Supply Chain Management: From Vision to Implementation

1. Supply Chain Management: From Vision to Implementation Chapter 6: Scanning and Global Supply Chain Design

2. Chapter 6: Learning Objectives • Discuss the emergence of SCM as a strategic response to a changing competitive environment. • Explain the transition from ownership (vertical) to relationship (virtual) integration strategies. • Discuss how managers can use scanning and planning processes to define the rules of competition.

3. Chapter 6: Learning Objectives • Describe the forces driving change in today’s market and their effect on decision-making. • Identify the issues driving globalization. Explain how globalization has changed the rules of competition. • Discuss the critical issues involved in designing a global supply chain network.

4. As the economy changes, as competition becomes more global, it’s no longer company versus company but supply chain versus supply chain. -Harold Sirkin, Boston Consulting Group

5. SCM – A Strategic Weapon • SCM enables winning business models by helping companies to: • Meet the demanding needs of customers worldwide • Build unique competencies to fend off fierce rivals • Acquire the best resources globally • Do it efficiently • To deliver unsurpassed customer value, companies must develop unique competencies, relying increasingly on capable supply chain partners.

6. Vertical Integration • Henry Ford viewed the vertically integrated organization as the ideal business model. • Acquired critical production resources • Hayes and Wheelwright identify the following rationale: • Desire to reduce cost • Desire to increase control • Lack of focus actually contributed to decreased competitiveness

7. Relationship Integration • Kieretsu provided Japanese companies with a competitive advantage • Toyota and Honda rely on suppliers for approximately 80% of a car’s value • Compared with 30% for American manufacturers • Japanese model resulted in superior quality and a $2,000 per vehicle cost advantage • Relationship integration via collaboration

8. A Changing SC World All advantage is temporary. No capability is unassailable, no lead is uncatchable, no kingdom is unbreachable. Indeed, the faster the clockspeed, the shorter the reign. Sustainable advantage is a slow-clockspeed concept; temporary advantage is a fast-clockspeed concept. And, clockspeeds are increasing almost everywhere. - Charles Fine, Professor at MIT

9. Proactive companies use insight gained from internal and external scanning to avoid surprises, identify opportunities and threats, and improve both tactical and strategic decision-making. Identifies a firm’s strengths and weaknesses vis-à-vis competitor capabilities and customer expectations. Scanning attempts to: Detect important cultural, economic, legal, political, social, and technological events and trends. Help managers accurately and objectively understand the company’s strengths and weaknesses. Identify and define potential opportunities and threats implied by identified events and trends. Provide a common and correct perception for tactical and strategic planning. Promote an adaptable, forward-looking mindset among managers and employees. Environmental Scanning

10. The Scanning Process

11. SWOT Analysis

12. Environmental Scanning - Failures Manager should seek to avoid the following common pitfalls of environmental scanning: • Failure to involve people who can act on the insight • Failure to incorporate diverse sources of information • Failure to use multiple methods of gathering information • Failure to look at information from diverse viewpoints • Failure to consider both internal and external issues and perspectives • Failure to understand interaction among environmental trends • Superficial analysis • Study to narrowly focused

13. Forces of Change Many industry-specific forces affect companies; however, ten generic forces are helping to shape how business is now conducted.

14. Forces of Change

15. Forces of Change

16. Globalization of Markets • Technology has overcome much of the distance created by geography and culture. • The pace of globalization depends on: • Advances in information and communication technology • Availability of reliable transportation • Reduction of protectionist trade policies

17. Globalization’s Implications Business knows no national boundaries. Capital and work - your work! - can go anywhere on earth. The consequence of all this is painfully simple: If the world operates as one big market, every employee will compete with every person in the world who is capable of doing the same job. There are a lot of them, and many of them are very hungry. - Andrew Grove, former CEO at Intel

18. Importance of Global Markets • 95% the world’s population lives outside the U.S. • 80% of the world’s gross domestic product is produced outside the U.S. • 50%+ of the population is under 20 years old in many countries • Educational background and disposable income are prime factors motivating consumption decisions • US companies earned $315 billion profits overseas in 2004, up 78% over the past decade • This pace far outstrips domestic profit growth

19. Importance of Global Markets

20. GDP in Industrialized Economies

21. GDP in Emerging Economies

22. Global Business is Different Managers must consider four differences between Global and domestic operations. • Politics –political stability and undercurrents that might jeopardize global business strategies. • Legalities – requires competent legal counsel • Finance – exchange rate risk and hedging; taxation issues • Culture –must adapt to local views on time, personal space, worker/manager relations, individual accountability, etc.

23. Six Globalization Imperatives Six imperatives are shaping the global competitive landscape: • Establish a Triadic Presence – companies need to operate in the three major world markets – U.S., E.U. and Asia • Utilized Beachheads – use operations in industrialized countries as bridges into emerging markets

24. Six Globalization Imperatives • Achieve Seamless Performance Across Markets – deliver the same high quality product with the same excellent service everywhere • Extend Reach Through Alliances – alliance partners can provide market knowledge, technological expertise, operational know-how, and/or financial resources.

25. Six Globalization Imperatives • Compete in Competitors Home Market – competition prevents cross profit subsidization • Coordinate Global Activities – cross-pollination of ideas creates synergy while reducing redundancy

26. Designing a Global Network • To insure access to customers and worldwide resources, companies are increasingly creating worldwide supply chain networks. • Resources within the supply chain need not be owned by a single entity.

27. Designing a Global Network To insure supply chains are properly designed four criteria should be considered: • Compatibility – need to align network design decisions with company’s overall strategy • Configuration – need to identify and consider issues that will affect network performance when deciding where to locate value added activities • Coordination – need to direct and integrate geographically dispersed activities • Control – need for consistent and proper day-to-day decision-making at local value added facilities

28. A Return to the Opening Story Based on what you have now read and discussed: • Does Doug have all the right people on the task force? What changes would you make? • What do you think of Charlene’s idea? Can an environmental scan create a sense of urgency across Olympus? What other benefits might an environmental scan provide? • What role do each of the following play in helping overcome a culture of complacency? A SWOT analysis? A Significant Emotional Event? A successful pilot project?

29. Supply Chain Management: From Vision to Implementation Supplement F: Facility Location

30. Basic Center-of-Gravity Approach • Helps managers locate the geographic center of a group of locations • Determined by calculating the average North-South coordinate and the average East-West coordinate • Example: Managers are trying to locate a new store based on five existing competitor locations; where should the new store be placed?

31. Retail Locations

32. Coordinate Locations

33. Central Location

34. Unequal Shipment Size or Frequency • To minimize transportation costs, facility should be located closer to locations that require more frequent shipments. Example: Assuming the data below, where should new facility be located?

35. Coordinate Locations

36. Unequal Shipment Size or Frequency • To minimize total distribution costs, facility should be located closer to locations that have higher transportation costs. Example: Assuming the data below, where should new facility be located?

37. Coordinate Locations

38. Proximity to major highways and airports Proximity to labor force Education level of labor force Degree of unionization Cost of land Construction costs Weather Quality of life Employment rates State and local tax rates Proximity to competition Proximity to similar industries Topography Environmental issues Availability of shippers or carriers Management preferences Population characteristics Security Facility Location – Other Issues