Week 1

• The strategy needs to be tailored to meet specific needs of the customers.

• A product with a stable demand and a reliable source of supply should not be managed in the same way as one with a highly unpredictable demand and an unreliable source of supply.

• The Internet can be a powerful tool for supporting or enabling supply chain strategies for products with different demand and supply uncertainties.

Demand and supply

Functional products are ones that have long product life cycles and therefore stable demand, while innovative products are products that have short life cycles with high innovation and fashion contents—and which, as a result, have highly unpredictable demand. Functional products tend to have less product variety than innovative products

Demand for functional products is much easier to forecast, while demand for innovative products is highly unpredictable. Due to the differences in product life cycle and the nature of the product, functional products tend to have lower product profit margins, but the cost of obsolescence is low; whereas innovative products tend to have higher product profit margins, but the cost of obsolescence is high.

A “stable” supply process is one where the manufacturing process and the underlying technology are mature and the supply base is well established. An “evolving” supply process is where the manufacturing process and the underlying technology are still under early development and are rapidly changing, and as a result the supply base may be limited in both size and experience.

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“bullwhip effect,” which is an amplification of order variability as one goes upstream along a supply chain

Only through information sharing and tight coordination can one regain control of supply chain efficiency. Sharing of demand information and synchronized planning across the supply chain are crucial for this purpose.

Information sharing and collaborative replenishments up and down the supply chain are best facilitated by the use of the Internet.

• Information sharing

• Collaborative replenishment

  • Suppliers involved in replenishment (VMI)

• Digital communication

• Supply chain integration

• Free exchanges of information—starting with the product development stage and continuing with the mature and end-of-life phases of the product life cycle—have been found to be highly effective in reducing the risks of supplier failure

• Billington et al. have also identified sharing product rollover plans with suppliers as a key means to manage the risks of product transitions.

• Early design collaboration is another way to reduce supply uncertainties downstream.

• Supplier hubs have also been used by manufacturers to reduce the supply risks of their manufacturing lines

  • The inventory at the hub was owned by the suppliers. The use of the hub has allowed the suppliers to have much better information about Apple’s needs and consumption patterns of their parts as well as about the inventory in transit

Efficient Supply Chains

Risk-Hedging Supply Chains

Responsive Supply Chains

Agile Supply Chains

These are supply chains that utilize strategies aimed at creating the highest cost efficiencies in the supply chain. For such efficiencies to be achieved, non-value-added activities should be eliminated, scale economies should be pursued, optimization techniques should be deployed to get the best capacity utilization in production and distribution, and information linkages should be established to ensure the most efficient, accurate, and cost-effective transmission of information across the supply chain

The role of the Internet in this case is that it enables the supply chain to have tight and effortless information integration, as well as enabling production and distribution schedules to be optimized once the demand, inventory, and capacity information throughout the supply chain are made transparent.

These are supply chains that utilize strategies aimed at pooling and sharing resources in a supply chain so that the risks in supply disruption can also be shared. It is therefore a risk-hedging strategy. A single entity in a supply chain can be vulnerable to supply disruptions, but if there is more than one supply source or if alternative supply resources are available, then the risk of disruption would be reduced. A company may want to increase the safety stock of its key component to hedge against the risk of supply disruption, and by sharing the safety stock with other companies who also need this key component, the cost of maintaining this safety stock can be shared

The Internet plays a key role in providing information transparency among the members of the supply chain that are sharing inventory. Having real time information on inventory and demand allows the most cost-effective transshipment of goods from one site (with excess inventory) to another site (in need)

These are supply chains that utilize strategies aimed at being responsive and flexible to the changing and diverse needs of the customers. To be responsive, companies use build-to-order and mass customization processes as a means to meet the specific requirements of customers. The customization processes are designed to be flexible. Order accuracy (i.e., accurate specification of customer requirements) is the key to the success of mass customization.

The Internet has enabled very accurate and timely capturing of highly personalized requirements of customers as well as fast transfer of order information to the factory or customization centers for the final configuration of the product

These are supply chains that utilize strategies aimed at being responsive and flexible to customer needs, while the risks of supply shortages or disruptions are hedged by pooling inventory or other capacity resources. These supply chains essentially have strategies in place that combine the strengths of “hedged” and “responsive” supply chains. They are agile because they have the capability to be responsive to the changing, diverse, and unpredictable demands of customers on the front end, while minimizing the back-end risks of supply disruptions.

• Efficient supply chains

  • Clear focus on cost efficiencies, through transparent information on demand, inventory

• When products have both low demand and supply uncertainties, the basis of competition is efficiency. There are two dimensions of efficiency—cost and information coordination. With predictable demand patterns and a stable supply process, companies should strive at improving supply chain efficiency so that the cost of providing the product to the customers is the lowest possible. This enables the company to gain a competitive advantage over competitors. Hence, these companies should aim at building “efficient supply chains.”

• Productivity improvements

  • Just-in-time systems, automation, economics of scale, facility layout, workflow streamlining

• having highly effective logistics systems

  • Eliminating steps in the distribution channels, direct-to-store distribution processes

• Risk-hedging supply chains

  • Pooling and sharing resources so that the risks in supply disruptions can be shared

• These companies should aim at establishing “risk-hedging” supply chains. Here is where inventory pools can be most effective. Such inventory stocking points decouple the supply chain so that the uncertainties of supply can be shielded.

• companies may also need to develop multiple supply bases so that backup supply sources are available. The costs of managing the multiple supply bases may be higher, but the risk of supply outages can be reduced.

• The Internet can also be used to support risk-hedging supply chains.

  • First, supply conditions can be shared quickly and accurately via the Internet, so that the downstream sites can use that information to plan accordingly.

  • Second, the Internet enables a buyer to quickly identify alternative supply sources in the face of supply uncertainties.

  • Third, the Internet, via market exchanges, can extend the reach of a typical buyer to suppliers from a global market.

• Responsive supply chains

  • Using make-to-order and mass customization processes as a means to meet demands

• Risk of high inventory. Companies with such products should pursue strategies with a “responsive” supply chain. Rather than focusing on accurate forecasting and inventory planning, companies with a very stable process and product technology can make use of the concept of postponement to pursue aggressive build-to-order strategies.

• The concept of postponement for innovative products is most applicable with reliable and stable supply bases.

• The Internet has enabled companies to tap into a bigger supply base to ensure reliable supply of the products so as to be responsive.

• Agile supply chains

  • Comparable to Responsive, with additional efforts to pool inventory or other capacity resources to mitigate supply risks

• Companies with innovative products and evolving and unstable supply processes have to utilize the combination of risk-hedging and responsive strategies. The appropriate strategy here is to establish “agile” supply chains.

• Decoupling points are used. Such a decoupling point strategy enables companies to be responsive to the diverse and changing needs of their customers, who themselves are faced with highly unpredictable demand for their end products.

• Mainly information interchange using the internet

• “The degree to which a manufacturer strategically collaborates with its supply chain partners and collaboratively manages intra- and inter-organization processes. The goal is to achieve effective and efficient flows of products and services, information, money and decisions, to provide maximum value to the customer at low cost and high speed”

• It improves decision making

Typically the goal is to create and coordinate manufacturing processes seamlessly across the supply chain in a manner that most competitors cannot very easily match

• The first type of integration involves coordinating and integrating the forward physical flow of deliveries between suppliers, manufacturers, and customers (like JIT, or implementing product postponement and mass customization in the supply chain)

• The other prevalent type of integration involves the backward coordination of information technologies and the flow of data from customers to suppliers

  • Information technologies allow “multiple organizations to coordinate their activities in an effort to truly manage a supply chain” (EDI as well as sharing data from traditional planning and control systems)

Issue of direction and degree — in which direction (towards customers and/or towards suppliers) and to what extent (degree of integration) should such shared activity be developed?

• Information integration and delivery integration

• Supplier integration

  • Involve key suppliers

• Internal integration

  • Purchasing, production, distribution

• Customer integration

  • Downstream

The subset of outward-facing manufacturers clearly recorded greater rates of performance improvements in comparison to the inward-facing group. The outward-facing supply chain strategy also consistently outperformed the periphery-, supplier-, and customer-facing strategies.

• The outward-facing supply chain strategy is associated with the largest rates of significant performance improvements. Why?

  • The answer possibly lies in the fact that better coordination in the supply chain reduces uncertainty throughout manufacturing networks. Tighter coordination helps eliminate many non-value-adding activities from internal and external production processes including the seven classic wastes. It reduces variability

• Manufacturers may be seriously jeopardizing performance by continuing to follow the inward-facing strategy.

  • Raw materials, work-in-process, and finished goods only move swiftly if there are no flow impediments in the way, and productivity rises proportionally to the speed that materials move through processes

• Results for the supplier- and customer-facing strategies suggested that focusing on only the inbound or the outbound sides of the supply chain gained little more for manufacturers than adopting the periphery or inward-facing strategies.

  • common pitfalls of supply chain management included incomplete supply chains, poor coordination, inaccurate delivery status data, inefficient information systems, and ignoring the impact of uncertainties. Conversely, “going beyond the internal supply chain by including external suppliers and customers often exposes new opportunities for improving internal operations”

• Finally, over 40% of the sample was in the periphery-facing group. This suggests that periphery-facing may be the supply chain’s natural “equilibrium point” in terms of integration.

  • Many manufacturers have no doubt recognized the dangers of adopting an inward-facing strategy and have evolved into the broader periphery-facing perspective. From there, manufacturers may or may not continue evolving into the supplier, customer, or outward-facing strategies.

• It emphasizes the importance of the process of the developing a manufacturing strategy

• Manufactures should seek to increase integration

• extend the types of information exchanged. Not only the delivery schedules and billing data of an EDI system, but also new product ideas, on-line product support material, training aids, and technical knowledge can be transferred. Thus, the nature of collaboration may increase in range and intensity, and a broad arc of integration will be defined in terms of more or different variables

• A second consequence of Internet use for supply chain integration, related to the closeness of the relationship between firms, is harder to predict. By making collaboration easier and cheaper, the new technology means companies can integrate aspects of their operations more swiftly and collaborate more closely than before.

Multitier Supply Chain

• Accountability for supply chain sustainability?

• Supply Chain visibility and resilience

• Resource-based view (Barney, 1991): Visibility and control of multi tier supply chains can be a source of sustainable competitive advantage.

• Relational view (Dyer and Singh, 1998): Inter-firm networks can generate competitive advantage through complementary resources and capabilities, relationship-specific investments, knowledge-sharing routines, and effective governance

• Complex adaptive system (Choi and Wu, 2009): A firm’s supply network as a complex adaptive system

• The are often analysed using dyadic logic, without taking into consideration the possible interrelations between the links among these dyads

• Critics of the dyadic approach to researching supply chains have argued that focusing on dyads does not capture the complexities of networks

Triads. Triads have been proposed as the smallest unit of a network, because they make possible the analysis of the impact of a third party on a relationship between two other organizations, something that is not possible when focusing on isolated dyads

• Buyer–Supplier–Supplier Relationships

  • Parallel sourcing

  • Co-opetition creates a sense of stability in a relationship where interactions induce reciprocity and collaboration and reduce destructive competitive behaviors

• Supplier–Buyer–Customer Relationships

  • Network context where the buyer needs to coordinate multiple tiers is in services outsourcing

  • A buyer sells the customer a service that is provided by its supplier

  • Buyer is a bridge, and there is a chance that it decays (disintermediation)

  • The alternative and preferable situation is for the buyer to maintain a bridge decay status, acting as a performance monitor and source of issue escalation and resolution or as a solution integration

• Buyer only engages with tier 1 supplier

• No direct contact with tier 2, only by tier 1

• Mainly contact with tier 1 supplier

• Contact between buyer and tier 2 is not formalized. This can be expressed in audits and oversight of standards

• Buyer has also contact with tier 2 supplier

• Additionally, buyer can force tier 1 to influence tier 2

• When the structure of an MSC changes, the resource-based power balance among its members shifts, regardless of the resources possessed by each member. Each party (buyer, supplier, and supplier’s supplier) has his own kind of power.

• A buyer who wants to influence key product characteristics needs to connect directly with its supplier’s supplier who works with undifferentiated resources.

• As an MSC transitions from an open to a closed structure, the sense of interdependence among its members grows

• Closed (Open) MSCs offer stronger (weaker) perceptions of stability but require additional (and require fewer) management resources.