II) • Data integration among internal functions • Enterprise application integration among internal functions • Integrative inventory management • Real-time searching of the level of inventory • Real-time searching of logistics-related operating data • The utilization of periodic interdepartmental meetings among internal functions • The use of cross functional teams in process improvement • The use of cross functional teams in new product development • Real-time integration and connection among all internal functions from raw material management through production, shipping, and sales

31. Customer Integration (CI) • The level of linkage with major customer through information network • The level of computerization for our major customer ordering • The level of sharing of market information from our major customer • The level of communication with our major customer • The establishment of quick ordering system with our major customer • Follow-up with our major customer for feedback • The frequency of periodical contacts with our major customer • Our major customer shares Point of Sales (POS) information with us • Our major customer shares demand forecast with us • We share our available inventory with our major customer • We share our production plan with our major customer

32. Supplier Integration (SI) • The level of information exchange with our major supplier through information network • The establishment of quick ordering system with our major supplier • The level of strategic partnership with our major supplier • Stable procurement through network with our major supplier • The participation level of our major supplier in the process of procurement and production • The participation level of our major supplier in the design stage • Our major supplier shares their Production Schedule with us • Our major supplier shares their production capacity with us • Our major supplier shares available inventory with us • We share our production plan with our major supplier • We share our demand forecast with our major supplier • We share our inventory level with our major supplier • We help our major supplier to improve their process to better meet our needs

35. What are some of the patterns of supply chain integrations?

37. 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

38. What are some of the major types of trust? • Competence Trust • Refers 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

39. What are some of the major types of trust? • Calculative Trust • Refers 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

40. 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

41. 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

42. 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

43. Relationship Between Trust, Relationship Commitment and Process Integration? + Business Sense & Judgment Calculative Trust + Calculative Commitment ? Ability & Expertness + Competence Trust + - Supply Chain Integration Predictability + Contractual Trust + Confidence + + + Benevolence Affective Trust Affective Commitment Integrity +

44. 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

45. Q & A THANK YOU Li & Fung Institute of Supply Chain Management/Logistics http://lf-scml.baf.cuhk.edu.hk/index/