STRATEGIC SUPPLY CHAIN MANAGEMENT

Group :6 Ashish Mehra(38) Tonmoyee Goswami(40) Romila Dhar(78) Madhupam Bansal(176)

Flow of the Presentation

Introduction Strategic SCM SCM in Value Chain Perspective Porters Competitive Advantage Model Strategic Role of SCM Strategic SCM Architecture Components of SSCM Case Study: Dell Case Study: Mumbai Dabbawalla

Introduction

The quality of a firms supply chain performance can determine the difference b/w business prosperity and failure Most of the firms are competing globally and traditional barriers are breaking down Corporate strategists have less time to develop and implement strategy Achieving sustainable competitive advantage demands a fresh approach

Strategic SCM

Strategic SCM is: The foundation of business model That drives corporate strategy architecture By aligning and pooling resources, processes, structures and systems Throughout the supply chain network It has evolved from an emphasis on integrating logistics and lowering of costs to provide better products and services to customers on real time basis and cost efficient manner

Features of Strategic SCM

It can be the foundation of business strategy It can be a means of differentiation because of augmented value capability It can be a source of innovation It can be a driver of overall cost reduction It can be the genesis of relationships and alliance with business partners It can be an engine for driving growth *Generally, Pepsi wins ad wars and Coke wins the Supply Chain wars

SCM in Value Chain Perspectives

SCM recognised as core competency to gain sustainable competitive advantage (firms ability to differentiate itself from others)
Value Chain disaggregates a firm into its strategically relevant activities in order to:
Understand

the behavior of costs and The existing and potential sources of differentiation

Porter: Coin of Competitive Advantage

Business Activities
Secondary Activities
Infrastructure Human Resource Management Technology Development Procurement

Primary Activities Inbound Logistics Operations Outbound Logistics Marketing and Sales Service

SCM integrates value chains of all business partners and synchronizes their value adding processes for the speedier flow of:
Goods Cash Value Related

Information

within the complete supply chain process ensuring superior customer value by means of better quality logistical services at minimum costs

Value Flow: Value is the difference between the perceived benefits from a product or service and the cost of acquisition in the eyes of the customer
Quality-Cost-Quick

Response-Availabilty-

Consistency

Goods Flow: The flow of goods is always in the forward direction, ensuring better customer service, superior value, greater market dominance and higher market share

Cash Flow: Happens in the backward direction to keep the total business system alive and activated. It involves money paid for goods and services received by supply chain member from preceeding link Information Flow: Happens in both directionfor activation and improvement of SCM. Backward flow facilitates coordination activities while forward flow facilitates operational activities

Strategic Role of SCM

Strategic SCM makes a clear differentiation b/w the leaders and followers mainly due to its capability of creating and delivering superior value Designing SCM for Strategic Advantage Ensuring best value to stakeholders Forging Supply Chain Partnerships for Collaborations

Strategic SCM Architecture

Combination of unique supply chain framework that drives strategic business objectives forward in holistic manner

Defining functional strategies related to operations so that the firm is able to meet the need in the market
Integrate with supply chain partners to deliver improved shareholder value

Components of SSCM
1)

2)
3) 4) 5)

6) 7)

Customer Value Strategy Customer Service Strategy Channel Strategy Operation Strategy Procurement and Vendor Management Strategy Outsourcing Strategy Supply Chain Network Asset and Integration strategy

Consumer Value Strategy

SCM begins with definition of addressable consumer value CVS deals with how the firm respond to the needs and expectations of its consumers in a manner that maximises the value to all stakeholders It involves three steps:
Consumer

Value Segmentation Cost of Service Revenue Management

Customer Service Strategy

Process of cost efficient, value added benefits provided to an external customer so as to exploit there marketing acumen in making actual sales
Retain their happiness, loyalty and motivation towards firms offerings

Channel Strategy

Channel strategy has to do with how youll get your products and services to buyers or end users.
These decisions address such issues as whether youll sell indirectly through distributors or retailers or directly to customers via the Internet or a direct sales force.

Operations Strategy

Decisions about how youll produce goods and services form your operations strategy. The operations strategy determines how you staff and run your factories, warehouses, and order desks - as well as how you design your processes and information systems.

Types of operations strategies

Strategy When to Choose This Strategy For standardized products selling in high volume For products requiring many variations Benefits Make to stock Low manufacturing costs; meeting customer demands quickly Customization; reduced inventory; improved service levels Low inventory levels; wide range of product options; simplified planning Enables response to specific customer requirements

Configure to orde

Make to order

For customized products or products with infrequent demand For complex products that meet unique customer needs

Engineer to order

Procurement and Vendor Mgt Strategy

Ensures real time availability of all kinds of materials required for the smooth functioning of the operation strategy
Specifies types of system for procurement of various inputs and kinds of relationships to be maintained with vendors

Outsourcing Strategy
Outsourcing decisions begin with an analysis of your companys existing supply chain skills and expertise. What is your company really good at?
Consider outsourcing activities with low strategic importance or that a third party could do better, faster, or more cheaply.

Supply Chain Network Asset and Integration Strategy

Deals with the location, size and strategic objectives a firms internal network in terms of factories, warehouses, production equipments and service centers
For the purpose of specification of core competency and performance measurement

SEVEN PRINCIPLES OF SCM

Companys growth and profit demand

Customer Demand

MANAGER

1. Segment Customers Based On Service Needs.

Traditional
Group

customers by industry, product, or trade channel Take a one-size-fits-all approach

Contemporary
Develop

a portfolio of services tailored to various segments depending upon their needs.

Companies need to strike and sustain balance between service and profitability

2. Customize The Logistics Network

Traditional
A monolithic

approach to logistics network design in organizing inventory, warehouse, and transportation activities Meet a single standard.

Contemporary
Design

the logistics network to meet the average service requirements of all customers Or to satisfy the toughest requirements of a single customer segment.

3. Listen to signals of market demand and plan accordingly

Traditional
Multiple

departments independently forecasts for the same products. Many consult the marketplace only informally, and few involve their major suppliers in the process.

Contemporary
Channel-wide

S &OP taking into account vendor and carrier capabilities, capacity, and constraints. Can detect early warning signals of demand lurking in customer promotions, ordering patterns, and restocking algorithms.

4. Differentiate product closer to the customer

Traditional
Production

goals based on projections of the demand for finished goods result in stockpiled inventory to offset forecasting errors. Lead times in the system as fixed Progress in cutting costs through set-up reduction, cellular manufacturing, and JIT.

Continued...

Contemporary
Mass

customization - delaying product differentiation to the last possible moment. Questioning the conventional wisdom that lead times in the supply chain are fixed. Locate the leverage point in the manufacturing process where the product is unalterably configured to meet a single requirement and to assess options, such a postponement, modularized design, or modification of manufacturing processes, that can increase flexibility.

5. Source strategically

Traditional
Determined

to pay as low a price as possible for materials, not cultivated warm relationships with suppliers.

Contemporary
Partners

must share the goal of reducing costs across the supply chain in order to lower prices in the marketplace and enhance margins. Sound knowledge of all the commodity costs, direct & indirect, is required.

6. Develop A Supply Chain-wide Technology Strategy

Traditional
Inflexible,

poorly integrated system Information systems can capture reams of data but cannot easily translate it into actionable intelligence to enhance real-world operations.

Contemporary
Enterprise

wide systems Electronic connectivity - slashing transaction costs through electronic handling of orders, invoices, and payments to shrinking inventories through vendormanaged inventory programs.

7. Adopt Channel-spanning Performance Measures

Traditional
Most

companies look inward and apply any number of functionally oriented measures to improve performance. Traditional accounting tends to mask the real costs of the supply chainfocusing on cost type rather than the cost of activities.

Contemporary
Determines

the true profitability by identifying the actual costs and revenues of the activities required to serve an account, especially a key account. Sophisticated information technology, specifically a data warehouse.

Orchestrate Improvement Efforts

Rigorous assessment of entire supply chain- from supplier relationships to internal operations to the marketplace, including customers, competitors, and the industry as a whole. Compare with best practices in the industry to determine size of gap Do cost/benefit analysis Establish capital and people requirements before, during and after implementation

Remember Rome Wasnt Built In A Day

Management must carefully balance its longterm promise against more immediate business needs. Develop a plan that specifies funding, leadership, and expected financial results. Plan helps to forestall conflicts over priorities and keeps management focused and committed to realizing the benefits.

Recognize the difficulty of change

People in any organization have trouble coping with the uncertainty of change, especially the real possibility that their skills will not fit the new environment. Extensive, visible participation and communication by senior executives.

SUCCESS OF PROCTER & GAMBLE

Series of merchandising and and logistics initiatives launched throughout the 1980s under the banner of "total system efficiency. In the early 1990s, a sales reorganization creating multifunctional teams with key customers, notably WalMart, to address issues in such key areas as category management and merchandising, logistics, information technology, and solid waste management. P&G simultaneously developed partnerships with suppliers to reduce cycle times and costs.

Recently introduced the Streamlined Logistics program to improve customer service and supply chain efficiency. The first phase consolidated ordering, receipt, and invoicing of multiple brands, harmonized payment terms, and reduced bracket pricing categories. To ensure customer satisfaction, P&G instituted a scorecard last year to enable both distributors and vendors to evaluate P&G's efficiency in such key areas as category management, assortment, efficient product introduction, promotion, and replenishment.

Dells direct business model

By 2001 Dell became the market leader with over 25% market share. Instead of focussing on product innovation Dell created a new business model which involves building computers based on components available in the market. This relieved the company of the burden of owning assets,R&D risks and managing a large number of companies. Spreading the risks among a several suppliers helped in its growth.

Low cost model

In order to keep prices low and delivery time short Dell

Purchases components directly from manufacturers Assembles them according to customers specifications Ships the final products in record time

To gain competitive advantage Dell

Treats suppliers and manufacturers as insiders of the company Their systems are linked in real time to dells systems and their employees participate in design teams and product launches

Advantages

Low inventory levels Collection of payments long before delivery enabling the company to make money as a result of positive cash cycle Close contact and long relationdships with customers help Dell pass along cost savings to customers Emphasis on cost control translates to smaller expense ratios as compared to competitors

Direct Sales Model

Direct sales approach No dealer retail outlets channel One of the first companies to sell through the channel of internet,50 million computer equipments are sold via web everyday

Advantages: Elimination of middlemen Low prices Quicker delivery than competitors

Mumbai Dabbawala
Profile

A person who carries and delivers freshly made food from home to office workers and students Started in 1890,registered as a charitable trust in 1956 More than 2,00,000 lunches delivered everyday by around 4500 to 5000 dabbawala everday Nominal fee and utmost punctuality Six sigma rated,only 1 mistake in every 60,00,000 deliveries

Critical success factors

Outstanding example of excellence in service delivery Secret to success lies in the streamlined and efficient supply chain Flexible Infrastructure

High frequency of sub urban train services Train services are inexpensively priced
Timely return of lunch boxes by customers Combination of milkman route,hub hub transfer and hub and spoke distribution,perfect logistics symmetry

Customer Cooperation

Appropriate Network Structure

Codification System

Combination of alphabetics,symbols and colour unique to the Dabbawalas Total time required from collection to delivery is about 3 hrs Capable of meeting customer expectations and specifications Use of public infrastructure keeps cost low and prices affordable to customers Allocation of manpower is dynamic and flexible Every customer location is identified with a team member Specific collection routes to individual members

Process Capability

Transport economics

Coordination
Responsibilty lies with individual members No managers or supervisors in the system

Structure
Decentralized Scalable(on volume) Three tier structure-individual,teams and groups

Topography

Traffic pattern characterized by low volume spread over larger area and high volume spread over small area

Reasons for Sustainability

Perpetual need Value pricing Standard Operating procedures Partnerships with stakeholders Structure Opeartional excellence Performance measures