chapter 1 prncipals o suply chain(1).pptx.pdf

principles of supply chain management pdf Dr.Mosaab Habani PhD- Doctor of Philosophy (UK) DBA - Doctor of Business Administration Master of Engineering Management (Australia) Master of Engineering (Integrated Logistics Management) (Australia) Master of Management in Hospitals Administration (USA)...

principles of supply chain management pdf Dr.Mosaab Habani PhD- Doctor of Philosophy (UK) DBA - Doctor of Business Administration Master of Engineering Management (Australia) Master of Engineering (Integrated Logistics Management) (Australia) Master of Management in Hospitals Administration (USA) Bachelor degree in Electrical Engineering (Jeddah) Master Project Manager (MPM) Certification (UK) LOGISTICS, THE SUPPLY CHAIN AND COMPETITIVE STRATEGY Dr. Faiza HAMDI Chapter Outline 1. Supply chain management is a wider concept than logistics 2. Competitive advantage 3. The supply chain becomes the value chain 4. The mission of logistics management 5. The supply chain and competitive performance 6. The changing competitive environment Dr. Faiza HAMDI The relations between the activities of demand creation and physical supply … illustrate the existence of the two principles of interdependence and balance. Failure to co-ordinate any one of these activities with its group-fellows and also with those in the other group, or undue emphasis or outlay put upon any one of these activities, is certain to upset the equilibrium of forces which means efficient distribution. … The physical distribution of the goods is a problem distinct from the creation of demand … Not a few worthy failures in distribution campaigns have been due to such a lack of co-ordination between demand creation and physical supply … Dr. Faiza HAMDI Instead of being a subsequent problem, this question of supply must be met and answered before the work of distribution begins. It is paradoxical that it has taken almost 100 years for these basic principles of logistics management to be widely accepted. What is logistics management in the sense that it is understood today? There are many ways of defining logistics but the underlying concept might be defined as: Dr. Faiza HAMDI Logistics Logistics is the process of strategically managing the procurement, movement and storage of materials, parts and fnished inventory (and the related information fows) through the organization and its marketing channels in such a way that current and future proftability are maximized through the costefective fulflment Dr. Faiza HAMDI of orders. Supply chain management is a wider concept than logistics Logistics is essentially a planning orientation and framework that seeks to create a single plan for the flow of products and information through a business. Supply chain management builds upon this framework and seeks to achieve linkage and co-ordination between the processes of other entities in the pipeline, i.e. suppliers and customers, and the organisation itself. Thus, for example, one goal of supply chain management might be to reduce or eliminate the buffers(barrier) of inventory that exist between organizations in a chain through the sharing of information on demand and current stock levels. Dr. Faiza HAMDI Supply chain management is a wider concept than logistics The management of upstream and downstream relationships with suppliers and customers in order to deliver superior customer value at less cost to the supply chain as a whole. Thus the focus of supply chain management is upon the management of relationships in order to achieve a more profitable outcome for all parties in the chain. This brings with it some significant challenges since there may be occasions when the narrow self-interest of one party has to be subsumed for the benefit of the chain as a whole. Dr. Faiza HAMDI Supply chain management is a wider concept than logistics Whilst the phrase ‘supply chain management’ is now widely used, it could be argued that it should really be termed ‘demand chain management’ to reflect the fact that the chain should be driven by the market, not by suppliers. Equally the word ‘chain’ should be replaced by ‘network’ since there will normally be multiple suppliers and, indeed, suppliers to suppliers as well as multiple customers and customers’ customers to be included in the total system. Figure 1.1 illustrates this idea of the firm being at the centre of a network of suppliers and customers. Dr. Faiza HAMDI Supply chain management is a wider concept than logistics Extending this idea it has been suggested that a supply chain could more accurately be defned ass A network of connected and interdependent organizations mutually and co-operatively working together to control, manage and improve the flow of materials and information from suppliers to end users. Source: J. AITKEN Dr. Faiza HAMDI Competitive advantage The foundations for success in the marketplace are numerous, but a simple model is based around the triangular linkage of the company, its customers and its competitors – the ‘Three Cs’. Figure 1.2 illustrates the three-way relationship Dr. Faiza HAMDI Competitive advantage  The source of competitive advantage is found firstly in the ability of the organization to differentiate itself, in the eyes of the customer, from its competition, and secondly by operating at a lower cost and hence at greater profit.  Seeking a sustainable and defensible competitive advantage has become the concern of every manager who is alert to the realities of the marketplace. It is no longer acceptable to assume that good products will sell themselves, neither is it advisable to imagine that success today will carry forward into tomorrow. Dr. Faiza HAMDI Competitive advantage Let us consider the bases of success in any competitive context. At its most elemental, commercial success derives from either a cost advantage or a value advantage or, ideally, both. It is as simple as that – the most profitable competitor in any industry sector tends to be the lowest-cost producer or the supplier providing a product with the greatest perceived differentiated values. Put very simply, successful companies either have a cost advantage or they have a value advantage, or – even better – a combination of the two. Cost advantage gives a lower cost profile and the value advantage gives the product or offering a differential ‘plus’ over competitive offerings. Let us briefly examine Dr. Faiza HAMDI these two vectors of strategic direction. 1. Cost advantage In many industries there will typically be one competitor who will be the low-cost producer and often that competitor will have the greatest sales volume in the sector. There is substantial evidence to suggest that ‘big is beautiful’ when it comes to cost advantage. This is partly due to economies of scale, which enable fixed costs to be spread over a greater volume, but more particularly to the impact of the ‘experience curve’. Dr. Faiza HAMDI 1. Cost advantage Subsequent work by Boston Consulting Group, extended this concept by demonstrating that all costs, not just production costs, would decline at a given rate as volume increased (see Figure 1.3). In fact, to be precise, the relationship that the experience curve describes is between real unit costs and cumulative volume. Logistics and supply chain management can provide a multitude of ways to increase efficiency and productivity and hence contribute significantly to reduced unit costs. Dr. Faiza HAMDI Value chain activities (shown in Figure 1.7) can be categorised into two primary types activities (inbound logistics, – operations, logistics, outbound marketing and sales, and service) and support activities (infrastructure, human resource management, technology development and procurement). These activities are integrating functions that cut across the traditional functions of the frm. Competitive advantage is derived from the way in which frms organize and perform these activities within the value chain. Dr. Faiza HAMDI To gain competitive advantage overits rivals, a firm must deliver value to its customers by performing these activities more efficiently than its competitors or by performing the activities in a unique way that creates greater differentiation. Dr. Faiza HAMDI 4. The mission of logistics management The scope of logistics spans the organisation, from the management of raw materials through to the delivery of the final producte Dr. Faiza HAMDI The supply chain and competitive performance Traditionally most organisations have viewed themselves as entities that exist independently from others and indeed need to compete with them in order to survive. The supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the diferent processes and activities that produce value in the form of products and services in the hands of the ultimate consumer. for example, a shirt manufacturer is a part of a supply chain that extends upstream manufacturers Dr. Faiza HAMDI through the weavers of of fabrics to the fbres,  Supply chain management is not the same as ‘vertical integration’. Vertical integration normally implies ownership of upstream suppliers and downstream customers. This was once thought to be a desirable strategy but increasingly organisations are now focusing on their ‘core business’  in other words the things they do really well and where they have a diferential advantage. Everything else is ‘outsourced’ – in other words it is procured outside the frm. So, for example, companies that perhaps once made their own components now only assemble the fnished product, e.g. automobile manufacturers. Other companies may also subcontract the manufacturing as well, e.g. nike in footwear and sportswear. These companies have sometimes been termed ‘virtual’ or ‘network’ organisations.Dr. Faiza HAMDI GANT: creating value across a virtual network A good example of a virtual organization is the Swedish clothing brand GANT. At the centre of the network is Pyramid Sportswear AB, which directly employs fewer than ten people. Pyramid contracts with designers, identifes trends, uses contract manufacturers, develops the retailer network and creates the brand image through marketing communications. Through its databases, Pyramid closely monitors sales, inventories and trends. Its network of closely co-ordinated partners Dr. Faiza HAMDI Dr. Faiza HAMDI The changing competitive environment As the competitive context of business continues to change, bringing with it new complexities and concerns for management generally, it also has to be recognised that the impact on logistics and supply chain management of these changes can be considerable. Indeed, of the many strategic issues that confront the business organization today, perhaps the most challenging are in the area of logistics and supply chain management. Much of this book will be devoted to addressing these challenges in detail but it is useful at this stage to highlight what are perhaps the most pressing currently. These ares  The new rules of competition Dr. Faiza HAMDI The new rules of competition We are now entering the era of ‘supply chain competition’. The fundamental diference from the previous model of competition is that an organisation can no longer act as an isolated and independent entity in competition with other similarly ‘stand-alone’ organisations. Instead, the need to create value delivery systems that are more responsive to fast-changing markets and are much more consistent and reliable in the delivery of that value requires that the supply chain as a whole be focused on the achievement of these goals. In the past the ground rules for marketing success were obviouss strong brands backed up by large advertising budgets and aggressive selling. This formula now appears to have lost its power. Instead, the argument is heard, Dr. Faiza HAMDI Essentially, this means that organisations create superior value for customers and consumers by managing their core processes better than competitors manage theirs. These core processes encompass such activities as new product development, supplier development, order fulflment and customer management. By performing these fundamental activities in a more cost-efective way than competitors, it is argued, organisations will gain the advantage in the marketplace. our experienced and unique way of operating is what we see as increasingly putting us ahead of the competition. As we move forward in this complex industry, winning will be less about what we do and more about the way we Dr. Faiza HAMDI do it. Globalisation of industry A further strategic issue that provides a challenge for logistics management is the continued trend towards globalisation. A global company is more than a multinational company. In the global business materials and components are sourced worldwide and products may be manufactured offshore and sold in many different countries, perhaps with local customisation. Such is the trend towards globalisation that it is probably safe to forecast that before long most markets will be dominated by global companies. The only role left for national companies will be to cater for specific and unique local demands, for example in the food industry. Dr. Faiza HAMDI Globalisation of industry example For global companies like Hewlett Packard, Philips and Caterpillar, the management of the logistics process has become an issue of central concern. The diference between proft and loss for an individual product can hinge upon the extent to which the global pipeline can be optimised, because the costs involved are so great. The global company seeks to achieve competitive advantage by identifying world markets for its products and then to develop a manufacturing and logistics strategy to support its marketing strategy. So a company like Caterpillar, Dr. Faiza HAMDI uses global logistics channels to supply parts to ofshore assembly plants and after-markets. Where appropriate, Caterpillar will use third-party companies to manage distribution and even fnal fnishing. So, for example, in the US a thirdparty company in addition to providing parts inspection and warehousing attaches options to fork lift trucks. Wheels, counterweights, forks and masts are installed as specifed by Caterpillar. Thus local market needs can be catered for from a standardised production process. Globalisation also tends to lengthen supply chains as companies increasingly move production ofshore or source from more distant locations. The impetus for this trend, which in recent years has accelerated dramatically, is Dr. Faiza HAMDI ‘Time-based competition’ Time compression has become a critical management issue. Product life cycles are shorter than ever, customers and distributors require justin-time deliveries and end users are ever more willing to accept a substitute product if their frst choice is not instantly available. The globalisation of industry, and hence supply chains, is inevitable. However, to enable the potential benefts of global networks to be fully realised, a wider supply chain perspective must be adopted. It can be argued that for the global corporation competitive advantage will increasingly derive from excellence managing in Dr. Faizacomplex HAMDI the web of relationships and fows that Managing the ‘4Rs’ As we move rapidly into the era of supply chain competition a number of principles emerge to guide the supply chain manager. These can be conveniently summarized as the ‘4Rs’ of 1eresponsiveness, 2e reliability, 3e resilience 4eand relationshipse Dre Faiza HAMDI Responsiveness In today’s just-in-time world the ability to respond to customers’ requirements in ever-shorter time-frames has become critical. Not only do customers want shorter lead times, they are also looking for fexibility and increasingly customised solutions. In other words, the supplier has to be able to meet the precise needs of customers in less time than ever before. The key word in this changed environment is agility . Agility implies the ability to move quickly and to meet customer Dr. Faiza HAMDI Responsiveness In the future, organizations must be much more demand-driven than forecast driven. The means of making this transition will be through the achievement of agility, not just within the company but across the supply chain. Responsiveness also implies that the organization is close to the customer, hearing the voice of the market and quick to interpret the demand signals it receives. Dr. Faiza HAMDI Reliability  One of the main reasons why any company carries safety stock is because of uncertainty.  It may be uncertainty about future demand or uncertainty about a supplier’s ability to meet a delivery promise, or about the quality of materials or components. Significant improvements in reliability can only be achieved through re-engineering the processes that impact performance.  Manufacturing managers long ago discovered that the best way to improve product quality was not by quality control through inspection but rather to focus on process control. The same istrue for logistics reliability. Dr. Faiza HAMDI Reliability One of the keys to improving supply chain reliability is through reducing process variability. In recent years there has been a considerable increase in the use of so-called ‘six sigma’ methodologies. Dr. Faiza HAMDI Resilience Today’s marketplace is characterized by higher levels of turbulence and volatility. The wider business, economic and political environments are increasingly subjected to unexpected shocks and discontinuities. As a result, supply chains are vulnerable to disruption and, in consequence, the risk to business continuity is increased. Whereas in the past the prime objective in supply chain design was probably cost minimization or possibly service optimization, the emphasis today has to be upon resilience. Resilience refers to the ability of the supply chain to cope with unexpected disturbances. There is evidence that the tendencies of many companies to seek out low-cost solutions because of pressure on margins may have led to leaner, but more vulnerable, supply chains. Dr. Faiza HAMDI Resilience . Resilient supply chains may not be the lowest-cost supply chains but they are more capable of coping with the uncertain business environment. Resilient supply chains have a number of characteristics, of which the most important is a business-wide recognition of where the supply chain is at its most vulnerable. Dr. Faiza HAMDI Relationships The trend towards customers seeking to reduce their supplier base has already been commented upon. In many industries the practice of ‘partnership sourcing’ is widespread. It is usually suggested that the benefts of such practices include improved quality, innovation sharing, reduced costs and integrated scheduling of production and deliveries. Underlying all of this is the idea that buyer/supplier relationships should be based upon partnership. Increasingly companies are discovering the advantages that can be gained by seeking mutually benefcial, long-term relationships with suppliers. From the suppliers’ point of view, such partnerships can prove formidable barriers to entry for competitors. The more that processes are Dr. Faiza HAMDI linked between the supplier and the customer the more the mutual Relationships Supply chain management by defnition is about the management of relationships across complex networks of companies that, whilst legally independent, are in reality interdependent. These four themes of responsiveness, reliability, resilience and relationships provide the basis for successful logistics and supply chain management. Dr. Faiza HAMDI