Lecture 1: Theoretical Foundations of Operations, Supply Chain Management, and Digital Transformation PDF

Industry X.0 and Supply Chain Management Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management Lecture 1 Theoretical foundations Learning objectives Speaker After fi...

Industry X.0 and Supply Chain Management Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management Lecture 1 Theoretical foundations Learning objectives Speaker After finishing this lecture you will have achieved the following learning objectives: You will be able to describe the different flows and dimensions of supply chain management. You will be able to classify technologies in emerging trends in supply chain management. You will be able to explain the variants of supply chain operation models in organizations. You will be able to explain the importance and levers of digitization in supply chain management. You will be able to interpret the digital maturity level of companies. Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 2 01 Introduction 02 SCM in organizations 03 Importance and leverage  Digital supply chain in focus Core element of the digital enterprise – supply chain is top priority for digital investments. Speaker Digital products, Digital customer Digital engineering Digital supply Digital workplace services, and and channel and manufacturing chain business models management E-finance Vertical integration Integrated planning Digital enhanced B2B2C customer and execution products interaction Digital HR Big data process optimization Logistics visibility Intelligent and Digital customer Internal knowledge connected products experience sharing Predictive Procurement 4.0 and solutions maintenance Omnichannel sales Smart warehousing Automated and data- integration Digital Condition monitoring based services Efficient spare parts Omnichannel applications Augmented reality management Digital business marketing models Integrated digital Autonomous and B2C Point-of-sales driven engineering logistics replenishment Digital factory Predictive supply Microdeliveries chain analytics Customer lifetime value management Digital Technology, processes, organization enablers Sources: pwc (2016); Deloitte (2019) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 4  Supply Chain Management - definition (1) Connectivity through flow-connected actors within supply chains / networks. Speaker Definition – Supply chain management Supply chain management is the design and coordination of a network through which organizations and individuals get, use, deliver, and dispose of material goods, acquire and distribute services and make their offerings available to markets, customers, and clients. – LeMay et al. (2017) Material flow Movement of different materials from raw materials at the beginning to finished product at the end of the supply chain (not for service supply chains) Information flow Upstream and downstream sharing of supply chain specific information Cash flows between the supply chain actors such as service providers (e.g., banks), suppliers Financial flow and customers Commercial flow Transactional flows of buying and selling, resulting in an ownership change of material flows Sources: Lu (2011); Madenas et al. (2014); LeMay et al. (2017) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 5  Supply Chain Management - definition (2) There are several core dimensions of supply chain management. Speaker Suppliers – Integration, collaboration and development of suppliers Customers – Connecting with customers Performance management – Collecting, analyzing, and reporting performance information Dimensions IT & technology – Study, design, development, application, implementation, support and management of computer-based information systems HR & talent – Attraction, selection, training, assessment and rewarding of employees Logistics & inventory – In- and Outbound transportation, warehousing and inventory, management and control Production systems – Design, optimization and automation of production processes Source: SAP (2020) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 6  Supply Chain Operations Reference Model Standardized approach for all sectors and branches defined by the Supply Chain Council. Speaker Performance Processes Standard metrics to describe process Standard descriptions of management performance and define strategic goals processes and process relationships SCOR- Model People Practices Management practices that produce Standard definitions for skills required significantly better process to perform supply chain processes performance The complete manual is available at: The SCOR quick reference guide is available at: Source: APICS Supply Chain Council (2017) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 7  Supply Chain Operations Reference Model Digitization plays an important role in practices and skills defined in SCOR. Speaker Practices People 3D printing / rapid prototyping Bar code handling / RFID Bar coding / RFID Computer-aided design / computer-aided manufacturing Data warehousing / business intelligence Data management Document management system Enabling technology Electronic data interchange (EDI) ERP Systems Electronic returns tracking … Master data accurancy Real time package tracking … Source: APICS Supply Chain Council (2017) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 8  Supply chain triangle Interdependencies between service, costs, and cash – example: new product / more customized product launch. Speaker Service Products better fit individual client needs Expansion of the product portfolio Increased customer satisfaction Cash Costs Higher inventory of different Reduced batch size raw materials and half-finished Higher setup costs products Higher costs for purchasing of Higher inventory of finished components / raw materials products Source: Oliver Wyman (2020) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 9  Various emerging technologies identified by Gartner Five emerging technology trends with mostly significant effects on supply chains. 3D sensing cameras Sensing & AR cloud Speaker Light-cargo delivery drones Mobility Flying autonomous vehicles Autonoumous driving levels 4 & 5 Biochip Personification Augmented Augmented intelligence Human Emotion AI Immersive workspaces Biotech Postclassical 5G Next-generation memory Compute & Low earth orbit satellite systems Comms Nanoscale 3D printing DigitalOps Knowledge graphs Digital Synthetic data Ecosystems Decentralized web Decentralized autonomous organizations Advanced machine learning Edge AI Edge analytics Advanced Explainable AI AI & AI PaaS Analytics Transfer learning Generative adversarial networks Graph analytics Source: Gartner (2019) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 10  DHL logistics radar – benchmark for strategy and innovation In addition to social and business trends, many of the previously shown technologies have an impact on logistics and supply chain management. Speaker Social & business Technology trends trends Source: DHL (2019) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 11 Combining operations and supply chain management with the digital transformation Speaker general specific Collaboration Sensors Supply Chain Information Transparency Robotics Requirements Strategy & Dynamics Excursus: Start-ups and apps Supply Chain Processes Decentralised decisions Principles Augmented reality Technologies IT - Systems ? Supply Chain Planning 5.0 4.0 Intelligent end-to-end supply network Internal supply chain Internal supply chain Internal supply chain Internal supply chain 3.0 2.0 1.0 Sustainable Industry X.0 Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 12 01 Introduction 02 SCM in organizations 03 Importance and leverage Organizational structure Matrix organizations as a combination of functional organizations and end-to-end processes. Speaker Functional End-to-end Matrix organizations processes organizations Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 14  Overview of supply chain organizations Most companies operate in the middle of the centralization spectrum. Speaker Decentralized supply chain model 12 % Centralized strategic model 24 % Typical features Typical features Process ownership and execution lie Centralized responsibility for primarily within the local units, wich strategic tasks Unit* 1 Unit* 2 Unit 1* Unit 2* SC strategy dedicated teams, projects, and Selected processes executed executive guidelines. centrally and provided to business Local SC Local SC SC SC SC units, e.g. demand and inventory execution execution execution Coordination of cross-unit supply Supply coordination committe analytics, planning hubs chain activities are done by Remaining operative responsibilities appointed-for-purpose steering are decentralized with units committee Centralized operating supply chain 61 % Centralized platform model 3% Typical features Typical features Centralized responsibility for strategic Supply chain execution is at the tasks, e.g. supply chain and network first management tier strategy, procurement of logistics Full responsibility for strategy Unit 1* Unit 2* SC strategy services, process standardization and Unit 1* Unit 2* SC strategy Controls operative decisions for continous improvement all units SC SC SC execution execution execution Operative and execution responsibilites lie within units Source: McKinsey (2020) * sites, regions, brands, or a combination. Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 15  Organizational maturity model Integration of business functions for increasing the maturity of supply chain management. Speaker Pure silo Linked Semi-integrated Integrated Sales & marketing are isolated Supply chain and product Sales, supply chain and product Sales & marketing are in contact from both supply chain innovation are integrated, but innovation are equal partners in with supply chain and product execution and product only loosely tied to customer an orchestrated development innovation innovation need via sales & marketing and launch process Trade-off decisions are made Trade-off decisions are made Trade-off decisions are made Trade-off decisions are made with reference to other sequentially with partial with precision on cost issues, holistically against full lifecycle functions, but no systematic information but not lifecycle profit impact profit goals and constraints view of lifecycle impacts Lessons learned in operation Lessons learned in operations, Lessons learned in operations, Lessons learned in operation, and product development feed innovation and the market product development and sales product development and sales continous improvement, but not inform and support future do not inform each other are captured, but not exploited new product hit rate. generations of product Sourcing, logistics, manufacturing Marketing, sales, service Design, research & development, engineering legend Source: SCM World (2018) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 16 01 Introduction 02 SCM in organizations 03 Importance and leverage  Digitization offers great economic potential Estimated growth of $13 trillion of global gross domestic products (market exchange rates) by 2030 through digitization. Speaker Digitization GDP 2016 GDP 2030 potential ($64.5 trill.*) ($108.7 trill.*) ($13 trill.) 0 20 40 60 80 100 120 Sources: pwc (2017), McKinsey (2019) * Including the 32 largest economies. Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 18  Digital maturity snapshot Potential for digital transformation in a large majority of companies. Speaker 40% Managed 35% Repeatable 34% 30% Opportunistic 25% 27% 24% 20% 15% Ad hoc Optimized 10% 9% 5% 7% 0% Digital Digital Digital Digital Digital resister explorer player transformer disruptor Source: International Data Cooperation (2017) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 19  Digital maturity model Different dimensions for company-wide digital maturity model. Speaker Customer Providing an experience where customers view the organization as their digital partner using their preferred channels of interaction to control their connected future on and offline Focus on how the business transforms or operates to increase its competitive advantage through digital Strategy initiatives, embedded within the overall business strategy Underpins the success of digital strategy by helping to create, process, store, secure and exchange data Technology to meet the need of customers at low cost and low overheads Executing and evolving processes and tasks by utilizing digital technologies to drive strategic Operations management and enhance business efficiency and effectiveness Organization & Defining and developing an organizational culture with governance and talent processes to support Culture progress along the digital maturity curve, and the flexibility to achieve growth and innovation objectives Source: Deloitte (2018) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 20  Value enhancement through digital operating model Implementation of digital capabilities along the organizational layers of governance, processes, data & performance management and IT. Speaker 3. Digital management of 1. Business process automation 2. Organizational flexibility corporate assets “Read and respond” “Plug and Play” “Insight and Innovation” Integrated business processes Accelerated business processes New business insights Collaboration with customers and innovations Scalable data model Value driver suppliers Mix of global and local processes − Processes Event driven process scenarios Flexible in sourcing / outsourcing − Product lines Embedded analytics / Rapid implementation of new − Customers optimization business models Integrated views − Financial and operational KPIs − Internal and Market Data Value driver potential - 20 % of cost base - 50 % of cost base > + 5% of return on sales Source: Capgemini (2011) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 21  Company transformation Interdependence between the digitalization of the business model and digitization of supply chain management. Speaker High Company A: Digital native Digitalization of business model Connected products Embedded services Shared products, product as a service Omnichannel distribution Companies D: Rare case Low Low High Digitization of supply chain management Supply chain integration Supply chain reconfiguration Current state Supply chain automation Supply chain analytics Future state legend Source: Kearney/WHU (2015) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 22  Key deficits of hybrid supply chains Most organizations operate on hybrid supply chains with a local focus, that are both paper-based and IT-based, leading to multiple limitations. Speaker Lack of Sub-optimal end-to-end use of process locations integration Long implementation cycles Overly High maintenance costs Lack of Key Lack of complex IT agility deficits transparency landscapes Process isolation Inconsistent and redundant data Sub-optimal Sub- use of labor optimal cost bundling of differences tasks Source: Capgemini (2011) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 23  Supply chain 4.0 value drivers Six main drivers associated with the supply chain triangle (service, costs, and cash). Speaker Micro-segmentation Predictive analytics in demand planning Dynamic network configuration Closed-loop planning Supply chain cloud SC Strategy Automation of knowledge work End-to-end / multi-tier connectivity Planning Advanced profit optimization Collaboration Scenario planning Reliable online order monitoring Order mgmt Real-time replanning Automation of warehousing No-touch order processing Autonomous and smart vehicles Physical flow Performance Human-machine interfaces mgmt Online transparency Smart logistics planning algorithms Digital performance management In situ 3-D planning Automated root cause analyses Source: McKinsey (2016) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 24  Digital supply chain maturity levels Different levels for the measurement of supply chain digitalization. Speaker Stage 4 | Predictive Network is able to anticipate and predict demand or outages within the supply chain Prerequisite: Enhanced digital capabilities, including BI, predictive analytics, machine learning and network intelligence Stage 3 | Customer integrated Digital supply chain maturity Customer demand is fully and instantly integrated into the supply chain. Demand signals are sensed and acted upon accordingly throughout the supply chain Prerequisite: Supply chain presence at C-suite across the network Stage 2 | Networked supply chain Digitized data is viewable end-to-end, all parties in the network can see and collaborate Prerequisite: Supply chain presence at C-suite across the network Stage 1 | Intra-enterprise visibility Automated workflows and collaboration to eliminate organizational silos and enhance visibility between departments and divisions Prerequisite: Company-wide embrace of digital transformation vision Network cohesion Source: Infor (2017) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 25  Digitalization of supply chains is mostly driven at board level In almost 60 % of the companies surveyed, the digital roadmap is driven by the board. Speaker Percentage of companies with respective digital roadmap responsibilities 35 30 30 25 26 20 15 14 10 11 9 5 5 5 0 Individual supply Chief Supply Chain CSCO in partnership Other Chief Information Chief Digital Officer Chief Technology chain functions with Officer (CSCO) with CDO/CIO/CTO Officer (CIO) (CDO) Officer (CTO) their own digital roadmaps / implementation strategies % of respondents | n = 481 Source: SCM World (2018) Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 26 Assessment of training success Speaker You should be able to answer the following questions after completing this lecture... › By which flows can a supply chain be characterized? › Which dimensions does the SCOR model include, and how are they defined? › What does the supply chain triangle consist of? › Which variants of supply chain operation models in organizations exist? › What are the key deficits of hybrid supply chains? › What are the value drivers for supply chain 4.0? Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 27 References (1) › APICS Supply Chain Council (2017): SCOR handbook version 12.0. › Capgemini (2011): Digital transformation of supply chains, creating value – when digital meets physical [Online]. Online at: https://www.capgemini.com/wp- content/uploads/2017/07/Digital_Transformation_of_Supply_Chains.pdf › Deloiette (2018): Digital maturity model, achieving digital maturity to drive growth [Online]. Online at: https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Technology-Media- Telecommunications/deloitte-digital-maturity-model.pdf › Deloitte (2019): Digital supply network, how can companies fuel growth with digital supply networks [Online]. Online at: https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/consumer-business/deloitte-ch-en-Growth-Enabler-Digital-Supply-Networks.pdf › DHL (2019): DHL logistics radar [Online]. Online at: https://www.dhl.com/global-en/home/insights-and-innovation/insights/logistics-trend-radar.html › Gardner (2019): 5 Trends Appear on the Gartner Hype Cycle for Emerging Technologies [Online]. Online at: https://www.gartner.com/smarterwithgartner/5-trends-appear-on-the-gartner-hype- cycle-for-emerging-technologies-2019/ › Infor (2017): Measuring progress, the digital supply chain transformation maturity model [Online]. Online at: https://www.eohinforservices.com/wp-content/uploads/2019/03/Measuring-progress- the-digital-supply-chain-transformation-maturity-model.pdf › International Data Cooperation (2019): Digital Transformation Drives Supply Chain Restructuring Imperative [Online]. Online at: https://www.opentext.com/file_source/OpenText/en_US/PDF/opentext-idc-digital-transformation-supply-chain.pdf › Kearney/WHU (2015): Digital supply chains: increasingly critical for competitive edge [Online]. Online at: https://www.kearney.com/operations-performance-transformation/article?/a/digital- supply-chains-increasingly-critical-for-competitive-edge › LeMay, Steve; Helms, Marilyn M.; Kimball, Bob; McMahon, Dave (2016): Supply chain management: the elusive concept and definition, in: International Journal of Logistics Management › Lu, Dawei (2011): Fundamentals of supply chain management. › Madenas, Nikolas; Tiwari, Ashutosh; Tuner, Christopher J.; Woodward, James (2014): Information flows in supply chain management: A review across the product lifecycle, in: CIRP Journal of Manufacturing Science and Technology. › McKinsey (2016): Supply chain 4.0, the next generation digital supply chain [Online]. Online at: https://www.mckinsey.com/business-functions/operations/our-insights/supply-chain-40--the-next- generation-digital-supply-chain Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 28 References (2) › McKinsey Global Institute (2019): Twenty-five years of digitization, Ten insights into how to play it wright [Online]. Online at: https://www.mckinsey.com/~/mediaon- companies.html/mckinsey/business%20functions/mckinsey%20digital/our%20insights/twenty- five%20years%20of%20digitization%20ten%20insights%20into%20how%20to%20play%20it%20right/mgi-briefing-note-twenty-five-years-of-digitization-may-2019.ashx › McKinsey (2020): How great supply chain organizations work [Online]. Online at: https://www.mckinsey.com/business-functions/operations/our-insights/how-great-supply-chain-organizations- work › Oliver Wyman (2020): The supply chain triangle, successfully navigating interdependencies in production companies [Online]. Available at: https://www.oliverwyman.com/our- expertise/insights/2018/oct/successfully-navigating-the-triangle-of-critical-supply-chain-interdependencies-in-producti › Pwc (2016): Industry 4.0, How digitization makes the supply chain more efficient, agile, and customer-focused [Online]. Online at: https://www.pwc.ch/en/publications/2017/how-digitization- makes-the-supply-chain-more-efficient-pwc-2016.pdf › Pwc (2017): The long view, how will the global economic order change by 2050? [Online]. Online at: https://www.pwc.com/gx/en/world-2050/assets/pwc-the-world-in-2050-full-report-feb- 2017.pdf#page=68 › SAP (2020): Digital supply chain management 2020 [Online]. Online at: https://www.researchgate.net/publication/301350882_Digital_Supply_Chain_Management_2020_Vision › SCM World (2018): Designing the supply chain organization in a digital world [Online]. Online at: https://www.gartner.com/en/documents/3885877/designing-the-supply-chain-organization-in-a- digital-wor Prof. Dr.-Ing. Evi Hartmann, Chair of Supply Chain Management 29 Thanks for your attention!