Improving the Competitiveness of Supply Chains

1. Improving the Competitivenessof Supply Chains Advanced Diploma in Procurement and Supply

2. Evolutionary stages of purchasing • Clerical (transactional) • Purchasing is perceived as a low-ranking routine function, characterised by a focus on internal performance and efficiency. • Commercial • The focus shifts to price and cost savings, obtained mainly through the interface with suppliers. This stage is characterised by adversarial relationships with suppliers and the exploitation of short-term tactical advantages. • Strategic (proactive) • The focus is on effective contribution to competitive advantage. Strategies are introduced to improve the performance of external supply chains, through a more holistic approach to logistics or supply chain management.

3. The chain metaphor • It emphasises ‘serial co-operation’ or ‘working together in turn’ • It emphasises mutual dependency and collaboration, because each link in a chain is essential to the completeness and strength of the whole • It emphasises the importance of ‘linkages’ or interfaces between members • It is continuous and non-directional

4. Benefits of a ‘customer-focused’ approach • Integrating the objectives of units and functions throughout the value chain • Encouraging procurement staff to be proactive in planning procurements • Reducing resistance to procurement involvement in strategic issues and processes • Enhancing procurement’s role and status in the organisation

5. Supply networks • Seeing the supply chain as a network is helpful for a number of reasons: • It is a more strategic model for mapping and analysing supply chain relationships • It raises the possibility of a wider range of collaborations • It recognises the potential of ‘extended enterprises’ and virtual organisations • It recognises that extended enterprises may overlap, creating complex patterns of relationship, competition and potential risk

6. Value-adding strategies • Value engineering • Analysing the value of products at the design and development stage • Lean supply • Collaborating closely with the supply chain to eliminate or minimise wastes in all activities and processes • Agile supply • Collaborating closely with the supply chain to increase its speed and flexibility of response to changing customer demands • Value-adding negotiations and relationships • Working collaboratively and constructively with suppliers to find ways of continuously improving and adding value, with mutual benefit to all parties

7. The shift to supply chain management

8. Supply network design decisions • How should the network be configured? • Where should each part of the network owned by the organisation be located? • What physical capability should each part of the network owned by the company have?

9. All manufacturing performed by top-level purchaser

10. Top-level purchaser outsources most manufacturing

11. Management issues in closed-loop supply chains • Effective supply base management, integration and collaboration • Effective supplier and customer relationships • Supplier selection and contract award on the basis of recycling or ecologically friendly disposal capacity • Product and packaging design to facilitate return, recycling and safe disposal • Visibility: the ability to access and view relevant logistics data, in order to manage the operation effectively • Reverse logistical activities

12. Characteristics of network sourcing

13. Risks of a narrow supplier base • Over-dependence on a few suppliers, in the event of supplier failure • Supply disruption • The loss of preferred suppliers’ goodwill and co-operation • Preferred suppliers growing complacent, and ceasing to offer competitive value • Being ‘locked in’ to long-term relationship and co-investment with suppliers who turn out to be under-performing or incompatible with the culture, ethics or objectives of the buying organisation • Missing out on seeking or utilising new or more competitive suppliers in the wider supply market

14. Drivers for supply chain management • Cost pressures • Time pressures • Reliability pressures • Response pressures • Transparency pressures • Globalisation pressure

15. Benefits of an SCM approach • Reduced total costs • Improved responsiveness to customers’ requirements • Access to complementary resources and capabilities • Enhanced product and service quality • Improved supply chain communication • Improved inventory management • Reduced cycle times • Greater transparency for cost and risk management • Greater supply chain visibility • Optimising the balance of service levels and costs

16. Improving quality • Selecting suppliers with third party approved or accredited quality management systems • Appraising the quality management systems and ‘track record’ of suppliers • Preparing preferred or approved supplier lists • Influencing the quality of product design • Translating design requirements into clear, accurate materials and service specifications • Developing goods inwards procedures for quality inspection and testing • Managing relationships with suppliers • Monitoring and controlling suppliers’ quality performance over time • Working with suppliers to resolve quality disputes, solve quality problems and/or make ongoing quality improvements

17. Supporting innovation • Enhanced access to market intelligence • Faster and more effective product design and development processes • Tapping into synergies and opportunities available from pooling information, ideas and expertise • Creating incentives for supply chain partners to innovate • The intentional selection of long-term strategic supply chain partners • Supporting the use of collaborative techniques • Supporting the ongoing development of supplier innovation capability • Supporting supply chain management techniques which are themselves regarded as ‘innovative’ in traditional procurement settings • Supporting continuous supply chain improvement and development

18. Reducing risk • Encouraging the proactive monitoring, identification and assessment of risks • Providing greater end-to-end supply chain data sharing, transparency and visibility • Supporting greater transparency and trust in individual supplier relationships • Improving security and continuity of supply • Promoting the intentional and rigorous selection of long-term strategic supply chain partners • Promoting the effective management of contracts, suppliers and supplier performance • Encouraging systems integration and joint development, • Encouraging supply chain mapping and analysis • Creating improved end-to-end supply chain visibility

19. Added value • The core product represents the key benefits received directly from purchasing the product • The actual product is the key elements of the product which differentiate one product from another • The augmented product may include a range of tangible and intangible elements which add value (and often differentiate competing products)

20. Porter’s value chain

21. The value system

22. Problems with Porter’s model • Despite its customer perspective, the model still focuses on profitability as the primary objective • Despite its recognition of the importance of linkages, the model is not highly integrative • The distinction between primary and support functions is somewhat arbitrary • It is a static model, based solely on American firms

23. Organisational structure • To define work roles and relationships • To define work tasks and responsibilities • To channel information flows efficiently through the organisation • To coordinate goals and activities of different units • To control the flow of work, information and resources • To support flexible working and adaptability to changing internal and external demands • To encourage and support the commitment, involvement and satisfaction of the people who work for the organisation • To support and improve the efficiency, effectiveness and competitiveness of the organisation’s performance through all of the above

24. Key modern trends in flexible organisation • The flattening of organisation hierarchies, or ‘delayering’. • Chunked structures • Project management • Horizontal structures • Core-periphery structures • Network structures • Virtual structures

25. Advantages of centralisation • Specialisation of procurement staff • Potential for the consolidation of requirements • Greater co-ordination of procurement activities • More effective control of procurement activity • Avoidance of conflict between business divisions • Access to specialist skills, contacts and resources

26. Advantages in devolving procurement • Better communication and coordination between procurement and operating departments • Customer focus • Quicker response to operational and user needs and environmental changes and problems by local buyers • Knowledge of, and relationships with, local suppliers • Smaller purchase quantities • Accountability • Freeing central procurement units to focus on higher-level, value-adding tasks

27. Organisational systems • Communication, data-sharing and management information systems • Requirements planning systems • Inventory and warehouse management systems • Transport planning and management systems • Purchase to pay (P2P) systems, potentially part of a broader e-procurement or e-sourcing system • Quality management systems • Environmental management systems

28. Process mapping and management • Identifying the nature of process flows, and the sequence of process activities, enables the identification of: • Sources of process inefficiency and non-value-adding activity • Sources of process ineffectiveness • Points of process complexity • Points of risk • Points of cost • Points of profit and opportunity

29. Flowchart symbols

30. Process map for getting out of bed in the morning!

31. The iDEF process map

32. Value-added flowchart • List all steps in a process and create a simple flowchart with the steps in a sequence of boxes • Add to each box the time currently required to complete each step • Identify steps that do not add value • Move the boxes representing non-value-added processes to the right of the boxes representing value-added processes • Total the times in the value-added column to derive a value-added cycle time, and the times in the non-value-added column to derive a non-value-added cycle time • Calculate the percentage of the total cycle time that results from non-value-added operations

33. Value chain analysis • Identifying sub-activities for each primary activity and support activity • Identifying linkages • Looking for opportunities to increase value

34. Managing stages of the process

35. The 10 Cs of supplier appraisal • Competence (or capability) • Capacity • Commitment • Control • Cash • Consistency • Cost • Compatibility • Compliance • Communication

36. Key components of sourcing decisions • In-house or outsource • Supplier selection • Procurement • Sourcing-related metrics

37. The relationship spectrum

38. Appropriate relationship factors • The nature and importance of the items being purchased • The competence, capability, co-operation and performance of the supplier • Geographical distance • The compatibility of the supply partners • The organisation’s and purchasing function’s objectives and priorities • Supply market conditions • Legal and regulatory requirements

39. Features of a constructive supply partnership • A joint and mutual search for greater efficiency and competitiveness • Joint planning for the future by the customer and the supplier. • Agreed shared objectives • Understanding between the customer and the supplier that there should be a joint effort to eliminate waste from the supply chain • Openness and transparency between the organisations • Each party understands the expectations of the other, and seeks to meet or exceed them • The relationship is one of equal partners • They recognise that the relationship might not last for ever, and have a prepared and agreed exit strategy

40. Key characteristics of partnership sourcing • Cultural compatibility between the partners • A high level of trust, knowledge sharing and openness between customer and supplier • Mutual acceptance of the concept of win-win within the supply chain • Relevant expertise, resources or competencies in complementary areas • Clear joint objectives and meaningful performance measures for assessing supply chain performance • The use of cross-functional teams to enhance co-ordination, process focus and continuous improvement • A total quality management philosophy, focused on co-operative efforts to maximise quality and secure continuous improvement • A high degree of systems integration

41. Partnering

42. Partnering (contd)

43. Characteristics of adversarial relationships • Lack of trust and therefore little information sharing • A one-off or short-term transaction focus • The use of power and negotiation to seek the best possible deal • Rigorously enforced compliance with contract terms • Little co-operation or recognition of mutual interests

44. Supplier switching

45. Supplier switching (contd)

46. Make/do or buy decisions • Strategic make/do or buy decisions • determine the long-term activities, capabilities, resources and ‘boundaries’ of the firm • Tactical make-do or buy decisions • reflect the organisation’s response to short-term or cyclical changes in demand for its products or services, in order to utilise available productive capacity efficiently • Operational or ‘component’ make-or-buy decisions • basically product design and manufacturing decisions, determining whether a particular component of a product should be manufactured in-house or bought in from the external supply chain

47. Business process outsourcing • Business process outsourcing (BPO) • ‘the transfer of responsibility to a third party of activities which used to be performed internally’ • Facilities management • outsourcing solutions in which the customer transfers to an external services provider the responsibility for the operation and maintenance of one or more facilities • Shared services • the outsourcing of a business function to an expert internal department or unit • Managed services • the outsourcing of responsibility for managing service operations and project or programme activity • In-sourcing • the reverse process: the transfer of an outsourced function to an internal department of the company, to be managed by employees

48. Drivers for outsourcing • Quality drivers • Cost drivers • Business focus drivers • Financial drivers • Relationship drivers • Human resource drivers

49. Outsourcing

50. Outsourcing (contd)