MGT 563
OPERATIONS STRATEGIES
Dr. Aneel SALMAN
Department of Management Sciences
COMSATS Institute of Information Technology,
Islamabad
Recap Lecture 17
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Green Supply Chain
Environment
Society
Economic
A
THE TRIPLE
SUPPLY
CHAIN
Hau L. Lee
The holy grails of supply chain
management are high speed and low
cost--or are they?
To achieve sustainable competitive
advantage, your supply chain needs
all three of these qualities Agility,
Adaptability, and Alignment.
Agile
• They respond quickly to sudden changes in
supply or demand.
• They handle unexpected external disruptions
smoothly and cost-efficiently. And they
recover promptly from shocks such asnatural
disasters, epidemics, and computer viruses.
Adaptable
• They evolve over time as economic progress,
political shifts, demographic trends, and
technological advances reshape markets.
Aligned
• They align the interests of all participating
firms in the supply chain with their own. As
each player maximizes its own interests, it
optimizes the chain's performance as well.
Agility
• Objective
– Respond to short-term changes in demand or supply quickly.
• Methods:
– Continuously provide supply chain partners with data on changes in
supply and demand so they can respond promptly.
– Collaborate with suppliers and customers to redesign processes,
components, and products in ways that give you a head start over
rivals.
– Finish products only when you have accurate information on customer
preferences.
– Keep a small inventory of inexpensive, nonbulky product components
to prevent manufacturing delays.
Adaptability
• Objective
– Adjust supply chain design to accommodate market changes.
• Methods:
– Track economic changes, especially in developing countries.
– Use intermediaries to find reliable vendors in unfamiliar parts of the
world.
– Create flexibility by ensuring that different products use the same
components and production processes.
– Create different supply chains for different product lines, to optimize
capabilities for each. For example, with highly customized, low-volume
products, use vendors close to your main markets. For standard, highvolume products, commission contract manufacturers in low-cost
countries.
Alignment
• Objectives
– Establish incentives for supply chain partners to improve performance
of the entire chain.
• Methods:
– Provide all partners with equal access to forecasts, sales data, and
plans.
– Clarify partners' roles and responsibilities to avoid conflict.
– Redefine partnership terms to share risks, costs, and rewards for
improving supply chain performance.
– Align incentives so that players maximize overall chain performance
while also maximizing their returns from the partnership.
Rapid-Fire Fulfillment
Kasra Ferdows
Michael A. Lewis
Jose A.D. Machuca
ZARA Supply Chain Management
• “you need to have five fingers touching the
factory and five touching the customer.”
Amancio Ortega
• Control what happens to your product until
the customer buys it.
• Zara has developed a superresponsive supply
chain.
• Zara keeps almost half of its production
inhouse.
• Far from pushing its factories to maximize
their output, the company intentionally leaves
extra capacity.
• The company manages all design,
warehousing, distribution, and logistics
functions itself.
• It holds its retail stores to a rigid timetable for
placing orders and receiving stock.
• It puts price tags on items before they’re
shipped, rather than at each store.
• It leaves large areas empty in its expensive
retail shops.
• It tolerates, even encourages, occasional
stock-outs.
Self-reinforcing system built on three
principles
• Close the communication loop
• Stick to a rhythm across the entire chain
• Leverage your capital assets to increase supply
chain flexibility
Close the Loop
• Transfer both hard data and anecdotal information
quickly and easily from shoppers to designers and
production staff.
• Track materials and products in real time every step of
the way, including inventory on display in the stores.
• The goal is to close the information loop between the
end users and the upstream operations of design,
procurement, production, and distribution as quickly
and directly as possible.
• Regular creation and rapid replenishment of small
batches of new goods.
Stick to a rhythm across the entire
chain
• At Zara, rapid timing and synchronicity are
paramount.
• Company indulges in an approach that can
best be characterized as “penny foolish,
pound wise.”
• It spends money on anything that helps to
increase and enforce the speed and
responsiveness of the chain as a whole.
Leverage your capital assets to
increase supply chain flexibility.
• Zara has made major capital investments in
production and distribution facilities and uses
them to increase the supply chain’s
responsiveness to new and fluctuating
demands.
• It produces complicated products in-house
and outsources the simple ones.
Lessons learnt….
• Touch the factories and customers with two
hands.
• Do everything possible to let one hand help
the other.
• Whatever you do, don’t take your eyes off the
product until it’s sold
DEEPER SUPPLIER
RELATIONSHIPS
Jeffery K Liker
Thomas Y Choi
The Supplier Partnering Hierarchy
• “An army marches on its stomach.”
• “Amateurs talk strategy and professionals talk
logistics.”
Understand how your Supplier Works
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Learn about suppliers businesses
Go see how suppliers work
Respect suppliers capabilities
Commit to coprosperity
Turn supplier rivalry into opportunity
• Source each component from two or three
vendors
• Create compatible production philosophies
and systems
• Set up joint ventures with existing suppliers to
transfer knowledge and maintain control
Supervise your suppliers
• Send monthly supply cards to core suppliers
• Provide immediate and constant feedback
• Get senior management involved in solving
problems
Develop suppliers technical
capabilities
• Build suppliers problem solving skills
• Develop common lexicon
• Hone core suppliers innovation capabilities
Share information intensively but
selectively
• Set specific time, places and agendas for
meetings
• Use rigid formats for sharing information
• Insist on accurate data collection
• Share information in a structured fashion
Conduct joint improvement activities
• Exchange best practices with suppliers
• Initiate Kiazen projects at suppliers facilities
• Set up supplier study groups
We’re in This Together
Douglas M. Lambert
A. Michael Knemeyer
The Partnership Model
The Propensity to Partner Matrix
Are You the Weakest
Link in Your
Company’s Supply
Chain?
Reuben E. Slone
John T. Mentzer
J. Paul Dittmann
Pick the right leaders
• Supply chain management can’t be
competently managed by the uninitiated.
• Ensure senior supply chain executives have a
background in SCM, through formal
education, significant experience, or both.
• Extend this best-and-brightest principle down
to entry-level hiring.
Initiate benchmarking and select
metrics.
• Conduct external best-practice benchmarking
on key aspects of supply chain performance,
such as inventory turns, availability of goods,
and SKU system costs.
• Set goals for metrics based on benchmarking.
• Define metrics in ways that generate useful
information; for example, “good availability”
means orders delivered to customers on time.
Set incentives
• Establish rewards encouraging suppliers and
employees to support your supply chain goals.
Keep up with technology and trends
• Stay current with supply chain technology
advances (such as software and devices
supporting production planning, inventory
management, and warehousing) and process
tools (such as Six Sigma) applied to the entire
supply chain.
• Understand how your firm is currently using
technologies, and ask challenging questions
before adopting new tools.
Factor supply chain management into
business plans
• Make supply chain considerations core
components of operations, sales and
marketing planning, as well as contract
negotiations with customers and partners.
• Watch for inconsistencies undermining your
strategic aims.
Resist the tyranny of short-term
thinking
• Discourage use of deep discounts at quarter’s end
to “make the numbers.”
• Discounts train your supply chain partners to
delay buying until the end of each quarter. That
triggers low sales in the first two months of the
next quarter, which prompts more discounts.
• The cost to you: overtime during heavy buying,
wasted labor during slow months, and higher
inventory costs before the next “surge.”