SUPPLY CHAIN MANAGEMENT BA 244

Reminders

• Next Article: Group 6 • PPP Talk: Wednesday, 15 Feb

•  LinkedIn Group: Presentation Grades for all groups

Article 5 • A Meta-Analysis of Environmentally Sustainable Supply Chain Management Practices and Firm Performance

• Meta-Analysis

CORPORATE GOVERNANCE

Corporate Governance •  Infrastructure within which supply chain functions operate

•  The system by which organizations are directed and controlled in order to protect the interests of shareholders

• Concerned with sound managerial control

• Ensures that business processes and relationships are • Ethical • Responsible • Not excessively vulnerable to Risk of mismanagement, fraud, or misuse of

funds

Corporate Governance

Accountability •  Liability of each person in authority to give an account of their use of that

authority to the person who delegated it to them •  e.g. plans, decisions, and use of resources

• Need to assign clear accountabilities so that problems can be located and dealt with in a targeted manner

Division of Labor between Functions •  In a small company, people can simply share tasks

• Departmentalization •  Once an organization grows, systematic specialization is required •  Grouping together and allocation of specific aspects of the work to different departments

•  Functional Specialization • Geographical Area or Territory • Product, brand, or customer

Functional Organization

Sales and Marketing Purchasing Accounting

and Finance

Board of Directors

Contract Placement

Inventory Control Research

Human Resources Production

Functional Organization • Advantages

•  Specialized skills and knowledge – recruitment •  Avoids duplicating functions

• Disadvantages •  Barriers to cross-disciplinary communication

Geographical Organization

Middle East North Africa South Asia Asia Pacific

Board of Directors

FUNCTIONAL ORGANIATION

Geographical Organization • Advantages

•  Localized decision-making •  Shorter lines of communication to local markets or plants

• Disadvantages •  Duplication of functions •  Loss of standardization due to local differences

Product (Category) Organization

Consumer Products

Professional Products

Luxury Products

Board of Directors

Product (Category) Organization • Advantages

•  Clear accountability for the profitability of different products / brands / customer groups •  Coordination of different functions by product managers

• Disadvantages •  Possible fragmentation of objectives and markets

Matrix Structure • Customers get frustrated at dealing separately with a number of functional

specialists

• Dual Authority to: •  Departmental Managers – activities of the department •  Product, Project, or Account Manager – activities related to the given product, project, or

account

•  e.g. Procurement Manager reporting to CPO for general procurement activities – but may also report for a period to the Project Manager for a product launch

Matrix Structure • What are the advantages and disadvantages of a Matrix Structure?

• Cross-functional communication

• Conflict between managers competing for staff and resources

How are your companies organized?

Effective Strategic Leadership • The ability to anticipate events, envision possibilities, maintain flexibility, and empower others to create strategic change

• Top management can be a source of competitive advantage

• Should Top Management Teams be Heterogeneous or Homogeneous?

Management teams • Diverse management teams

•  Having diverse skills increases most top management teams’ effectiveness

• Heterogeneity

• Promotes debate •  Can lead to better strategic decisions, which can produce higher firm

performance • Heterogeneity must be managed

• Must function cohesively •  The more heterogeneous, the more difficult it is to implement strategies

5 Major Components of Effective Leadership 1.  Determine the firm’s strategic direction

• over the next 3-5 years; Envisioned Future; Core Ideology

2.  Effectively manage the firm’s resource portfolio • Human capital

• A resource to be maximized—not a cost to be minimized • Social capital

• Internal social capital promotes cooperation and coordination within and across units in the firm

• External social capital provides access to resources the firm needs to compete effectively

5 Major Components of Effective Leadership 3.  Sustain an effective organizational culture

• Entrepreneurial orientation among employees and an ability to change the culture as necessary

4.  Emphasize ethical practices • Fosters social capital

5.  Establish balanced organizational controls • Controls

• “formal, information-based procedures used by managers to maintain or alter patterns in organizational activities”

•  Important to have a balance of strategic and financial controls for flexibility and use of competencies

VALUE ADDING SUPPLY CHAIN RELATIONSHIPS

Added Value • An organization creates value by performing activities more effectively or

efficiently than its competitors

• Customers purchase value by comparing an organization’s products and services with those of its competitors

•  “addition of greater value or worth to a product or service”

• Corporate Governance or Firm Infrastructure supports Added Value

Value Chain

Value Chain • Each activity in the value chain provides inputs which constitute added value

to the product or service received by the customer • Support Activities have direct responsibility over the Primary Activities

Sources of Added Value • Added value is the amount customers are willing to pay for its products or

services over and above the cost to the firm

• Added value = Total revenue – Total cost of Activities

•  To add value: •  Induce customer to pay more (e.g. additional features which attract premium price) •  Reduce cost or increase efficiency

• Examples:

• Difference vs. unfurnished and furnished condo units?

• Difference between a P50 haircut and a P500 haircut?

• Supply Chain Management – mostly cutting costs and securing operational efficiency

Sources of Added Value

Sources of Added Value in SCM – 5 Rights 1.  Price and Cost Management

• e.g. Volume leverage, Negotiation 2.  Improving Quality

• Allows organizations to charge premium • e.g. Supplier selection, Contracts

3.  Timescales •  ‘move it faster, get paid faster’ • e.g. Automation, ERP

Sources of Added Value in SCM – 5 Rights 4.  Quantities

• Reduction in inventory • e.g. Demand forecasting

5.  Place considerations • Efficient transport and logistics strategies • e.g. Regional DC, 3PL

More SCM Methods to Add Value • Early Supplier Involvement (ESI)

• Ethical, Environmental, or Sustainable Supply Chain

• Outsourcing

•  Lean Supply Chain

• Agile Supply Chain

Early Supplier Involvement (ESI) • Brings together one or more selected suppliers with the Purchasing’s Product

Design Team early in the product development process

• Utilizes supplier expertise and experience in developing a product specification – e.g. technical information, supply market information

•  Traditional approach: suppliers provide reactive feedback on designs which have already been developed

Early Supplier Involvement (ESI) • Case Study •  The Antilock Braking System (ABS) was developed for Ford and GM by their

suppliers Bosch and ITT-Teves in 1984. With time, other suppliers to car manufacturers got involved in developing this initially expensive product. As a result of this competition the share of cars with ABS increased from 1% in the 1980s to almost 100% in the 2000s (Veloso and Fixson, 2001)

Ethical, Environmental, or Sustainable Supply Chain •  Important aspect of corporate mission and image

• Growing demand and support for green and sustainable products

•  e.g. monitoring and improvement of employment terms for suppliers’ workers monitoring and improvement of standards for waste, emissions, etc

Ethical, Environmental, or Sustainable Supply Chain • Other Examples?

Outsourcing • Allows to:

•  Focus on core and distinctive competencies •  Leverage on specialist expertise and economies of scale, for non-core

activities

• Needs excellent Supplier Relationship Management to manage Risks

Outsourcing • Examples?

Lean Supply Chain

1.  Identify all steps across the value stream, and eliminate non-value-adding activities

2.  Only make what is pulled by customer demand, just in time (vs. production for stock, in advance of customer requirements)

3.  Continually remove activities that add cost but do not add value

Lean Supply Chain • Quality • Waste Elimination • Employee involvement • Structured management system • Closer collaborative relationships within the supply chain • Reduced Inventories • Shorter Cycle Time

Agile Supply Chain • Using market knowledge and a responsive supply network to exploit profitable

opportunities in the marketplace

• Difference with Lean: •  Lean – having no surplus flesh or bulk; cost and quality focus • Agile – quick in movement, nimble; service and customer value enhancement

focus

• Agile thinking is more ready to accept stock, provided the reasons for holding it are sound e.g. late customization stocks are WIP

Lean and Agile • Examples?

•  Zara

End