Supply Chain Management: From Vision to Implementation Chapter 3: Process Thinking: Supply Chain Management’s Foundation

Process Management It’s a shift from competing on what we make to how we make it. David Robinson, President CSC Index on the need for process thinking Functional thinking limits cooperation and impedes creative thinking. Process management promotes collaboration, facilitating customer satisfaction at low cost.

Process Management Process Management requires companies to: Recognize the limiting nature of functional structures Instill process thinking throughout the company Process integration remains rare Michael Hammer estimates less than 10% of companies have made a serious and successful effort Requires major changes to measurement, job design, management roles, and organizational structure

Functional Organization Goals

Process Thinking Process thinking aligns decisions with corporate strategy and coordinates actions across functions. Each process consists of a set of flows and value-added activities. Information Flow Physical Flow Financial Flow

Value-Added Process Materials Acquisition New Product Development

Systems Thinking Systems thinking is the holistic process of considering both the immediate local outcomes and the longer-term system-wide ramifications of decisions. It requires: A Holistic View Information Availability and Accuracy Cross-Functional and Interorganizational Teamwork Measurement Systems Analysis

Systems Analysis

A Process View of a Company Decisions made throughout an organization should focus on using available resources to create customer value. Customer focus defines the company’s value proposition and drives competency. Competency guides functional decision making. Competency development dictates resource allocation. Information and performance systems align efforts on the system’s goal.

Company as Value-Added System

Strategic Linkage The role of strategy is to direct the use of resources to develop the correct competencies to drive the firm’s value proposition. Value Proposition – the value that the firm promises to deliver to the customer. Competencies – the skills and processes that collectively deliver the promised value. Core Competency – what the company is so good at that it drives competitive advantage.

Generic Strategies Cost Leadership – ability to deliver at a cost below competitors Differentiation – ability to deliver some unique value which reduces price sensitivity Quality Delivery Flexibility Innovation Survival often requires low cost and high quality.

Cost Leadership Examples Source Company Example Economies of Scale Wal-Mart Size creates unparalleled buying power Uniquely Productive Processes Southwest Airlines 15-minute “turnaround” to keep its planes flying and generating revenue Low-cost Factor Inputs McDonald’s Global sourcing network accesses low-cost resources around the world

Differentiation Examples Source Company Example Advanced Product Technology Airbus Pioneered the “fly-by-wire” technology Advanced Process Technology Schneider National Logistics First motor carrier to employ global satellite positioning to track shipments

Differentiation Examples Source Company Example Extensive Distribution Network Coca Cola Most ubiquitous producer worldwide; selling more than 130 beverages and found in almost every country worldwide Better Designed Products Apple iPod was the first portable digital music player to use a miniature hard drive to hold songs; despite higher price, sophisticated design and user interface have made the iPod the market leader

Aligning Strategy with Systems Innovation Delivery Flexibility Quality Cost Leadership Goals Value- Added System Short concept-to-market cycle time Technologically advanced products Unique service options Availability despite demand uncertainty Rapid, consistent delivery Availability High-quality product/service Responsiveness to customer i.e.; ability to handle small orders and expedited shipments Minimum cost - but ensure an "acceptable" service level

Aligning Strategy with Systems Innovation Delivery Flexibility Quality Cost Leadership Purchasing Identify and develop suppliers who can assure: Design expertise Technological support Flexibility to changes in specs Process capabilities Rapid, consistent delivery Certified quality Full line availability Responsiveness Productivity/low prices Learning curve efficiencies Scale/scope economies Quantity price discounts

Aligning Strategy with Systems Innovation Delivery Flexibility Quality Cost Leadership Production Work closely with R&D; i.e., concurrent engineering Support process engineering Shop floor control—due-date performance Shorten cycle times Cross-train workers Extensive process control Reduce inventories Increase repetitiveness Increase part commonality Utilize low-cost labor Increase worker productivity

Aligning Strategy with Systems Innovation Delivery Flexibility Quality Cost Leadership Logistics Utilize technology including bar codes, satellite tracking, electronic data interchange, and automated picking/packing to offer customized services Use private fleet or dedicated contract carrier to assure on-time delivery Use information technology to increase responsiveness and ability to handle unexpected events Implement process control and other quality improvement approaches Use low-cost transport Use high utilization and/or multiple car rates Use volume contracts Minimize inventory Centralize decision making

Resource Management Every company must manage five resources: People – determine the productivity and quality of the system; provide the creativity and passion that determines success; requires education and training Technology – includes hardware and software; used effectively improves productivity Materials – all goods and services used in the value-added process for the creation of output Infrastructure – physical bricks and mortar assets used in the value creating process. Capital – necessary to finance continuing operations Coordinated decision making regarding resource allocation across functions is the key to competitive advantage.

Function/Resource Matrix Value Added Functions Resources R&D Purchasing Production Logistics Marketing Infrastructure Materials Technology People Information and Performance Measurement Systems

Information Sharing Communicates strategic objectives and organizational roles. Typical types and uses of data are: Customer-related - defines goals, value propositions, and competencies Firm capabilities and processes - strengths and weaknesses so that an effective strategy can be developed and implemented Competitors' strategies and capabilities - anticipate competitive threats as well as competitors’ reactions to the company’s own strategic moves External operating environment - identify potential threats and opportunities such as new markets or the emergence of a new technology SC operating information - used to make good day-to-day decisions: how many and type of suppliers needed to support the production schedule "Success stories" - creates momentum for process integration

Performance Measurement Performance measurement systems must: be aligned with strategic objectives; and clearly communicate expectations and responsibilities. Well designed performance systems: create understanding of strategic and tactical objectives promote behaviors consistent with achieving objectives document actual results, monitoring progress toward goals benchmark capabilities vis-à-vis competitors’ abilities and customers’ expectations motivate continuous improvement

Information-Measurement Integration