0. Introduction
SC Principles to Understand
Supply Chain
Focus Fulfillment Technology
Decision Supply Chain Supply Chain
Scope Collaborative Prod Devel
Costs, Cycle Times,
Tactical Inventories
Bullwhip
Revenue Management Clockspeed
IT System Design Double Helix
Order Fulfill. Process Supply Chain
Strategic Logistics System Design Architecture
Supply-Demand balance
Value Migration
Relationship Design
Flexibility 3-DCE
Components of Supply Chain Business Processes 5
System Design/Capabilities
Product Fulfillment
Process Architecture
Supply Chain Technology
External Influences
-clockspeeds (product, process)
-risks (design, supply, demand)
Solution Implementation Operational Objectives/
-postponement Customer Requirements
-quick response -cost
-lean production -quality
-common parts/ -speed (flexibility,responsiveness)
-improvement (learning/knowledge)
platforms
6
INTRODUCTIONS
8
Supply Chain Design in a Fast-Clockspeed World:
Evolution in Evolution in
the natural world: the industrial world:
FRUITFLIES INFOTAINMENT is faster than
evolve faster than MICROCHIPS is faster than
MAMMALS AUTOS evolve faster than
evolve faster than AIRCRAFT evolve faster than
REPTILES MINERAL EXTRACTION
THE KEY TOOL: THE KEY TOOL:
Cross-SPECIES Cross-INDUSTRY
Benchmarking Benchmarking
of Dynamic Forces of Dynamic Forces
9
10
11
Volatility Amplification in the Supply Chain:
Information lags
Delivery lags
SOLUTIONS:
Over- and underordering
Countercyclical Markets
Misperceptions of feedback
Countercyclical Technologies
12
Supply Chain Volatility Amplification:
Machine Tools at the tip of the Bullwhip
See "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study,"
13
LESSONS FROM A FRUIT FLY:
CISCO SYSTEMS
1. KNOW YOUR LOCATION IN THE VALUE CHAIN
2. UNDERSTAND THE DYNAMICS
OF VALUE CHAIN FLUCTUATIONS
3. THINK CAREFULLY ABOUT THE ROLE
OF VERTICAL COLLABORATIVE RELATIONSHIPS
4. INFORMATION AND LOGISTICS SPEED DO NOT
REPEAL BUSINESS CYCLES OR THE BULLWHIP.
Bonus Question:
14
INDUSTRY CLOCKSPEED IS A COMPOSITE:
CLOCKSPEEDS
THE THE
product technology
THE MANUFACTURING
organization
PRODUCTION
PROCESS
process technology
15
Mobile Phone System CLOCKSPEED is a mix of
Automobile
AT ELECTRONICS CLOCKSPEED.
17
Clockspeed drives
18
Projects Serve Three Masters:
E R
TOM
S E
CU ALU TION
V SI
O
PROJECT R OP
CORE P
CAPABILITIES DESIGN
(New products,
new processes,
new suppliers)
COR
POR
VALU ATE
PRO E
POS
ITION
19
Customers
Intel
Microsoft
The Outcome:
All Products
All Products
All Products
Operating Systems
Peripherals
Applications Software
Network Services
Assembled Hardware
23
Horizontal Industry Structure
Applications Software
Microsoft Lotus Novell etc
Network Services
AOL/Netscape Microsoft EDS etc
Assembled Hardware
HP Compaq IBM Dell etc
(See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)
24
THE DYNAMICS OF PRODUCT ARCHITECTURE
AND VALUE CHAIN STRUCTURE:
THE DOUBLE HELIX
See Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”
25
IN OTHER INDUSTRIES
• TELECOMMUNICATIONS--
– “MA BELL” was Vertical /Integral
– BABY BELLS & LONG LINES & CELLULAR are
Horizontal/Modular
– Today’s Verizon is going back to Vertical /Integral
• AUTOMOTI�VE--
– Detroit in the 1890’s was Horizontal/Modular
– Ford & GM in the mid 1900’s were Vertical /Integral
– Today’s Auto Industry is going back to Horizontal/Modular
• TELEVISION--
– RCA was Vertical /Integral
– 1970’S THROUGH 1990’S were Horizontal/Modular
– Today’s media giants are going back to Vertical /Integral
• BICYCLES--
– Safety Bikes to 1890’s boom to Schwinn to Shimano Inside
26
Controlling the Chain Through Distribution:
Customers
Retailer
P&G
Retailer
Retailer
27
Controlling the Chain Through Distribution:
Customers WalMart
Retailer
Retailer
P&G
Retailer
28
Handset Telecom
Optical
New Phone
Platforms Equipment
Components
Applications
-fiber
& News & Sports
Wireless
phone -DSL
News/articles/books
PC/laptop Cable
(newspapers &
Networks
magazines)
PDA Wireless:
-broadcast TV
Communication:
Television -CDMA, TDMA, GSM
voice & video & email
-satellite/microwave
Retail Outlets Banking
VCR
-Borders:
-Blockbuster Education
Page -Seven-Eleven
r Shopping
Delivery (e.g., Fedex)
Internet, et al
30
ALL COMPETITIVE ADVANTAGE
IS TEMPORARY
Autos:
Ford in 1920, GM in 1955, Toyota in 1990
Computing:
World Dominion:
Sports:
31
Exercise 1:
Value Chain Analysis
Consider these five industries:
-Food
-Defense aircraft
-Automobiles
-Handheld electronic organizers/communicators
-Music
33
VALUE CHAIN DESIGN:
Three Components
1. Insourcing/OutSourcing
2. Partner Selection
Product Architecture,
Time, Space, Availability Manufacturing System,
Make/Buy components
Make/Buy processes
VALUE CHAIN
35
Projects Serve Three Masters:
E R
TOM
S E
CU ALU TION
V SI
O
PROJECT R OP
CORE P
CAPABILITIES DESIGN
(New products,
new processes,
new suppliers)
COR
POR
VALU ATE
PRO E
POS
ITION
36
Product Architecture,
Time, Space, Availability Manufacturing System,
Make/Buy components
Make/Buy processes
VALUE CHAIN
37
ARCHITECTURES IN 3-D
INTEGRAL MODULAR
IN
TE Microprocessors
GR Lucent
AL Mercedes Polaroid
& BMW Nortel
vehicles
Chrysler
MSFT Windows vehicles Cisco
MO
D UL Digital Rights/
AR
Music Distribution Dell PC’S
Bicycles
Dell Supply Chain
40
Global \ Demand/
Demand
Regional Supply
Management
Procurement Management
Continuity of Supply
Sales
Build to customer
specifications
Supplier
SLC Dell Customer
I I
Supplier
41
@ Dell
Demand Management:
Forecast = Buy = Sell
Buy to Plan, but Build to Order
• Inventory Velocity is a wonderful thing …
• Customers have immediate access to the latest
technology.
• Suppliers get their products to market quickly
BUT,
• Personal • Car
Computer • ~ 4000 components
• ~50 components • 100 key subsystems
• 8-10 key parts • 300 key suppliers
• 40 key suppliers • 12 month validation
• 24 hour burn-in • 1,000,000
• 100 design • variations
• variations • Integral
• Modular • Architecture
• Architecture
Adapted from Prof. J.P. MacDuffie, IMVP & The Wharton School
ARCHITECTURAL
PROPRIETARINESS
CLOSED OPEN
ARCHITECTURAL
STRUCTURE Pentium Chip
Linux
INTEGRAL Mercedes Vehicles
SAP ERP
Palm Pilot
IBM Mainframes software & accessories
MODULAR Microsoft Windows Phones & service
Chrysler Vehicles Web-based ERP
Dependence Independence
Amount of Amount of
Work Work
+ Outsourced
knowledge + + Done In-house
knowledge +
+/or supply +/or supply
Supplier Amount of Internal Amount of
Capability Supplier Capability Internal
Learning Learning
+ +
46
Technology Dynamics in the Aircraft Industry:
Japanese
+ appeal as
subcontractors U.S. firms’
appeal as
subcontractors
Japanese + +
Boeing outsources
Industry
Autonomy to Japan
(Mitsubishi Inside?)
+
Japanese U.S.
industry industry
size &
+ size &
capability
- capability
47
SOURCEABLE ELEMENTS
PROCESS ELEMENTS
ENGINEERING
ASSY
TEST
CONTROLLER
I4 V6 V8
PRODUCTS
VALVETRAIN
BLOCK
SUBSYSTEMS
48
INDEPENDENT FOR
DEPENDENT FOR
KNOWLEDGE & INDEPENDENT FOR
KNOWLEDGE
ITEM IS INTEGRAL ITEM IS MODULAR
A BEST OVERKILL
POTENTIAL OUTSOURCING IN
OUTSOURCING OPPORTUNITY VERTICAL
TRAP INTEGRATION
Adapted from Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”
Strategic Make/Buy Decisions: 49
Also consider Clockspeed & Supply Base Capability
DEPENDENT FOR
DEPENDENT FOR
INDEPENDENT FOR
st
DECOMPOSABLE
st Few Many k r-
Be
ap
Clockspeed Clockspeed
ut
Be Suppliers Ove
Clockspeed
ill
Tr
O
Fast Slow Fast Slow
(Modular)
Fast Slow
Many
Few Many
Suppliers
Suppliers
OK
Watch
it! Few
st
K
Clockspeed
or
Clockspeed
In
Clockspeed
O
INTEGRAL
Few Many
Few Many
Suppliers
Suppliers
Adapted from C. Fine, Clockspeed, Chap. 9
50
Qualitative analysis of strategic
Knowledge
Supply
High
Improve Invest &
Economics Build
Qualitative
Value
Strategic
Qualitative Model Importance
Custo me r
Im po rtan ce:
Divest/ Harvest
• Hig h
• Med ium
• Low Outsource Investment
Technology
Low
Clockspeed:
• Fas t
• Medi u m
• Slow
Competitive
Position:
• Ad van t ag e
• Parity
• Di sa dva nta ge
Low Quantitative High
Value
Capa ble Sup plie rs:
• No n e
• Few
• Man y P oss ible Decisions :
• Insour ce
• Outsource
Arch itec ture : • Partner/Acquire
• In teg ra l • Partial Insource
• Modular • Partial Out source
• In vest
• Spin Off
• Develop S uppliers
Engine A
EVA PBIT Revenue
EVA
Engines −.
EVA
NOPA T
AS-IS
AS-IS
BIC
AS-IS
COGS
BIC
BM K
AS-IS
BIC
AS-IS
BIC
Engine B
EVA
GMPT
EVA Taxes
AS-IS
BIC
.
.
. Capital
Charge Net Assets
AS-IS
BM K
Working
Capital
Quantitative Model
+.
Transmissions
EVA
−. X WA C C
(Financial)
AS-IS
AS-IS
BIC
BMK
AS-IS Fixed
BM K
Assets
AS-IS
BIC
52
casting clay
casting clay
process
Capability Chain
53
VALUE CHAIN DESIGN IS
CASE EXAMPLES
(weak on process?)
Exercise 2:
Value Chain Analysis
Consider these five industries:
-Food
-Defense aircraft
-Automobiles
-Handheld electronic organizers/communicators
-Music
58
Walmart WalMart
Store Procurement
Walmart.com Supplier
Shipper
60
SERVICES VS.
MANUFACTURING
WHAT’S
THE
DIFFERENCE?
Some Characteristics
61
of Services
– Intangibility - explicit and implicit intangibles
• “We manufacture perfume; we sell hope.”
– Perishability - an hour of non-production is an
hour lost
• Airplane w/o spare part costs > $10K/hr
– Heterogeneity - inherent variability of
personal needs and personal service
• Each doctor’s bedside care is unique
– Simultaneity - services are simultaneously
produced and consumed
• A poor attitude by the server cannot be recalled
Services vs. Manufacturing
62
GROCERY SERVICES
TESCO STOP & SHOP/AHOLD WEBVAN
64
65
Groceries
• selection • selection
• price • price
• quality/freshness • quality/freshness
• shop any hour • shopping environment
• never leave home
• choose delivery time
• save your time
• same day delivery
Who has the
• fulfillment accuracy advantage on
• no lugging required each dimension?
66
Exercise 3:
Service Supply Chains
Consider these five industries:
-Food
-Defense aircraft
-Automobiles
-Handheld electronic organizers/communicators
-Music
Appliance
HW system (OEM, ODM, CEM) (Phone, Camera, C
Bundled Apps (phone, MP3, IM, etc.) Laptop, PDA, TV, O
Missile, MP3 Player)
N
Network (CDMA, WiFi, Sonet, IP, Cable)
Access S
(Wireless, POTS,
Equipment (Lucent, Ericcson, Cisco)
ISP, Satellite,
U
Cable, HotSpot) M
E
Channel (KaZaA, AOL/TW, MTV) R
Content & Applications
Artist (Madonna, NBA, Spielberg, SAP, Self) (Music, Movies, Email, VoIP, Shopping,
ERP, SCM, CRM, Banking, IM,
Openness (EFF, RIAA/DMCA, TCPA) Surveillance, Photos, Games)
Another View of the
70
Communications
Value Chain is in Silos in the value
ill health chain are
(ROADKILL MAPPING?) interdependent
(integrality).
Vertical
disintegration is Absence of
the dominant leadership and
structure. Silo coordination across
execs tend to focus an interdependent
on their own value chain creates
narrow slices. SOME VALUE CHAIN
uncertainty, risk,
Most industry and reluctance to
COORDINATION COULD
consortia are invest.
SPEED GROWTH.
within-silo.
HOW TO ACHIEVE COORDINATION IN
THE ABSENCE OF VERTICAL INTEGRATION?
72
Roadmapping Communications:
Internet explosion
Wireless Explosion
Connectivity Explosion
File Sharing Explosion
INFORMATION
SHARERS
GO TO JAIL
==> Poverty of
The Commons
74
“If you come to a fork in the Road[map], Take it.”
--Yogi Berra
INFORMATION
WANTS TO
BE SHARED
==> Difficult content
business models
INFORMATION
SHARERS
GO TO JAIL
==> Poverty of
The Commons
Proposed MIT Communications Roadmap Consortium 75
eBusiness,
LCS
RLE Oxygen,
MPC, MTL Media Lab
ITC
MATERIALS & COMP- EQUIPMENT NETWORK SERVICE CONTENT & APPLI- END
PROCESS EQUIP ONENTS MAKERS OWNERS PROVIDERS APPLICS ANCES USERS
CROSS-INDUSTRY CHALLENGES
Digital Rights ( “To promote the Progress of Science and useful Arts, by securing for
limited Times to Authors and Inventors the exclusive Right to their respective Writings
and Discoveries;” U.S. Constitution, Article 1, Section 8, Clause 8 )
Access Architecture Prof. C. Fine, MIT
76
Dynamic Analysis to Support
Corporate
Strategy Regulatory
Dynamics Policy
Dynamics Industry
Technology
Structure
Customer Dynamics
Dynamics
Preference
Dynamics
Business
Capital
Cycle
Market
Dynamics
Dynamics
MIT Communications Roadmap Consortium 77
eBusiness,
LCS
LIDS, RLE Oxygen,
MPC Media Lab
ITC
MATERIALS & COMP- EQUIPMENT MAKERS NETWORK SERVICE CONTENT & END
PROCESS EQUIP ONENTS APPLICS DEVICES
OWNERS PROVIDERS USERS
CROSS-INDUSTRY CHALLENGES
Digital Rights ( “To promote the Progress of Science and useful Arts, by securing for
limited Times to Authors and Inventors the exclusive Right to their respective Writings
and Discoveries;” U.S. Constitution, Article 1, Section 8, Clause 8 )
Access Architecture C. Fine, MIT
78
Roadmap Components:
Dynamic Analyses
Information lags
Delivery lags SOLUTIONS:
Over- and underordering Countercyclical Markets
Misperceptions of feedback Countercyclical Technologies
Collaborative channel mgmt.
Lumpiness in ordering (Cincinnati Milacron & Boeing)
Chain accumulations
80
See Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”
81
E R
TOM
S E
CU ALU TION
V SI
O
PROJECT R OP
CORE P
CAPABILITIES DESIGN
(New products,
new processes,
new suppliers)
COR
POR
VALU ATE
PRO E
POS
ITION
82
INTEGRAL MODULAR
IN
TE
GR
Microprocessors
AL Mercedes Lucent Polaroid
& BMW vehicles Nortel
Chrysler
MSFT Windows vehicles Cisco
MO
D UL Digital Rights/
AR
Music Distribution Dell PC’S
Bicycles
Customer Preference Dynamics
83
Some Components
1. Players:
United States: FCC, Congress, Consumers,
Corporations, Interest Groups
2. Environments:
Wireless in Europe, NTT DoCoMo,
Broadband in Sweden & Korea
India vs. China Development
US: Access, Digital Rights
3. Standards:
e.g., wCDMA vs CDMA2000
Technology Dynamics: Moore’s Law predictions 85
are linear & deterministic
Transistors per chip
109
?
108
Pentium 80786
107 Pro
80486
106 Pentium
80386
80286
105
8086
104 8080
4004
103
1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Source: Joel Birnbaum, HP, Lecture at APS Centennial, Atlanta, 1999
86
Technology Dynamics: Disk Drive Development
Disk Drive
Dominant
Dominant
Approx cost per
Generation
Producer
Usage
Megabyte
14” IBM
mainframe
$750
1978-1991
8”
Quantum
Mini-computer
$100
5.25” Seagate
Desktop PC
$30
3.5” Conner
Portable PC
$7
2.5” Conner
Notebook PC
$2
87
”Killer Technologies” of the Information Age:
Killer Questions:
Radio
Part Fiber &
Transmission Wire-
Based
Digital Signal Modem Interface
Network
Processing
Ericsson
Cell Phones
Philips
Chip Factory
Nokia
93
NOKIA
ERICSSON
Ericsson
Cell Phones
Philips
Chip Factory
Nokia