Advanced Sourcing Strategies Quiz

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Questions and Answers

How does the indirect sourcing strategy balance cost and supplier management complexity?

Indirect sourcing is generally more cost-effective but involves managing a massive supplier base, which increases complexity.

What is the primary operational advantage of direct sourcing?

Direct sourcing simplifies operations by reducing the number of connections that need to be managed.

In what way can indirect sourcing be considered a strategic approach despite its high costs?

It allows for broader supplier selection and potentially more competitive pricing over time, despite initial costs.

What risks might accompany a heavily interconnected supplier network as seen in direct sourcing?

Increased risk of supply chain disruptions due to the reliance on numerous connections and potential vulnerabilities. Signup and view all the answers

Why might a business choose a tactical versus an operational sourcing strategy?

A tactical strategy allows for flexibility and adaptation to market changes, while operational focuses on efficiency and execution. Signup and view all the answers

How can complex supplier bases impact the decision-making process in sourcing strategies?

Complex supplier bases can complicate decision-making by introducing more variables and potential points of failure. Signup and view all the answers

What strategic considerations should be accounted for when evaluating supply market risks?

Considerations should include supplier reliability, market volatility, and the impact of geopolitical factors. Signup and view all the answers

What is integration in the context of supply chain operations?

Integration refers to pulling together resources to create new competencies. Signup and view all the answers

How does performance criteria rank against competition in terms of providing advantages to customers?

Performance criteria can provide crucial, important, useful, or marginal advantages ranked from 'considerably better' to 'worse than all'. Signup and view all the answers

Why is it important for performance to exceed industry standards?

Exceeding industry standards provides a crucial advantage and ensures competitiveness in the market. Signup and view all the answers

What are the implications of a performance that is 'slightly worse than some'?

It indicates that performance needs to be on par with competition, with potential for future consideration. Signup and view all the answers

What does the concept of 'trade-offs' imply about operations systems?

Trade-offs suggest that operations systems excel in specific areas but may underperform in others. Signup and view all the answers

What is the significance of achieving performance that is 'considerably better' than competitors?

It provides a crucial advantage that can significantly influence customer loyalty and market share. Signup and view all the answers

Describe the performance criteria that need to be met for customers to consider a product as 'the same' as competition.

Performance must meet industry standards for it to be considered 'the same' by customers. Signup and view all the answers

What potential consequences arise from performance being 'worse than most'?

Such performance may not be important at present but can become critical if competitors improve. Signup and view all the answers

How does the integration of resources affect new competencies within an organization?

The integration of resources enhances collaborations, leading to the development of new competencies. Signup and view all the answers

What does it mean if a product's performance is 'never considered by customers'?

It indicates that the performance is 'considerably worse than all' others and lacks relevance to customers. Signup and view all the answers

What is the definition of organizational strategy according to Paton et al. (2005)?

The direction and scope of an organization over the long term, achieving advantage in a changing environment through resource and competency configuration. Signup and view all the answers

List the three aims of decisions made within an organization as stated in the text.

To provide preferred products or services, guide the organization throughout its lifetime, and configure resources for greater market share and profits. Signup and view all the answers

Why is configuring resources important for an organization?

Configuring resources is essential for carrying out required activities to achieve greater market share and profits. Signup and view all the answers

What should an organization focus on in relation to its competitors?

An organization should focus on providing a product or service that customers want more than competitor products. Signup and view all the answers

What role does stakeholder expectation play in organizational strategy?

Stakeholder expectation guides the decisions made to align organizational actions with the interests of those invested in the business. Signup and view all the answers

How does a changing environment affect organizational strategy as mentioned in the text?

A changing environment necessitates adaptability in strategy to maintain competitive advantage. Signup and view all the answers

Identify the key elements that contribute to a competitive advantage per the attributes mentioned.

Resources must possess four specific attributes to potentially result in a competitive advantage. Signup and view all the answers

What is meant by the 'scope of activity' in defining an organization?

The 'scope of activity' refers to the range of products and services an organization chooses to offer. Signup and view all the answers

Why is it important for an organization to achieve a greater market share?

Achieving a greater market share enhances profitability and strengthens the organization's competitive position. Signup and view all the answers

What does targeting a product or service at a different use imply in terms of innovation?

It implies adapting or reframing the product to meet the needs of a new customer base or use case. Signup and view all the answers

What key aspects are uncertain during the Fluid Phase of the Innovation Lifecycle?

The uncertainty revolves around the target application of the technology and the technical means to achieve that application. Signup and view all the answers

What characterizes the Fluid Phase of the Innovation Lifecycle?

This phase is characterized by extensive experimentation and learning as companies explore new technologies. Signup and view all the answers

What marks the end of the Fluid Phase in the Innovation Lifecycle?

The end is marked by the emergence of a dominant design and the resolution of technical issues. Signup and view all the answers

In the context of innovation, what is meant by 'dominant design'?

A dominant design refers to the standard or preferred configuration for a product or technology that emerges after the Fluid Phase. Signup and view all the answers

How does the innovation focus shift throughout the Fluid Phase?

The focus initially centers on the technology and its application, shifting towards defining clear targets and overcoming technical challenges. Signup and view all the answers

What role does experimentation play during the Fluid Phase of innovation?

Experimentation is critical as it allows companies to explore various applications and refine their technological approaches. Signup and view all the answers

What is the relationship between innovation lifecycle stages and company strategies?

Different stages of the innovation lifecycle require distinct strategic approaches to address unique challenges and opportunities. Signup and view all the answers

Define the term 'technical uncertainty' in the context of the Fluid Phase.

Technical uncertainty refers to the unknowns related to how to effectively utilize the emerging technology to achieve desired outcomes. Signup and view all the answers

Why is understanding the targeted application important in the Fluid Phase?

Understanding the targeted application is crucial as it guides the innovative efforts and investment towards appropriate technologies. Signup and view all the answers

What does 'servitization' refer to in the context of product-service relationships?

Servitization refers to the transition from product-oriented offerings to a mix of product and process-oriented services. Signup and view all the answers

Explain the significance of outcome-based contracting (OBC) for suppliers.

OBC compensates suppliers based on the outcomes that matter to customers, motivating them to enhance product performance. Signup and view all the answers

Name one key transition benefit from standardized to customized services.

The key benefit is the ability to meet specific customer needs and preferences, enhancing satisfaction. Signup and view all the answers

How does OBC change the supplier's approach to providing solutions?

OBC shifts the supplier's focus from specifying individual components to achieving desired outcomes for customers. Signup and view all the answers

What role does value creation play in the OBC model?

Value creation involves delivering desired outcomes for customers, which influences supplier compensation. Signup and view all the answers

Identify one challenge that companies may face when adopting an outcome-based contract.

One challenge is that OBC often exceeds the current resources and capabilities of the firm implementing it. Signup and view all the answers

What is a potential result of expanding the scope of services in a business model?

Expanding the scope can lead to the emergence of new internal activities related to service delivery. Signup and view all the answers

Describe the transition from transactional to relational services.

The transition emphasizes building long-term relationships with customers rather than focusing solely on single transactions. Signup and view all the answers

Study Notes

Circular Business Models and Business Model Innovation

Lecture 6, Copenhagen Business School
Topics covered include Business Model Innovation, Servitization and Digital Servitization, Circular Economy and Circular Business Models, a John Deere Case Study, a Mural - Business Model Canvas, and The Business Model Transformation Board.

Business Model Innovation

E-business is different from Porter's Generic Strategies (Amit and Zott, 2001)
Amit & Zott's definition of business model innovation includes:
- Novelty: New links between participants, relying on personal security and site trust.
- Efficiency: Speed and ease of approach, convenient and cheap interconnectivity of a virtual community.
- Lock-in: Switching costs, opportunities for customization and personalization of individual needs.
- Complementarities: Combination of on-line and off-line social service transaction, alliance capabilities of partners.

Business Model Configurational Approach

External drivers (e.g., digital business environment) influence internal business model configuration.
Internal configuration consists of value creation, value capture, and value delivery.
Value delivery: Products and services.
Value creation: Resources and capabilities.
Value capture: Profit formula.

Servitization of Manufacturing

Increasing global competitiveness pressures, lower cost economies.
Installed base arguments (Trains 1/22, escalators 1/19, X-ray equipment 1/44)
Long-lasting product lifecycles and stable revenue inflows.
Firms favor outsourcing/externalization and focus on core competencies.
Customers try to reduce supplier base to one-stop shops.

The Myth about Rolls-Royce

Airlines seek stable long-term revenues, lower servicing costs, and improved customer loyalty.
Cost savings, predictable costs, and reduced investment costs are key.
The use of the Internet of Things (IoT) is instrumental in offering these benefits.

Rolls-Royce Senior Exclusive Quotes

"Realized the potential of that service business and the guaranteed long-term revenue stream balancing long business cycles for aircraft and engine acquisitions."
"Availability is everything." "All value is instrumental for something else, you can only really analyze it within something else, a specific decision context."

Servitization as a Transition

Servitization involves repositioning of processes along a product-service continuum.
Three transitions occur:
- From product to process-oriented services
- From standardized to customized services
- From transactional to relational services

Outcome-Based Contracting

OBC compensates suppliers based on desired customer outcomes, motivating increased performance.
Supplier compensation is linked to achieving the desired outcome (e.g., product reliability, availability).
OBC contracts extend beyond resources and capabilities of focal firms, emphasizing value delivery without specifying how.

Opening Up the Business Model

Activities are likely to emerge when expanding service scope.
Internal activities are likely materialize with time-frame of partner activities appear.
Begin with internal activities and then increasingly include supplier and partner activities.

Digitalization of Manufacturing

Additional layer on top of servitization.
Uses digital technology/applications to improve efficiency, customer experience, and launch new models/products.
Platform architecture orchestrates stakeholder data collection, data flow, and monetization.
Platform functionality's modular architecture allows for interoperation.

Product + Service + Digital

Combining product, service, and digital systems to generate new business models, leveraging servitization.

Example: ABB

An example of a company like ABB employing a product-service and digital model integration, including field services, expert support, analytics, cloud applications, and ship automation.

Ecosystem Perspective

Need an ecosystem perspective to understand competitive, relationship, and longer-term operational issues.
Firm as a unit of analysis is insufficient.

A Strategy Perspective on Adapting in the Age of Digital Ecosystems

Balancing problem-solving, experimentation, business model reconfiguration, and digital business model strategic agility for emerging and responding companies facing this challenge.

Ericsson's Corporate Ecosystem

A visualization of Ericsson's vast internal/external ecosystem of involved parties, showing a large interconnected network of organizations.

Digital Servitization

The different levels of digital servitization in product, service, and digital architecture, and software categories.

Digital Servitization Business Models in Ecosystems

Demonstrates diverse digital servitization business models in ecosystems, ranging from modular solutions to autonomous optimization.
Shows the integration of product-oriented, customer-oriented, industrializer-oriented, and platform-oriented services and capabilities within the overall concept.

Circular Supply Chain

Circular economy transition from raw material --> manufacturing--> distribution --> customer --> trash to a reversed process - reducing waste/regenerative processes.
Includes Renewables flow management, biochemical feedstock, parts manufacturer, product manufacturer, service provider, sharing, recycle, reuse/redistribute, and the concept of cascaded resource systems.
This concept is well illustrated by an example of companies like Too Good to Go.

Food Waste

Food waste is a significant environmental issue.

Circular Business Model Key Strategies

Key strategies for circular business models include Retain Product Ownership (RPO), Product Life Extension (PLE), and Design to Recycling (DTR).

The Circularity Matrix

The right strategy is determined by how easily a manufacturer can recover a product and reuse/recycle it.
Company challenges depend on capabilities and competitive context.
Strategies vary across low/high embedded value and easy/hard access.
Example strategies include DFR + infrastructure/partnerships, PLE + RPO, etc.

Circular Business Models Maturity Levels:

Maturity Level 1 - Circularity Awareness: Sustainability awareness measures are developed, Life cycle assessment tools, internal provision & responsibilities are detailed.
Maturity Level 2 - Circularity Progression: Assessments and configurations of agreements tailored to customer's demand, integration of digital functionalities into offerings, enhancing relationships with customers.
Maturity Level 3 - Circularity Advancement: Product ownership management and customer integration techniques are established, systems for reuse and recycling is developed, design processes of reverse logistics are improved.

Circular Business Model Transformation

Examples of cases such as performance-based pressure filter systems, digital fleet management, luxury car sharing, and medical tele-surgery illustrate various models under this category.

Closed-loop Supply Chains

Describes the progression from traditional linear supply chains to circular closed-loop systems. This process aims to eliminate wasteful actions/processes and promote sustainability.

Business Model Canvas

A framework for designing business models that includes:
- Key activities
- Key partners
- Key resources
- Customer relationships
- Channels
- Cost structure
- Revenue streams
- Value proposition

Customer Segments

Focuses on understanding the specific customer segments a company serves. This includes determining constituents and types of customer variations.

Value Propositions

Defines customer value. Includes characteristics such as newness, performance, customization, and cost reduction.

Customer Relationships

Analyses the relationship types with customer segments, established relations, integration, and associated costs.

Channels

Discusses the various channels, how they are used in delivering services and how they are integrated, their effectiveness, and cost effectiveness.

Revenue Streams

Investigates the various types of revenue, including fees, usage fees, subscriptions, licensing, loans, and others.

Key Activities

Identifies specific activities crucial for value propositions, distribution channels, and customer relationships.

Key Resources

Outlines the physical, intellectual, human, and financial resources needed.

Key Partners

Describes key suppliers, resources acquired from them, and joint activities performed.

Cost Structures

Details primary cost factors, like fixed versus variable costs, economies of scale and scope.

Case Study: Uber

A case study on a particular business model that illustrates the concepts.

The Business Transformation Board

A diagram/chart used on a visual aid to graphically represent the strategic decisions within the context of Business Model Transformation

Product Business Model

Focuses on standard products/services offered on a large scale.
Focus is on building a great product and gaining traction for the firm.

Platform Business Model

Focus is on the ability to use a wide range of products and services in delivering a complete, useful product.

Project Business Model

Relies on highly customized products/services.
Customer involvement in development and production
Strong relationships, close-client co-creation, and revenue stream expansion potential.

Solution Business Model

Combination of a highly customized offering with a broader scope of integrated products and services.
Focus on comprehensive solutions, co-created with the client, usually resulting in greater customer lock-in.

Layouts

Details of layout design types (like fixed, functional, cell and line).
Factors to consider include the flow of materials, people, and information, as well as possible costs of moving them and their necessary space requirements (especially in a manufacturing context.)

Performance Management System (PMS)

Outlines the steps to implement a performance management system, including objectives, measures, and targets. It highlights the importance of alignment between performance measures and organizational objectives, as well as the need to gather accurate data and maintain accurate reporting systems (such as for performance data analysis).

The Performance Pyramid

Illustrates how performance measurements can be organized in a hierarchical system related to objectives.

Supply Chain Operations and Strategy

Lecture topics, including Quality management, Future directions in OM, Strategy and the supply chain, Supply chain planning, Supply chain complexity.

Inventory Management, ERPs & Digital Platforms, Lean Operations

Key areas of exploration in inventory management, including its impact on return on assets (ROA), the use of the Economic Order Quantity (EOQ) formula, Reorder Level (ROL) and cyclical review (CR) systems, the use of Material Resource Planning (MRP) and Enterprise Resource Planning (ERP), and the principles of Lean operations.

The 5S method for workplace management

Defines the five steps in an organized workplace.

The Toyota Production System (TPS)

Describes the Toyota Production System in detail, including its elements and characteristics.

Lean Thinking principles/concepts.

Explains the overall principles and concepts of Lean thinking.

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Description

Test your knowledge on sourcing strategies and their operational implications. This quiz explores the nuances between direct and indirect sourcing, supplier management complexities, and the importance of performance in competitive landscapes. Understand the strategic considerations and risks involved in sourcing choices.