Cranefield College of
Project and Programme Management
MODULE M3
Supply Chain Quality
and
Performance Management
(Postgraduate Diploma in Programme Management)
COMPILED BY:
Professor Pieter Steyn
(Pr Eng, BSc Eng, MBA, DCom)
Professor Jan A. Meyer
(BA (Pol Sc), CLM, MBL, PhD, GCHE)
FACILITATED BY:
Professor Jan Meyer
Cell: + 27 83 77 88 218
© 2023 (Cranefield College (Pty) Ltd.
CONTENTS
Acknowledgement
Introduction
Evaluation
The Case Learning Method
Guide to Case Analysis
Class and Team Discussion
Selected Specific Rules and Regulations
Resource Centre
Copyright ©
Prescribed Text and Reading Material
Learning Objectives
Learning Outcomes
TOPICS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Introduction to SCM
Supply Issues: Purchasing Management
Supply Issues: Creating and Managing Supplier Relations
Supply Issues: Ethical and Sustainable Sourcing
Supply Issues: Demand Forecasting
Operations issues: Resource Planning Systems
Operations Issues: Inventory Management
Operations Issues: Process Management
Distribution issues: Global Logistics
Distribution Issues: Customer Relationship Management
Distribution Issues: Global Location Decisions (self-study)
Distribution Issues: Service Response Logistics
Integration Issues: Supply Chain Process Integration
Integration Issues: Performance Management
©PowerPoint slides
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Recommended Articles:
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Steyn Pieter G, 2001: “Managing Organisations through Projects and
Programmes: The Modern General Management Approach”, Management
Today, Vol 17, No 3, April.
Steyn Pieter G.2010. “Programme Managing the Supply Chain Portfolio”, PM
World Today, Featured Paper, Vol XII, Issue VI, June.
Steyn Pieter G.2010. “The Need for a Chief Portfolio Officer (CPO) in
Organisations”, PM World Today, Featured Paper, Vol XII, Issue VII, July.
Steyn Pieter G. 2010. The Need for a Chief Portfolio Officer in Organizations”,
Journal of Project, Program & Portfolio Management, Vol 1, No 2, University
of Technology, Sydney.
Steyn Pieter G. 2012. “The Need for a Chief Portfolio Officer in
Organisations”, Russian Project Management Journal, No 3 (31).
Steyn Pieter G. 2012. “Sustainable Strategic Supply Chain Leadership and
Management”, PM World Journal, Vol. I, Issue V, December..
Steyn Pieter G. 2013. “A Business Model for Programme Managing the
Supply Chain Portfolio”, PM World Journal, Vol. II, Issue III, March.
www.pmworldjournal.net
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1.
ACKNOWLEDGEMENT
This student guide is predominantly based on the textbook by Wisner, Tan,
Leong, “Principles of Supply Chain Management, A Balanced Approach”, 5 th
Edition, South Western Cengage Learning, 2018.
2.
INTRODUCTION
Technology-enhanced Distance Learning Mode of Delivery
Welcome to the Module M3 “Supply Chain Quality and Performance Management
“module of the Postgraduate Diploma in Programme Management. Read the
“Preface” in the textbook to form an understanding of the author’s approach to
the subject.
Cranefield’s technology-enhanced distance learning approach offers substantial
advantages in terms of flexibility and agility of programme delivery. With
Cranefield’s VLE (virtual learning environment), which combines the technology of
Blackboard Learn with that of Blackboard Collaborate, the entire process of
programme delivery is enhanced, from live online classes to online assessments
and personal feedback. For case discussions in syndicate teams, students are also
able to meet online in their dedicated virtual collaboration room, where they can see
and hear each other in an organised fashion, using the Blackboard Collaborate
system. All classes are streamed live, and students may participate in any or all of
their classes online, thereby saving time and travel.
Where a student is unable to participate in any of the live classes (due to a particular
work situation, for instance), he or she may instead view the recording thereof. A
student who is based in a time zone that makes live class participation difficult may
still complete any of Cranefield’s programmes via asynchronous distance learning
on the basis of a special arrangement that all such recordings shall be carefully
studied and that the student will still participate fully in after-hours team activities,
including appropriate contributions to the compulsory team assignment (which
accounts for 20% of the student’s module mark).
Currently, Cranefield’s live lectures span three hours on each lecture day,
commencing strictly at 09h00 and ending at 12h00. There are five lecture days per
module in the case of all modules with live lectures. Note again that live classes are
available but not compulsory, whereas team participation (which will be specially
arranged for students who are further abroad) is compulsory for all students. Where
a student did not participate in any of the live classes, he or she is required to study
the recordings thereof. The lecturer is available throughout the duration of the
module to assist any student with individual or team matters. Individuals or teams
can make an appointment (via the administration) to engage with the lecturer
through their online collaboration room or alternative media.
To make effective use of outcomes-based learning (OBL), it is important that team
members be cooperative and supportive of each other, and share knowledge and
resources freely among themselves. How to make creative use of the energy of
more outspoken members, and how to encourage the participation of more reserved
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members in a team, are examples of the type of skills which are essential for a
successful team. Syndicate members should be able to set individual learning
objectives, while respecting and participating in the setting and fulfilling of the
objectives set up by the team. Many vital project management skills are learnt in a
team. The related interpersonal skills are indispensable in the context of modern
management through projects and programmes, which absolutely requires a team
approach.
An adult-learning approach is adopted in this undergraduate programme. Students
are advised to study the chapters and recommended reading as indicated in the
study guide and textbook. The emphasis is on problem-solving, and an integrated
approach to management through projects and programmes. The key features of
the learning programme are: the analysis of management situations as the main
method of acquiring and applying knowledge; the development of independent,
lifelong learning skills; and the use of syndicate groups, with no more than six
students, as the central education purpose. Another unique feature of the
programme is the continuous exposure of the students to their work situations and
environment.
The contents of this learning programme have been aligned with the requirements of
the Project Management Institute (PMI) of the United States of America as well as
with those of the International Project Management Association (IPMA). Attainment
of this qualification grants the student the opportunity to be certified by the Project
Management Institute (PMI) of America as a Project Management Professional
(PMP) or Certified Associate in Project Management (CAPM) depending on your
practical experience. The student will also be able to become a member of the
South African Project Management Associations affiliated with the above
international bodies.
From a learning point of view, the emphasis is primarily on self-driven study. The
study guide will guide the student thoroughly and systematically through each
topic/chapter of the prescribed work. The study guide is complemented by Cranefield’s
Blackboard virtual learning environment (VLE). Instructions to students, self-test
exercises, tutorials and other materials are continually uploaded to guide the student
through the module content. However, due to the fact that project management
centrally requires a team approach, students are also expected to work in syndicate
teams and to discuss formative cases.
In a team-learning environment, the ability to communicate effectively with other
syndicate members is an essential skill. Students must be able to provide feedback
in a constructive and supportive manner to each other in order to improve individual
and team performance in a team setting.
Syndicate members should be able to set individual learning objectives, while
respecting and participating in the fulfilling the objectives set by the team.
Consideration for other team members is a necessity.
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3.
STUDENT EVALUATION
A student is evaluated on the basis of an individual examination assignment
based on a case study or team analysis. The individual examination assignment
is submitted approximately 4 weeks after the fifth and final lecture session.
The team assignment and individual examination assignment must be presented
in the form of a report to top management. It must contain the following:
•
A cover page indicating the title of the case analysed and reported on, the
student’s name and student number (i.e. your ID number). The prescribed
cover page is available on Blackboard Learn under “instruction
manuals”.
•
The following declaration “I/We hereby declare that this assignment
is entirely my/our own work, and that it has not previously been
submitted to any Higher Education Institution. I/We also declare that
all published and unpublished sources have been fully
acknowledged and properly referenced. This includes figures, tables
and exhibits. Where modified by me/us, this has also been
indicated.”
•
A ‘Table of Contents’ reflecting the relevant sections and subsections of
the assignment.
•
A one-page executive summary briefly describing the main problems
together with their causes, and stating the recommended solutions (in
order of priority, where relevant).
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A well-structured main body with a well-motivated solution to the case.
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Accurate references to the literature that you consulted, and applied
knowledge drawn from your insight and experience.
•
A bibliography reflecting ALL the sources referred to in your paper.
A team assignment must be submitted by students on the fifth class date. The
team assignment counts 20% towards the final module mark. The format is
identical to the individual examination assignment as described above. A signed
declaration of participation by all team members must be submitted with the
assignment.
Understanding of the course content
Problem identification
Analysing the causes
Conclusions and recommendations
Technical presentation: Executive
summary, accurate and correct writing,
correct referencing and bibliography
10
10
35
30
15
Total: 100
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Adherence to submission dates for examination and team assignments
compulsory.
4. THE CASE LEARNING METHOD
For the resolution of management problems, specific analytical tools are required.
Most important to the project manager is the ability to define the problem (typically
with limited information), to suggest what further analysis is necessary or indeed
possible, and to devise and implement a reasonable action plan to solve the
problem.
The case method is aimed at developing the student’s ability to confront and solve
management issues. Often extolled as the most important andragogic approach
for developing a manager’s judgment, it is the primary method of instruction on
Cranefield’s management programmes. Cases are first-hand accounts of actual
management situations, involving problems that stem from many independent
factors.
Students must first analyse the case individually, identify the problem, examine the
contributory causes, and consider alternative courses of action before arriving at a
suitable conclusion and recommendation. Involvement and team co-operation are
fundamental to the case method. In class and in study teams, students benefit
from the varied backgrounds and perspectives of their fellow classmates, thus
learning from each other as well as from the lecturer. The lecturer may call on
students at any time, without prior warning, to evaluate key issues and to discuss
their viewpoints during the online class sessions.
The case method requires that you learn by doing. For this reason, we ensure that
actual problems form the basis of the case method, so that students may
recognise that decision-making under real conditions is not an exact science, and
that the results of managerial actions are far less precise than academic theory
may suggest.
5.
GUIDE TO CASE ANALYSIS
The purpose of the case method is to sharpen each student’s skills in the
following:
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•
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•
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•
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Situation analysis
To evaluate relevant information
To cultivate a critical attitude
To define problems and opportunities
To formulate alternative solutions
To increase individual ability to interpret
To develop strategies
To make decisions
To cultivate a critical attitude to the work of fellow students
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The following steps may be followed in the analysis of a case study:
•
•
•
Situation analysis (problems and opportunities)
Identification of the main problem
Identification of alternative solutions
Identification of all relevant and critical aspects that play an
important role in developing alternatives
Evaluation of each alternative
Recommendations. Declare which alternative should be
followed and why. Strategically prioritise steps in
implementation as may be required. State who the person
responsible for each aspect of the implementation of the
solution will be. Provide a tentative budget where relevant.
•
•
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Nomenclature
The following definitions apply where instructions to written assignments are
provided:
Name
Describe
Explain
Define
Distinguish
Definition
Illustrate
Identify
6.
a short representation of the facts/main points
from memory
indicate how the process develops or how a subject
appears without your own comments or points of view
the subject must be presented according to
own insight/words
a statement of a concept in own words
an explanation of the differences in subjects
a theme defined in its essence
as for “Describe”, but with accompanying
figures and tables
an enumeration of relevant factors
SELECTED SPECIFIC RULES AND REGULATIONS
6.1 General
Students must acquaint themselves with all the rules and regulations of Cranefield
College as contained in Section 2 of the Cranefield Prospectus. Every student is
bound by these rules and regulations for the duration of his or her learning
programme.
Cranefield may in accordance with due process amend selected rules and
regulations, which amendments will be reflected in the current Cranefield
Prospectus available online.
6.2 Class and Team Participation
6.2.1 Class participation is not compulsory. However, for all modules with live
classes, online class participation is strongly encouraged, and it is in the ordinary
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course expected that a student will be engaged in all live lectures for a particular
module via Blackboard Collaborate. Cranefield’s use of Blackboard enables students
to participate in classes interactively online from the office or home, and to study
recordings of the live classes.
6.2.2 With Cranefield’s technology-enhanced distance learning, all classes are
streamed live, and students may opt to participate in any or all of their classes
online, thereby saving time and travel. If a student is unable to participate in any of
the online classes due to special circumstances, he or she will still be able to study
the recording of the missed class. All students in any event have access to the
recording of the class for revision purposes. It is important to note that it remains
imperative for all students to adhere exactly to all the set dates and assignment
deadlines for all modules.
6.2.3 In the case of all academic modules that involve a formal teamwork
component, it is compulsory for all students to participate actively and timeously in
team activities and assignments. Lack of such participation would result in a student
not being able to continue further with the module in a particular cycle, and the
student would then need to repeat the module. For case discussions in syndicate 15
teams, students are able to meet in a dedicated online collaboration room where
they can see and hear each other in an organised fashion, using the Blackboard
Collaborate system. Such team sessions can also be recorded for revision purposes.
6.2.4 Records of all students’ online activities are kept as a matter of a course, and a
student’s sponsor organisation may follow up with the College to verify participation.
6.3 Submission and Assessment of Assignments
6.3.1 All examination sessions on academic programmes involve a first and second
examiner (the latter of whom may be internal or external).
6.3.2 Adherence to submission dates for individual and team assignments is strictly
required. In the case of individual examination assignments, any student who fails to
submit on time and provides a valid reason (supported by evidence) may, however,
be granted an extension for submission. Nevertheless, any late submission will
generally result in the student having to wait until the assessment of supplementary
examinations for the late assignment to be assessed.
6.3.3 In the case of team assignments on academic programmes, no extension may
be granted under any circumstances, since the case is for discussion in the live class
on the day of the deadline. Late submissions with a valid excuse (and supporting
evidence, where relevant) will be treated as supplementary examinations (with 50%
being the maximum awardable mark) with no feedback report. Where the submission
is substantially beyond the deadline or there is no valid excuse as mentioned, the
team will receive 0%.
6.3.4 All individual assignments shall contain the following signed declaration: “I
hereby declare that this assignment is my own work, and that it has not previously
been submitted to any Higher Education Institution. I also declare that all published
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and unpublished sources have been fully acknowledged and properly referenced.
This includes figures, tables and exhibits. Where modified by me, this has also been
indicated.”
6.3.5 The following honest declaration, signed by each member of the team, must be
included in all team assignments: “We, the undersigned, hereby declare that each of
us has contributed to this assignment, and that it is entirely our own work. We also
declare that all published and unpublished sources have been fully acknowledged
and properly referenced. This includes figures, tables and exhibits. Where modified
by us, this has also been indicated.”
6.3.6 All assignments must be submitted in electronic form in MS Word format. In
accordance with Higher Education practice, all final examinations remain the
property of the College, and may not be returned to students. However, students will
be granted the opportunity to discuss their marked examinations with the examiner/s
by special request, which request must reach the Administration within fourteen days
of the results being released.
6.4 Supplementary Examinations, Re-evaluations and Repeats
6.4.1 A student who, due to reasons beyond his or her control, fails to undertake or
to submit an examination assignment on time, may be granted the opportunity to
complete a supplementary examination for which a full mark will be awarded. Details
(with supporting evidence, where appropriate) of the reasons for such failure must be
submitted to the Head of Administration before the due date, or shortly thereafter,
depending on the nature of the situation, and will be placed on record. Every case
will be evaluated on its own merits. Confidentiality of any personal information is
assured.
6.4.2 A student who, without a valid excuse as contemplated above, fails to
undertake or to submit a first examination assignment on time will have the
opportunity to complete a supplementary examination. The result of such a
supplementary examination will then be only a pass (reflected as ‘50%’) or fail,
without the opportunity for obtaining a higher mark. The fee for a supplementary
examination following failure to undertake or to submit, without a timeously
communicated valid excuse as contemplated in above, is R500.00.
6.4.3 A student who fails a first examination will have the opportunity to complete a
supplementary examination. The result of such a supplementary examination will
then be only a pass (reflected as ‘50%’) or fail, without the opportunity for obtaining a
higher mark. All supplementary examinations must be submitted electronically as
indicated above.
6.4.4 A supplementary examination will not be permitted in the case where a student
has failed both to submit his or her individual assignment and also to participate in,
or to submit, the team assignment. In such a case, the student will be invited to
repeat the module.
6.4.5 A supplementary examination will not be permitted in the case where a student
has any outstanding payments in respect of his or her studies. Only once such
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arrears have been settled will a student be granted the opportunity to complete a
supplementary examination.
6.4.6 A supplementary examination must, in all cases, be undertaken within six
months after failing, or failing to undertake or to submit, the previous examination,
failing which the student will have the opportunity to repeat the course/module in
question.
6.4.7 A student fails to take or to submit his or her supplementary examination on
time (or at all), or submits but does not pass, will have the opportunity to repeat
the module/course.
6.5 Fees
6.5.1 Where the student is personally liable for fees, he or she is required to pay the
basic registration fee before his or her registration can be finalised. Payment of the
fee finalises registration, and the fee is non-refundable. The student will then receive
an invoice for the full fee. Payment in respect of the first module must be effected (in
full or, by special arrangement, in part) within fourteen days from the date of the
invoice, or before the first lecture date, whichever is earlier. In the case of a student
who starts the module through online participation, such payment must be made
before access to study material. The student must produce proof of payment of the
two amounts above (within the times stipulated), via fax, email, or other appropriate
means, and must follow up with the Administration in time to be able to participate in
the class.
6.5.2 Where the student’s company is paying, an approval letter from the company
for payment of studies must reach the Administration before the registration can be
finalised. The student’s company will then receive an invoice for the full fee of the
first module once the registration has been finalised. The full amount must then be
paid in due course. The onus remains on the student to produce proof of payment
via email or other appropriate means, and to follow up with the Administration in time
to be able to participate in the class. The company will still be liable for the
registration fee if the student does not continue after registration.
6.5.3 A student who, for any reason, still has any outstanding fees at the time of
completing his or her final examination will not receive his or her results.
6.5.4 No refunds are payable to any student who does not fulfil his or her study
obligations. Once a student has received access to the study material for any
module or course, no refund is possible.
6.5.5 A student who repeats a module or short course shall be liable for 50% of the
current full module/course fee (in addition to the fees paid for his or her previous
attempt).
6.5.6 A student who does not complete a full academic programme within the
required time (where applicable) will be liable for a reregistration fee. Information
regarding the maximum allowable time to complete a programme is provided with
the rest of the information for that specific programme.
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6.5.7 A student who does not complete a module of an academic programme within
the prescribed period of a particular cycle, will need to repeat the module in a
subsequent cycle (starting afresh) and would be liable for a repeat fee.
6.5.8 Fees paid electronically must be accompanied by the invoice reference
number, or the name and surname of the student, and the Administration must be
informed of such a transfer by fax or email.
6.5.9 In the case where a company will be liable for tuition fees, the VAT registration
number must be provided with registration.
7. RESOURCE CENTRE:
7.1 All students have access to Cranefield’s virtual resource centre (see
www.cranefield.ac.za/resourcecentre). However, a student who requires technical
assistance may contact Ms Refilwe Mosiane at 012 807 3970 or
refilwen@cranefield.ac.za for information.
COPYRIGHT ©
The content of this course material is the intellectual property of Professor Pieter G
Steyn. Full details of the Advanced Certificate in Project Management, Advanced
Diploma in Project Management, Postgraduate Diploma in Programme
Management, the Master of Commerce in Programme Management degree, and
the PhD degree, are available at www.cranefield.ac.za.
PRESCRIBED TEXT AND READING MATERIAL
•
Wisner, Tan, Leong. 2016. “Principles of Supply Chain Management,
A Balanced Approach”, 5 th Edition. South Western Cengage Learning.
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PURPOSE
OF
THE
POSTGRADUATE
DIPLOMA
IN
PROGRAMME
MANAGEMENT:
The purpose of the Postgraduate Diploma in Programme Management is to prepare
professional project, programme and portfolio managers to apply and critically
reflect on current theoretical thinking and practices of programme and portfolio
management. Students will gain advanced operational, structural, and behavioural
knowledge and insight to promote strategic leadership and performance
optimisation in an organisation.
EXIT LEVEL OUTCOMES
Successful candidates will be able to:
•
Reflect critically on the role of quality and performance management in
the organisational supply chain, in particular the cross-functional
programme- managed component thereof, with the aim of improving the
performance of the organisational value chain.
• Compare business strategy theory with practice to meet challenges in
both internal and external organisational environments, in a prescriptive
and emergent manner, to enhance the value creation ability of the
learning organisation.
• Evaluate the creation of effective and efficient project and process
teams, from a behavioural perspective, with the aim of improving the
performance of the organisation.
• Analyse strategic financial management theories, including the
fundamentals of contract and corporate law, in order to contribute to the
effective functioning of the financial sector of the organisation and to
demonstrate how the use of an appropriate financial strategy can add
value to the overall corporate strategy of an organisation
• Communicate accurately and appropriately in the English language,
particularly in terms of written communication in the business context,
with advanced insight and understanding.
STUDY GUIDELINES FOR POSTGRADUATE DIPLOMA IN PROGRAMME
MANAGEMENT
MODULE M3: SUPPLY CHAIN QUALITY AND PERFORMANCE MANAGEMENT
PURPOSE:
The purpose of this module is to undertake advanced reflection and development
in respect of quality and performance management in the organisational supply
chain, in particular the cross-functional programme-managed component thereof,
with the aim of improving the performance of the organisational value chain (NQF
8, 40 Credits, Core/Elective).
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MODULE OUTCOMES:
When a student exits this module, he/she will be able to:
•
•
•
•
•
•
•
•
•
•
•
•
Demonstrate an advance integrated knowledge in applying and
evaluating the quality, logistics and process components of the supply
value chain.
Interrogate and evaluate the acquisition, operations, distribution and
integration issues of the supply chain
Demonstrate an advance insight of the complexities in the
application of programme management in the supply chain
management environment.
Demonstrate the systematic analysis the existing supply chain
processes within an enterprise and the development of tacit knowledge
for the purpose of value optimization by applying the quality continuum.
Demonstrate advance knowledge of key programme and quality
management methodologies and operations management principles
for the purpose of optimising value chain performance by applying
tacit and explicit knowledge.
Analyse and critically reflect on current cross-functional processes to
continuously improve the internal operations of the organisation.
Demonstrate the ability to change operations management strategies
within a changing operational context through new or improved
processes.
Gain a framework of analysis to identify central issues and problems
in complex, comprehensive operational environments and develop
optional processes optimisation recommendation for future action.
Develop conceptual skills and understanding of the role for
corporate governance and the integration of stakeholders,
organisational entities (internal and external) within the value chain
(specifically the supply chain) of organisations.
Develop the ability to analyse and evaluate, both qualitatively and
quantitatively, the performance metrics for resources (men, machine and
material) for decision-making purposes.
Analyse the delta in the supply chain and support functions by fostering
an understanding of when and how to apply concepts and techniques
learned in marketing, accounting, finance and information systems in
developing an effective operational policy
Develop analytical and decision-making skills for dealing with
complex conceptual problems in an ethical manner.
ASSESSMENT:
Adherence to submission dates for examination and group assignments is
compulsory.
Learners should be should be able to prove above average ability to impart
knowledge, and apply skills related to the learning objectives that were clearly
defined for each study unit. These objectives are formulated and described in
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terms of specific verbs which indicate what a learner is expected to be able to do
once a topic is mastered. Some examples of such verbs are: define, describe,
discuss, provide, explain, apply, evaluate, list, name, compare, etc.
The following overall assessment outcome is expected:
An ability to undertake advanced reflection and development in respect of
quality and performance management in the organisational supply chain, in
particular the cross-functional programme-managed component thereof, with
the aim of improving the performance of the organisational value chain.
The following specific assessment objectives are set:
•
•
•
•
•
•
•
•
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To demonstrate an advance integrated knowledge in applying and
evaluating the quality, logistics and process components of the supply
value chain.
To interrogate and evaluate the acquisition, operations, distribution
and integration issues of the supply chain
To demonstrate an advance insight of the complexities in the
application of programme management in the supply chain
management environment through the systematic analysis the existing
supply chain processes within an enterprise and developing tacit
knowledge for the purpose of value optimization by applying the quality
continuum.
To demonstrate advance knowledge of key programme and quality
management methodologies and operations management principles
for the purpose of optimising value chain performance by applying tacit
and explicit knowledge.
To analyse and critically reflect on current cross-functional processes
to continuously improve the internal operations of the organisation.
To propose a change of operations management strategies within a
changing operational context through new or improved processes with
the aid of analysis and evaluation of qualitatively and quantitatively
performance metrics for resources for decision-making purposes
To develop conceptual skills and understanding of the role for
corporate governance and the integration of stakeholders,
organisational entities (internal and external) within the value chain
(specifically the supply chain) of organisations.
Develop analytical and decision-making skills for dealing with complex
conceptual problems in an ethical manner by identifying the deltas in
the supply chain and support functions.
14
LIST OF TOPICS AND TOPIC-SPECIFIC OUTCOMES
Topic 1: Introduction to Supply Chain Management
Specific Outcome:
Given how quickly and continuously everything is changing in the new economy, it is
essential to understand analytically the functioning of supply chains and to be able to
know what strategies will produce the best results. Greater attention to creating
supply chain solutions that are effective and efficient are required.
Topic 2: Supply Issues: Purchasing Management
Specific Outcome:
On completion of this topic the student will have an understanding of the
requirements planning process, the procurement and purchasing activities and make
or buy decision making
Topic 3: Supply Issues: Creating and managing supplier relations
Specific Outcome:
On completion of this topic the student will have an understanding for the
development of appropriate Supplier Relationships, their development and
maintenance and management in order to improve an organisations effectiveness of
the Supply Chain.
Topic 4: Supply Issues: Ethical and sustainable sourcing
Specific Outcome:
On completion of this topic the student will be able to execute an ethical decision
process for the implementation of a sustainable sourcing strategy through early
supplier involvement, rewarding and benchmarking.
Topic 5: Supply Issues: Demand forecasting
Specific Outcome:
On completion of this topic the student will be able to manage a demand forecasting
technique through the understanding of forecasting methods, and knowledge of
software systems.
Topic 6: Operations issues: Resource Planning Systems
Specific Outcome:
On completion of this topic students will have detail knowledge of the resource
planning systems required to facilitate effective operations planning. Students will be
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able to discern the various production plan strategies, apply the Master Production
Schedule, and understand the application of the BOM and capacity planning and
thresholds in the operation environment. The need for an ERP system under certain
condition will also be discussed.
Topic 7: Operations Issues: Inventory Management
Specific Outcome:
On completion of this topic students will have a comprehensive view of the inventory
systems and their management requirements in order to optimize cost and
effectiveness and efficiency in the supply chain of the operations within an
organisation.
Topic 8: Operations Issues: Process Management
Specific Outcome:
After completing this topic, the student will understand the Lean Production system
as well as the Six Sigma environmental orientation. The student will also be able to
identify and apply the elements and statistical tools for Six Sigma.
Topic 9: Distribution issues: Global logistics
Specific Outcome:
On completion of this topic the student will be able to discern the fundamentals of
transportation, warehousing and distribution issues, the position and impact of
distribution logistics on the Supply Chain, the use of global distribution and logistics
and the effect and impact of reverse logistics.
Topic 10: Distribution Issues: Customer relationship management
Specific Outcome:
On completion of this topic the student will be able to design a CRM program for the
organisation based on the existing trends and applying specific tools and techniques.
Topic 11: Distribution Issues: Global location decisions (self-study)
Specific Outcome:
SELF STUDY Wisner et al Chapter 11)
Rev 1 -23
16
Topic 12: Distribution Issues: Service response logistics
Specific Outcome:
On completion of this topic the student will be able to react on the requirements for
service quality in the supply chain based on the primary concerns such as queue
times and channel management in order to improve productivity.
Topic 13: Integration Issues: Supply Chain process integration
Specific Outcome:
On completion of this topic the student will be able to compile a SCM integration
model for the organisation based on the organisational performance metrics,
identifying the potential obstacles and determining the risk and security mitigation
strategies
Topic 14: Integration Issues: Performance management
Specific Outcome:
On completion of this topic the student will be able to identify and implement a
performance management requirement plan as well as the metrics in measuring
performance in their organisation by applying an approved tool (e.g., BSC or SCOR)
Specific Outcome: On completion of this topic the student will be able to identify and
implement a performance management requirement plan as well as the metrics in
measuring performance in their organisation by applying an approved tool (e.g., BSC
or SCOR)
Rev 1 -23
17
TOPIC 1:
INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
Specific Outcome:
Given how quickly and continuously everything is changing in the new economy, it is
essential to understand analytically the functioning of supply chains and to be able to
know what strategies will produce the best results. Greater attention to creating
supply chain solutions that are effective and efficient are required
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
2.
Describe a supply chain and define supply chain management.
Describe the objectives and elements of supply chain management.
Describe basic supply chain management activities.
Describe a brief history and current trends of supply chain management.
Understand the TQM/CQM effect and how it impacts supply chain.
Topic Overview
A supply chain consists of the flow of products and services from:
•
•
•
•
•
Raw materials manufacturers
Component and intermediate manufacturers
Final product manufacturers
Wholesalers and distributors and
Retailers
Supply chains are also connected by transportation and storage activities, and
integrated through information, planning, and integration activities. Today large firms
are moving away Vertically Integrated due to high cost and difficulty managing
diverse units. Supply chain management on the other hand is the planning and
management of all activities involved in sourcing and procurement, conversion, and
all logistics management activities … also includes coordination with channel
partners, which can be suppliers, intermediaries, third party service providers, and
customers (Council of Supply Chain Management Professionals) or the design and
management of seamless, value-added processes across organizational boundaries
to meet the real needs of the end customer (Institute for Supply Management), whilst
the Association for Operations Management state it as the design, planning,
execution, control and monitoring of supply chain activities with the objective of
creating net value, building a competitive infrastructure, leveraging worldwide
logistics, synchronizing supply with demand, and measuring performance globally.
Rev 1 -23
18
3.
Formative Exercises
Test your understanding by completing the formative exercises below.
Complete the following formative exercises individually and present your opinion
during your syndicate meetings. Debate your opinion and document it. This is
compulsory for the creation of your portfolio of evidence!
Formative Exercise 1: Pick two organisations one known as a manufacturer and
the other primarily as a services provider that have a significant commercial interest
in each of the following sectors: health care, automotive, education, retailing, travel
and leisure, and sport and recreation. For each organisation:
a. Define the primary business activity.
b. Discuss the companies Supply Chain composition and possible
effectiveness.
4.
Reflection
Reflect on what you have learned in this discussion and the application thereof in
the organisation where you work.
5.
Recommended Reading
Wisner, Tan, Leong. 2018. “Supply Chain Management, A Balanced
Approach”, 5th Edition, South Western Cengage Learning.
Knod E M, and Schonberger R J. 2001. “Operations Management, Meeting
Customers’ Demands”, 7th Edition, McGraw-Hill, Chapter 1.
Oltra, M. J; Maroto,C; Segura, B. 2005. “Operations strategy configurations
in project process firms.” International Journal of Operations & Production
Management; 25, 5/6; ABI/INFORM Global, pg. 429
Lowson, R.H. 2003. “The Nature of an operations strategy: Combining
strategic decisions from the nature of an operations strategy: combining
strategic decisions form the resource-based and market-driven viewpoints.
Management Decision; 41, 5/6; ABI/INFORM Global Pg. 538
Bourne, M; Mills, J & Faull, N. 2003. “Operations strategy and performance:
A resource-based perspective”, International Journal of Operations &
Production Management; 9; ABI/INFORM Global, pg. 944
Rev 1 -23
19
Cranefield College
of
Project and Programme Management
MODULE M3
Supply Chain Quality
and
Performance Management
Facilitator: Professor Jan Meyer
1
2
Rev 1 -23
20
3
Module Exit Level Outcomes
You should be able to:
Describe a supply chain and define supply chain management.
Describe the objectives and elements of supply chain management.
Describe basic supply chain management activities.
Describe a brief history and current trends of supply chain
management.
Understand the TQM/CQM effect and how it impacts supply chain
In and/or on a business situation.
4
Rev 1 -23
21
Topic 1
Introduction to SCM
Organisational
Performance and
Improvement
(Chapter 1 plus TQM)
5
What is a Supply Chain? - 1
A supply chain consists of the flow of products and
services from:
Raw materials manufacturers
Component and intermediate manufacturers
Final product manufacturers
Wholesalers and distributors and
Retailers
Connected by transportation and storage activities, and
Integrated through information, planning, and integration
activities
Today large firms are moving away Vertically Integrated
due to high cost and difficulty managing diverse units
6
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22
What is a Supply Chain? - 2
7
What is Supply Chain
Management? - 1
The planning and management of all activities involved in sourcing and
procurement, conversion, and all logistics management activities … also
includes coordination with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers.
Council of Supply Chain Management Professionals
The design and management of seamless, value-added processes across
organizational boundaries to meet the real needs of the end customer.
Institute for Supply Management
The design, planning, execution, control and monitoring of supply chain
activities with the objective of creating net value, building a competitive
infrastructure, leveraging worldwide logistics, synchronizing supply with
demand, and measuring performance globally.
Association for Operations Management
8
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23
What is Supply Chain
Management? - 2
Traditional organisational cultures that emphasized short-term,
company focused performance can conflict with the objectives of
supply chain management
Successful supply chain management requires high levels of
trust, cooperation, collaboration, and honest, accurate
communications
All participants in the supply chain benefit.
Boundaries are dynamic and extend from “the firm’s suppliers’
suppliers to its customers’ customers (i.e., second tier suppliers
and customers).”
Supply chains also include reverse logistics activities to handle
returned products, warranty repairs, and recycling.
9
Importance of Supply
Chain Management - 1
Firms using Supply Chain Management:
1.Start with key suppliers
2. Move on to other suppliers, customers,
and logistics services
3.Integrate second tier suppliers and
customers (second tier refers to the
customer’s customers and the supplier’s
suppliers)
10
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24
Importance of Supply
Chain Management - 2
Cost savings and better coordination of
resources are reasons to employ Supply Chain
Management
Reduced Bullwhip Effect
Defined as: Erratic demand forecasts
causing excess safety stocks, which cause
production planning problems.
SCM reduces safety stocks and costs due
to coordinated planning and better sharing
of information
11
Supply Chain Management
Activities
Typical
Functions
Silos
Business
Processes
S
U
P
P
L
I
E
R
S
Customer
Relationship
Management
Sales &
Marketing
Technical
Logistics
Manufacturing
Account
Requirements
Requirements
Manufacturing
Management
Definition
Definition
Technical
Performance
Coordinated
Service
Specifications
Execution
Network
Capability
Planning
Planning
Account
Strategy
Purchasing
Finance &
Accounting
Sourcing
Customer
Strategy
Profitability
Priority
Customer Service
Management
Administration
Demand
Management
Planning
Requirements
Special
Environmental
Distribution
Plant
Selected
Orders
Requirements
Management
Direct
Supplier(s)
Fulfillment
Manufacturing Flow
Management
Sup Rel Managem
Product
Development and
Commercialisation
Demand
Process
Packaging
Process
Specifications
Stability
Order
Booking
Business
Plan
Material
Specifications
Prioritisation
Criteria
Assessment
Sourcing
Production
Integrated
Planning
Supply
Inbound
Integrated
Supplier
Flow
Planning
Management
Product
Movement
Design
Requirements
Process
Specifications
Material
Specifications
Cost
To Serve
Trade-off
Analysis
Distribution
Cost
Manufacturing
Cost
Materials
Cost
R & D Cost
C
U
S
T
O
M
E
R
S
Information Architecture, Data Base Strategy, Information Visibility
Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional barriers that artificially separate the process flows.
12
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25
Non- Project Driven, Project
Driven, and Hybrid Supply
Chain Business Model
How the organisation is structured is
dependent on its size and business model.
An organisation can be structured as either
project driven or non-project driven.
Alternatively the organisation can have a
hybrid structure, meaning that it has both
project driven and non-project driven
components.
13
NON-PROJ DRIVEN BUSINESS MODEL VDLO VALUE CHAIN SCHEMATIC
BALANCED SCORECARD
(BS)
CORPORATE STRATEGY
PORTFOLIO:
STRATEGIC
TRANSFORMATION
PROJECTS
PORTFOLIO:
SUPPLY CHAIN
OPERATIONS &
PROJECTS
MAJOR BENEFITS:
SUPPLY CHAIN
EFFECTIVENESS &
EFFICIENCY
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
PORTFOLIO:
CONTINUOUS
IMPROVEMENT
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
& EFFICIENCY
PORTFOLIO:
CAPITAL
EXPENDITURE
PROJECTS
FINANCE
CSFs
CUSTOMER
CSFs
INTERNAL
CSFs
LEARNING
&
GROWTH
CSFs
MAJOR BENEFITS:
ORGANISATIONAL
EFFICIENCY
NON-PROJECT DRIVEN
BUSINESS MODEL
SUPPLY CHAIN
FIN
SALES & M
PURCH
MANUF
LOG
HR
IT
CUSTOMER RELATIONSHIP MANAGEMENT SERVING EXTERNAL CUSTOMERS
CUSTOMER SERVICE MANAGEMENT SERVING EXTERNAL CUSTOMERS
ORDER FULFILMENT MANAGEMENT SERVING EXTERNAL CUSTOMERS
PRODUCT DEVELOPMENT & COMMERCIALISATION PROJECTS FOR THE MARKET
DEMAND MANAGEMENT & CAPACITY PLANNING SERVING INTERNAL CUSTOMERS
SUPPLIER RELATIONSHIP MANAGEMENT (PROCUREMENT) SERVING INTERNAL CUSTOMERS
MANUFACTURING FLOW MANAGEMENT SERVING INTERNAL CUSTOMERS
HUMAN TALENT
INFORMATION ARCHITECTURE
INFORMATION VISIBILITY
MEASUREMENT OF OUTPUT KPIs
FEEDBACK
©P G Steyn
2015
14
Rev 1 -23
26
CHIEF OPERATING
OFFICER
CUSTOMER
FOCUS
PROGRAMME
MANAGER:
PROGRAMME
MANAGER:
CAPACITY
FOCUS
PORTFOLIO MANAGER:
SUPPLY CHAIN
OTHER PORTFOLIO MANAGERS
TIERS OF SUPPLIERS (EXTERNAL
ENVIRONMENT)
Mark & Sales
Finance
Res
our
ces
Re
sou
rce
s
Process
Manager
Process
Manager
Process
Manager
Project
Manager
Process
Manager
Process
Manager
Process
Manager
Production
Purchasing
Res
our
ces
Res
our
ces
Logistics
Technical
Re
sou
rce
s
Res
our
ces
CUSTOMER RELATIONS
MANAGEMENT PROCESS
CUSTOMER SERVICE MANAGEMENT
PROCESS
ORDER FULFILMENT
MANAGEMENT/RETURNS PROCESS
PRODUCT DEVELOPMENT &
COMMERCIALISATION PROCESS
Re
sou
rce
s
SUPPLIER RELATIONSHIP
MANAGEMENT PROCESS
MANUFACTURING FLOW
MANAGEMENT PROCESS
DEMAND MANAGEMENT & CAPACITY
PLANNING PROCESS
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
TIERS OF CUSTOMERS (EXTERNAL
ENVIRONMENT)
CHIEF FINANCIAL
OFFICER
FUNCTIONAL MANAGERS PROVIDING RESOURCES TO CROSS‐FUNCTIONAL PROCESSES
VIRTUAL
NETWORK OF
SUPPLIER
PARTNERS
CHIEF EXECUTIVE OFFICER (Non-Proj Driven)
CHIEF
PORTFOLIO
OFFICER
©P G Steyn
2015
15
Product Dev
Process
and
Virtual Network
16
Rev 1 -23
27
VDLO STRUCTURE FOR PRODUCT DESIGN AND DEVELOPMENT
CEO
COO
CPO
CFO
PORTFOLIO MANAGER:
SUPPLY CHAIN
PROGRAMME MANAGER:
CAPACITY COMPONENT
VIRTUAL NETWORK OF
PARTNER
ORGANISATIONS
For Innovative Product
Design and Development
PROGRAMME MANAGER:
CUSTOMER COMPONENT
PROJECT MANAGER:
Innovative Product Design and
Development
PORTFOLIO MANAGER:
CONT IMPROV PROJECTS
PORTFOLIO MANAGER:
CAPEX PROJECTS
©Steyn/Semolic 2016
17
Advantages of
Programme Management
Its progress reviews provide for creativity and
control ; flexibility and structure
Its team-based structures are multi-functional
Caters for authority, responsibility, trust,
expertise, speed, quick response, autonomy,
cohesion, collaboration and cooperation
Its structured approach to change allows the
acquisition and diffusion of knowledge (supports
creating a learning organisation)
Its skills are relevant to strategic change and
innovation
18
Rev 1 -23
28
PROJ DRIVEN BUSINESS MODEL LEARNING ORGANISATION VALUE CHAIN SCHEMATIC
BALANCED SCORECARD
(BS)
CORPORATE STRATEGY
PORTFOLIO:
SUPPLY CHAIN
OPERATIONS &
PROJECTS
PORTFOLIO:
CONTINUOUS
IMPROVEMENT
PROJECTS
PORTFOLIO:
STRATEGIC
TRANSFORMATION
PROJECTS
MAJOR BENEFITS:
SUPPLY CHAIN
EFFECTIVENESS
& EFFICIENCY
PORTFOLIO:
CAPITAL
EXPENDITURE
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
& EFFICIENCY
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
FINANCE
CSFs
CUSTOMER
CSFs
INTERNAL
CSFs
LEARNING
&
GROWTH
CSFs
MAJOR BENEFITS:
ORGANISATIONAL
EFFICIENCY
FIN
SALES & M
PURCH
MANUF
LOG
HR
IT
PROJECT DRIVEN
BUSINESS MODEL
SUPPLY CHAIN
PROJECTS DONE FOR EXTERNAL CUSTOMERS
CUSTOMER RELATIONSHIP MANAGEMENT SERVING EXTERNAL CUSTOMERS
CUSTOMER SERVICE MANAGEMENT SERVING EXTERNAL CUSTOMERS
DEMAND MANAGEMENT & CAPACITY PLANNING SERVING INTERNAL CUSTOMERS
SUPPLIER RELATIONSHIP MANAGEMENT (PROCUREMENT) SERVING INTERNAL CUSTOMERS
MANUFACTURING FLOW MANAGEMENT SERVING INTERNAL CUSTOMERS
HUMAN TALENT
INFORMATION ARCHITECTURE
MEASUREMENT OF OUTPUT KPIs
FEEDBACK
©P G Steyn
2015
INFORMATION VISIBILITY
CHIEF EXECUTIVE OFFICER (Proj Driven)
CHIEF FINANCIAL
OFFICER
CHIEF OPERATING
OFFICER
PROGRAMME
MANAGER:
CUSTOMER
FOCUS
PORTFOLIO MANAGER:
SUPPLY CHAIN
PROGRAMME
MANAGER:
CAPACITY
FOCUS
OTHER PORTFOLIO MANAGERS
TIERS OF SUPPLIERS (EXTERNAL
ENVIRONMENT)
FUNCTIONAL MANAGERS PROVIDING RESOURCES TO CROSS‐FUNCTIONAL PROCESSES
Mark & Sales
Resources
Project
P
j t
Manager
s
Process
Manager
Process
Manager
Process
Manager
Process
Manager
Process
Manager
Finance
Production
Purchasing
Resources
Resources
Resources
Logistics
Resources
Technical
Resources
Re
sou
rce
s
PROJECT MANAGEMENT PROCESS
(FOR EXTERNAL CUSTOMERS)
CUSTOMER RELATIONSHIP
MANAGEMENT PROCESS
CUSTOMER SERVICE MANAGEMENT
SUPPLIER RELATIONSHIP
MANAGEMENT PROCESS
MANUFACTURING FLOW MANAGEMENT
PROCESS
DEMAND MANAGEMENT & CAPACITY
PLANNING PROCESS
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
TIERS OF CUSTOMERS (EXTERNAL
ENVIRONMENT)
CHIEF
PORTFOLIO
OFFICER
VIRTUAL
NETWORK OF
SUPPLIER
PARTNERS
19
©P G Steyn
2015
20
Rev 1 -23
29
The Hybrid Business Model
Comprises of a Project
Driven, and
Non-Project Driven
component
21
HYBRID LEARNING ORGANISATION VALUE CHAIN SCHEMATIC
BALANCED SCORECARD
(BS)
CORPORATE STRATEGY
PORTFOLIO:
SUPPLY CHAIN
OPERATIONS &
PROJECTS
PORTFOLIO:
STRATEGIC
TRANSFORMATION
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
MAJOR BENEFITS:
OPERATIONAL
EFFECTIVENESS &
EFFICIENCY
PORTFOLIO:
CONTINUOUS
IMPROVEMENT
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
& EFFICIENCY
PORTFOLIO:
CAPITAL
EXPENDITURE
PROJECTS
FINANCE
CSFs
CUSTOMER
CSFs
INTERNAL
CSFs
LEARNING
&
GROWTH
CSFs
MAJOR BENEFITS:
ORGANISATIONAL
EFFICIENCY
PROJECT DRIVEN &
NON-PROJECT DRIVEN
(HYBRID) BUSINESS MODEL
SUPPLY CHAIN
FIN
SALES & M
PURCH
MANUF
LOG
HR
IT
PROJECTS DONE FOR EXTERNAL CUSTOMERS
CUSTOMER RELATIONSHIP MANAGEMENT SERVING EXTERNAL CUSTOMERS
CUSTOMER SERVICE MANAGEMENT SERVING EXTERNAL CUSTOMERS
ORDER FULFILMENT MANAGEMENT SERVING EXTERNAL CUSTOMERS
PRODUCT DEVELOPMENT & COMMERCIALISATION PROJECTS FOR THE MARKET
DEMAND MANAGEMENT & CAPACITY PLANNING SERVING INTERNAL CUSTOMERS
SUPPLIER RELATIONSHIP MANAGEMENT (PROCUREMENT) SERVING INTERNAL CUSTOMERS
MANUFACTURING FLOW MANAGEMENT SERVING INTERNAL CUSTOMERS
HUMAN TALENT
INFORMATION ARCHITECTURE
INFORMATION VISIBILITY
MEASUREMENT OF OUTPUT KPIs
FEEDBACK
22
©P G Steyn
2015
22
Rev 1 -23
30
Origins of Supply Chain
Management - 1
(towards Industry 4.0)
23
Origins of Supply
Chain Management - 2
1950s-1960s
U.S. manufacturers focused on mass production
techniques as their principal cost reduction and
productivity improvement strategies
1960s-1970s
Introduction of new computer technologies lead to
development of Materials Requirements
Planning (MRP) and Manufacturing Resource
Planning (MRPII) to coordinate inventory
management and improve internal communication
24
Rev 1 -23
31
Origins of Supply
Chain Management - 3
1980s-1990s
Intense global competition led U.S.
manufacturers to adopt:
Supply Chain Management (SCM)
Just-In-Time (JIT)
Total Quality Management (TQM)
Business Process Reengineering (BPR)
Customer Relationship Management
(CRM)
25
Origins of Supply
Chain Management - 4
2000s and Beyond (Towards Industry 4.0)
Evolution along 2 parallel paths
1.Supply management emphasis from industrial buyer
2.Logistics and customer service emphasis from
wholesalers and retailers
Focus on improving supply chain capabilities with
initiatives such as:
Third-party service providers (3PLs)
Integrating logistics
Client/server SCM software - Enterprise
Resource Planning
26
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32
Integrated Logistics
Support
(Source: Meyer, J.A. 1995, Integrating Logistics: The System
Support/Supplier Concept)
27
Origins of Supply
Chain Management
Today (In the Industry 4.0 Economy)
Away from Globalisation; Emphasis is being
placed on the environmental and social
impacts of supply chains. Virtual Partner
Networks.
Sustainability - ability to meet the needs of
current supply chain members without
hindering the ability to meet the needs of
future generations
Triple bottom line – taking care of people,
planet and profits
Rev 1 -23
33
28
Foundations of Supply
Chain Management - 1
Supply
Supply base reduction, supplier alliances, SRM, global
sourcing, ethical and sustainable sourcing (Ch. 2-4)
Operations
Demand management, CPFR, inventory management,
MRP, ERP, lean systems, Six Sigma quality systems (Ch.
5-8)
Logistics
Logistics management, customer relationship
management, network design, RFID, global supply chains,
sustainability, service response logistics (Ch. 9-12)
29
Integration
Barriers to integration, risk and security management,
performance measurement, green supply chains (Ch.
13,14)
29
Foundations of Supply
Chain Management - 2
Supply Elements:
Supplier management - improve
performance through
Supplier evaluation (determining supplier capabilities)
Supplier certification (third party or internal certification to assure product quality
and service requirements)
Strategic partnerships - successful and
trusting relationships with top-performing
suppliers
Ethics and sustainability – recognising
suppliers’ impact on reputation and carbon
footprint
Rev 1 -23
34
30
SCM Phase Success
(Source Blignaut)
31
Important Elements of Supply
Chain Management - 1
Operations Elements:
Demand management - match demand to
available capacity
Linking buyers & suppliers via MRP and ERP
systems
Extending order communication and inventory
visibility farther up the supply chain
Radio frequency identification (RFID) systems
scan cartons describing contents of the packages
Use lean systems to improve the flow of materials
to reduce inventory levels
Employ Six Sigma to improve quality compliance
among suppliers
32
Rev 1 -23
35
Important Elements of Supply
Chain Management - 2
Logistics Elements:
Transportation management - tradeoff
decisions between cost & timing of
delivery / customer service via trucks, rail,
water & air
Third party logistics providers (3PLs) –
for hire outside agencies providing
transportation and services
Creating distribution networks based on
tradeoff decisions between cost &
sophistication of distribution system
33
Important Elements of Supply
Chain Management - 3
Integration Elements:
Supply Chain Process Integration - when
supply chain participants work for common
goals. Requires intra-firm functional integration,
with efforts to change attitudes & adversarial
relationships
Supply Chain Performance Measurement Crucial for firms to know if procedures are
working as expected
High level supply chain performance occurs
when strategies at each firm fit well with overall
supply chain strategies
34
Rev 1 -23
36
Current Trends in Supply
Chain Management - 1
Supply Chain Analytics examining raw supply chain data
and reaching conclusions or
making predictions with the
information
Growth being pushed by the rise in computing
capabilities and big data
Huge volumes of data generated in business
organizations including retail, healthcare,
manufacturing, and electronics
35
Current Trends in Supply
Chain Management - 2
Most companies are trying to improve their
supply chain sustainability
performance
Can lead to
enhance processes
reduce costs
increase productivity
uncover product innovation
achieve market differentiation
improve societal outcomes
36
Rev 1 -23
37
Current Trends in Supply
Chain Management - 3
Increasing Supply Chain Visibility
Knowing exactly where products are, at
any point in the supply chain
Inventory visibility is made easier by
technology
Sophisticated software applications for
tracking orders, inventories, deliveries,
returned goods, and even employee
attendance
37
Current Trends in Supply
Chain Management - 4
The GREENING of Supply Chains –
Producing, packaging, moving, storing,
delivering and other supply chain
activities can be harmful to the
environment
Supply chains will work harder to reduce environmental
degradation
Large majority (75%) of U.S. consumers influenced by a firm’s
environmental friendliness reputation
Recycling and conservation are a growing alternative in
response to high cost of natural resources
Rev 1 -23
38
38
QUALITY
MANAGEMENT
SYSTEM
The QMS Components
39
Objective of a TQM
Mindset
The overriding objective of TQM
philosophy is customer satisfaction
TQM philosophy represents the
guiding principles of an
organisation’s Value System
It constitutes a leadership and
management mindset where every
employee is empowered with direct
responsibilities
40
Rev 1 -23
39
What Is Total Quality
Management? (TQM)
A TQM mindset promotes “innovative
continuous, customer-focused,
employee-driven improvement.”
Principles of TQM:
Do it right the first time to eliminate costly rework
Listen to and learn from customers and employees
Make continuous improvement an everyday matter
Build teamwork, trust and mutual respect
41
Four Pillars of TQM
Mindset
Customer focus
Continuous Improvement
Employee Involvement and
Empowerment
Systems Thinking
42
Rev 1 -23
40
Basic Customer
Wants
Quality
Flexibility
Service
Costs
Response Times
Variability
43
TQM-Based Value System
The balanced scorecard approach is
based on a sound value system that
includes TQM guiding principles
Be focused on continuously
improving process performance
through measurement of KPIs,
followed by appraisal and review
Value chain performance quality is
profoundly dependent on
appropriate human talent
44
Rev 1 -23
41
Competitive Excellence
Through good leadership role modeling based
on a sound value system, organisational
collaboration is enhanced.
Successful organisations are focused on their
customers.
They provide goods and services that
customers want, and keep coming back for.
Those goods and services result from carefully
planned and executed processes.
In such organisations, the customer focus is
extended to include employees.
45
Organisational Performance &
Improvement
Organisational
Strategy
Behavioural
Strategy
Structural
Strategy
Change Attitudes &
Values
New Behaviours
Change
Architecture &
Design
New
Relationships
Operations
Strategy
Change Operations
& Methods
New Processes
TRANSFORMED organisation & IMPROVED
PERFORMANCE
(Adapted from Harvey and Brown)
Rev 1 -23
42
46
The EFQM
Excellence Model
Policy &
Strategy
Partnerships
&
resources
PROCESSES
LEADERSHIP
People
People
results
Customer
results
Society
results
KEY PERFORMANCE
RESULTS
RESULTS
ENABLERS
INNOVATION AND LEARNING
47
EFQM*
8 Essentials of “Excellence”
Results orientation
Customer focus
Leadership & constancy of purpose
Management by process & facts
People development & involvement
Continuous learning, improvement &
innovation
Partnership development
Public responsibility
48
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43
Results Orientation
Concept
Excellence is dependent upon balancing
and satisfying the needs of all relevant
stakeholders
Significant Benefits:
Adding value for all stakeholders
Sustainable long-term success
Mutually beneficial relationships
Relevant measures, including leading
indicators, in place for all stakeholders
49
Customer Focus
Concept
The customer is the final arbiter of product and
service quality and customer loyalty,
retention and market share gain are best
optimised through a clear focus on the needs
of current and potential customers
Significant Benefits:
Market share gain
A clear understanding of how to deliver value
to the customer
Minimised transaction costs
Long term success
50
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44
Leadership and Constancy
of Purpose Concept
The behaviour of an organisation’s leaders
creates a clarity and unity of purpose within
the organisation and an environment in
which the organisation and its people can
excel
Significant Benefits:
Maximised people commitment and
effectiveness
Clear sense of direction
Market place respect
All activities aligned and deployed in a
structured and systematic way
51
Management by Processes
and Facts Concept
More effective performance when inter-related
activities are understood, systematically
managed; decisions concerning current
operations/ planned improvements made using
reliable information that includes stakeholder
perceptions
Significant Benefits:
Focus on desired outcomes
Maximised use of People and Resources
Consistency of outcomes and control of variation
Fact based management to set realistic goals and
strategic direction
52
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45
People Development and
Involvement Concept
The full potential of an organisation’s people
is best released through shared values
and a culture of trust and empowerment,
which encourages the involvement of
everyone
Significant Benefits:
Maximised participation, positive attitude
and morale
Positive company recruitment and
retention
Effective sharing of knowledge
The opportunity for people to learn and
develop new skills
53
Continuous Learning,
Innovation and
Improvement Concept
Organisational performance is maximised when it
is based on the management and sharing of
knowledge within a culture of continuous
learning, innovation and improvement
Significant Benefits:
Organisational agility and flexibility
Cost reduction
Opportunity identification
Performance optimisation
Prevention based improvement activities within
the daily work of everyone
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46
54
Partnership
Development Concept
An organisation works more effectively
when it has mutually beneficial
relationships, built on trust, sharing of
knowledge and integration, with its
Partners
Significant Benefits:
The ability to create value for both parties
Competitive advantage through
relationships that endure
Synergy in terms of resources and costs
55
Public Responsibility
Concept
The long-term interest of the organisation and
its people are best served by adopting an
ethical approach and exceeding the
expectations and regulations of the
community at large
Significant Benefits:
Credibility, performance and organisation
value is enhanced
Public awareness, safety, trust and
confidence enhanced
56
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47
Commitment to
Continuous Improvement
Adopt practices that encourage
employees to continually identify and
act upon opportunities to improve
Encourage double-loop learning and
knowledge management
Measurement, appraisal and review
of strategic benefits delivered by all
processes, based on CSFs and KPIs
linked to a Balanced Scorecard
57
Continuous Improvement as
Strategy
Improve 6 customer requirements
(competitiveness)
Improve effectiveness
Improve efficiency
Productivity = Effectiveness +
Efficiency
58
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48
Strategic Results: The 4-P
Cycle of Continuous
Improvement
People
(Skilled, motivated
people who can handle
change. Less stress.)
Productivity
(Less wasteful, more
efficient use of all
resources.)
Products
(Satisfied customers
because of better
quality goods/services.)
Processes
(Faster, more flexible,
leaner, and ethical organisational
processes. Organisational learning.)
59
Process Improvement
Benefits
To sum up...
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Streamlining processes to
eliminate wasteful activities or
steps cuts fixed and variable
costs.
Those same streamlining efforts
yield better output quality, more
timely delivery, and other
customer wants… revenues
increase as demand increases.
Profit potential appears at lower
volumes, thus opening new
market opportunities.
60
49
Plan-Do-Check-Act Cycle
4. Make the change
permanent, or try
another time; begin
4
with STEP 1 for a
Act
new cycle.
1
Plan
3
1. What change is needed in
order to gain continuous
improvement? Are data
available, or must a test
be conducted?
2
Do
Check
3. Evaluate the
results of the change
to the process. Did the
anticipated improvement
occur?
2. Analyse appropriate
data if available or
conduct test. Carry out
suggested change to the
process.
61
VALUE
SYSTEM
REVIEW
TQM PHILOSOPHY
FEEDBACK FOR APPRAISAL
STRATEGY MAP
Improvements
Behavioural
strategy
IMPORTANT
IN THE DEVELOPMENT
OF AN SCM SOLUTION
Structural
strategy
Operations
strategy
ORGANISATIONAL PERFORMANCE
EFQM MODEL
ENABLERS
PROCESS
1. HUMAN TALENT
2. INFO ARCHITECTURE
RESULTS
KPIs
62
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50
Processes
Behavioura
l
Strategy
Inputs
Operationa
l Strategy
Structural
Strategy
People
Capital
Transformation
Processes
Energy
Materials
Technology
Outputs
Goods
Services
Market and
Environmental
Forces
63
Operations Modes
Mode
Process
Overview
Volume
Variety/
Flexibility
Job/Project
Functional
Very low
Highest
Batch
Mixed
Moderate
Moderate
Repetitive
Product
High
Low
Continuous
Product
Highest
Lowest
64
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51
Principles of
Operations
Management
65
OM Strategy: Roles
Addresses the
functional and
crossfunctional
areas of
operations--the
part of the
organisation
charged with
creating the
organisation’s
primary output
goods and
services
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Guides the
operations
activities
performed by all
personnel
working in valueadding chains
anywhere in the
organisation on a
product-, serviceor project team, or
in an executive
position
66
52
Principles of OM - 1
Operations Strategy - Formulation
Customers:
1. Know and team up with the next and final
customer.
2. Become dedicated to continual, rapid improvement
in quality, cost, response time, flexibility, variability,
and service.
Company:
3. Achieve unified purpose via shared information
and team involvement in planning and
implementation of change.
67
Principles of OM - 2
Operations Strategy - Formulation
Competitors:
4. Know the competition and the world-class leaders.
Operations Strategy - Implementation
Design and Organisation:
5. Cut the number of product or service components or
operations and the number of suppliers to a few
good ones.
6. Organise resources into multiple "chains of
customers," each focused on a product, service, or
customer family; create work-flow teams, cells, and
"plants-in-a-plant."
68
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53
Principles of OM - 3
Operations Strategy - Implementation
Capacity:
7. Continually invest in human resources through
cross-training (for mastery of multiple skills), education, job
and career-path rotation, and improved health, safety, and
security.
8. Maintain and improve present equipment and
human work before thinking about new equipment;
automate incrementally when process variability
cannot otherwise be reduced.
9. Look for simple, flexible, movable, low-cost
equipment that can be acquired in multiple copies-each assignable to work-flow teams, focused cells,
and plants-in-a-plant.
69
Principles of OM - 4
Operations Strategy - Implementation
Processing:
10. Make it easier to make/provide goods or
services without error or process variation.
11. Cut flow time (wait time),distance, and inventory
all along the chains of customers.
12. Cut setup, changeover, get-ready, and startup
times.
13. Operate at the customer's rate of use (or a
smoothed representation of it); decrease cycle
interval and lot size.
70
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54
Principles of OM - 5
Operations Strategy - Implementation
Problem solving and control:
14. Record and own quality, process, and
problem data at the workplace.
Ensure that front-line improvement teams
get first chance at problem solving -- before
staff experts.
15. Cut transactions and reporting; control
causes, not symptoms.
Operations Strategy - Improvement
16. Market each improvement; share results
with employees, suppliers, and customers.
71
Shared-Information
Strategy
Shared Information
B.
Upper managers
Middle managers
Staff specialists
Front-line associates
Customers
Streamlined
Implementation
of Strategies
Unified
Purpos
e
Suppliers
Other stakeholders
72
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55
OM Related
Measures
The Value Chain
- Value is a complex mixture of quality
and usefulness at low cost
- Apply a system of measuring process
outputs for benefits of strategic
importance, tied to Appraisals and
Reviews that in turn lead to Continuous
Improvement of organisational
performance
- Eliminate non-value-adding wastes
73
Concepts about
Chains
Value Chain
Supply Chain
Customer Chain
Series of functional and
cross-functional processes
that enhance the effectiveness
and efficiency of the supply
chain through project work,
and move a good or service
from inception to final
consumer in the supply chain.
Each step must increase value
for all stakeholders.
The supply chain consists of
suppliers, operations centres,
warehouses, distribution
centres, and final customers,
as well as raw materials, workin process inventory, and
finished products and services
that flow through it.
Provider-customer links,
extending from origin of a
product or service through sale
to the end consumer and on to
post-sale service. Every
employee has a customer—
the next process, or where the
work goes next. Also, each
employee is a customer of the
previous process.
Process activities performed
must focus on relevant critical
success factors (CSFs) in a
Balanced Scorecard, and
process outputs measured
through a range of key
performance indicators (KPIs)
that are linked to the CSFs in
order to determine to what
degree benefits of strategic
importance accrue to the
organisation.
74
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56
END DAY 1
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57
TOPIC 2:
SUPPLY ISSUES: PURCHASING MANAGEMENT
Specific Outcome:
On completion of this topic the student will have an understanding of the
requirements planning process, the procurement and purchasing activities and make
or buy decision making.
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
2.
Describe the role of purchasing and its strategic impact on an organization’s
competitive advantage.
Describe the traditional purchasing process, e-procurement, public
procurement, and green purchasing.
Recognize and know how to handle small value purchase orders.
Analyze and evaluate sourcing decisions and the factors impacting supplier
selection, including outsourcing, make-or-buy, and break-even analysis
Topic Overview
A Brief History of Purchasing Terms is presented followed by the role of Supply
Management in an Organization. The Purchasing Process is then discussed and
aspects such as Sourcing Decisions – The Make or Buy Decision presented. Also, of
importance are the roles of Supply Base and supplier selection and questions such
how many suppliers to use need to be answered. An effective purchasing
organization is then discussed and presented as are options within the global
sourcing arena. Finally, insight into the procurement for Government and Nonprofit
Agencies are briefly considered.
3.
Formative Exercises
Test your understanding by completing the formative exercises below.
Complete the following formative exercises individually and present your opinion
during your syndicate meetings. Debate your opinion and document it. This is
compulsory for the creation of your portfolio of evidence!
•
Formative Exercise 1: Identify three companies known for innovations and
other accomplishments in the financial services sector. Compare and
contrast the PROCUREMENT strategies of these three organisations.
•
Formative Exercise 2: Search for two additional articles on procurement
(purchasing) strategy on EBSCO online library. What are the key points?
4.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
Rev 1 -23
58
5.
Recommended Reading
Knod E M, and Schonberger R J. “Operations Management, Meeting
Customers’ Demands”, LATEST Edition, McGraw-Hill.
Oakland, John S.
LATEST Edition
Rev 1 -23
“Total Quality Management”, Butterworth Heinemann.
59
Cranefield College
of
Project and Programme Management
MODULE M3
Supply Chain Quality
and
Performance Management
Facilitator: Professor Jan Meyer
1
Topic 2
Supply Issues:
Purchasing Management
Chapter 2
2
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60
A Brief History of
Purchasing Terms
Supply Management - a newer term to
describe the expanded set of responsibilities
of purchasing professionals
Institute of Supply Management
defined supply management as the
“Identification, acquisition, access,
positioning, and management of
resources an organization needs or
potentially needs in the attainment
of its strategic objectives.”
3
The Role of Supply
Management in an Organisation
-1
The primary goals of purchasing are:
Ensure uninterrupted flows of raw materials at the lowest total
cost,
Improve quality of the finished goods produced, and
Maximize customer satisfaction.
Purchasing contributes to these objectives by:
Actively seeking better materials and reliable suppliers,
Working closely with and exploiting the expertise of strategic
suppliers to improve quality and materials
Involving suppliers and purchasing personnel in new product
design and development efforts.
4
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61
The Role of Supply
Management in an Organisation
-2
The Financial Significance of Supply
Management
Profit-Leverage Effect
A decrease in purchase spend directly increases profits before
taxes (assuming no decrease in quality or other expenditures)
Return on Assets (ROA) Effect
Indicates how efficiently management is using its total assets to
generate profits. A high ROA suggests that management is
capable of generating large profits with relatively small
investments.
Inventory Turnover Effect
Increased inventory turnovers indicate optimal utilization of
space and inventory levels, increased sales, avoidance of
inventory obsolesce
5
The Role of Supply
Management in an Organisation
-3
The Financial Significance
of Supply Management
Profit-Leverage Effect
Simplified Profit Reduce Material
& Loss Statement Costs by $20,000
Gross Sales/Net Revenue
$1,000,000
$1,000,000
$500,000
$480,000
Gross Profits
$500,000
$520,000
General & Administrative Expenses (45% of Gross Sales)
$450,000
$450,000
$50,000
$70,000
Cost of Goods Sold (Materials + Manufacturing Cost)
Profits Before Taxes
6
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62
The Purchasing Process –
Manual Purchasing
(older system)
Step 1- Material Requisition/Purchase Requisition –
Stating product, quantity, and delivery date. May
originate as a planned order release from the MRP
system. Traveling requisition used for recurring
orders.
Step 2- The Request for Quotation (RFQ) –
Buyer identifies suppliers & issues a request for
quotation (RFQ) for routine items or a Request for
Proposal (RFP) for highly technical products. Supplier
Development is used to develop supplier capabilities.
Step 3- The Purchase Order (PO) –
Is the buyer’s offer & becomes a binding contract when
accepted by supplier. When initiated by the supplier on
their own terms, the document is a sales order. The
Uniform Commercial Code (UCC) governs
transactions in the U.S., except Louisiana.
7
The Purchasing Process
– Manual Purchasing
Suppliers
Purchasing
Storage/Warehouse
Users/Requisition
Accounting
START
Materials
Requisition
MR 1
Materials
Requisition
MR 1
Materials
Available?
No
MR 2
MR 2
MR 3
Yes
Issue PO
Purchase
Order
PO 1
PO 2
Purchase
Order
PO 1
Materials
Requisition
MR 1
MR 2
PO 2
PO 3
Accounting
Information
for charging the
appropriate
department
MR 2
MR File
PO 4
Issue
Materials
Materials
+
DO 3
DO 2
Delivery
Order
DO 1
PO File
PO 3
MR File
DO 2
MR 2
Ship
Materials
+
DO 2
PO 2
Delivery
Order
DO 1
INV 2
Invoice
INV 1
MR 2
Materials
Materials
+
Accounts Payable
PO 2
Delivery
Order
DO 1
Invoice
INV 1
8
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63
The Purchasing Process –
e-Procurement
Step 1- Material user enters a purchase request
- Relevant information such as quantity and date needed.
Step 2- Purchase requisition approved and
transmitted electronically to buyer
- At purchasing department (hardcopy or electronically).
Step 3- Buyer reviews requisition, assigns qualified
suppliers to bid (if over $50,000)
- Product description, closing date, & conditions are
given.
Step 4- Buyer reviews closed bids & selects a
supplier
9
The Purchasing Process –
e-Procurement
10
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64
The Purchasing Process –
e-Procurement
Advantages of the eProcurement System
Time savings
Cost savings
Accuracy
Real time use
Mobility
Trackability
Management benefits
Supplier benefits
11
Sourcing Decisions – The
Make or Buy Decision - 1
Outsourcing –
Buying materials and components from suppliers instead
of making them in-house. The trend has moved toward
outsourcing.
Backward vertical integration –
Acquiring sources of supply
Forward vertical integration –
Acquiring customers
The Make or Buy decision is a strategic decision
12
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65
Sourcing Decisions – The
Make or Buy Decision - 2
Reasons for Buying or Outsourcing
Cost advantage – Especially for components that
are non-vital to the organization’s operations,
suppliers may have economies of scale
Insufficient capacity – A firm may be at or near
capacity and subcontracting from a supplier may
make better sense
Lack of expertise – Firm may not have the
necessary technology and expertise
Quality – Suppliers have better technology,
process, skilled labor, and the advantage of
economy of scale
13
Sourcing Decisions – The
Make or Buy Decision - 3
14
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66
Roles of Supply Base
Supply Base - list of suppliers a firm uses to
acquire its materials, services, supplies,
and equipment
Emphasis on long-term strategic supplier
alliances, consolidating volume into one or a
few suppliers, resulting in a smaller supply
base
Preferred suppliers provide:
Product and process technology & expertise to
support buyer’s operations
Information on latest trends in materials,
processes, designs, and the supply market
Capacity for meeting unexpected demand
Cost savings due to economies of scale
15
Supplier Selection
The process of selecting suppliers, is complex
and should be based on multiple criteria:
Product and process
technologies
Willingness to share
technologies &
information
 Early supplier
involvement (ESI)
Quality
Order system & cycle
time
Cost
 Total cost of
ownership or
acquisition
Capacity
Communication
capability
Location
Service
Reliability
16
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67
Purchasing Organisation
Purchasing Organisation is dependent on
many factors, such as market conditions &
types of materials required
Centralised Purchasing – Single
purchasing department located at
the firm’s corporate office makes
all the purchasing decisions
Decentralised Purchasing individual, local purchasing
departments, such as plant level,
make their own purchasing
decisions
17
Procurement in
Government &
Non-Profit Agencies
Public Procurement or Public Purchasing – purchasing & supply
function for government & non-profit sector.
Public Procurement is characterized by:
 Competitive bidding - contract is usually awarded to lowest
priced responsive & responsible bidder
Sealed Bids are used to satisfy the Invitation for Bid (IFB)
and are opened in public display
 Bid Bonds - incentive to fulfill contract
 Bid or Surety Bonds - successful bidder will accept contract
 Performance Bonds - work will be on time and meet
specifications
 Payment Bonds - protection against 3rd party liens not fulfilled by
bidder
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68
18
TOPIC 3:
RELATIONS
SUPPLY ISSUES: CREATING AND MANAGING SUPPLIER
Specific Outcome:
On completion of this topic the student will have an understanding for the
development of appropriate Supplier Relationships, their development and
maintenance and management in order to improve an organisations effectiveness of
the Supply Chain.
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
•
2.
Explain the importance of supplier partnerships
Understand the key factors for developing successful partnerships
Develop a supplier evaluation & certification program
Explain the importance of a supplier recognition program
Understand the capabilities of Supplier Relationship Management
Explain the benefits of using SRM software to manage suppliers
Topic Overview
This topic is focused on the developing of supplier relationships in the SCM. This
includes discussions on the supplier evaluation and certification as well as supplier
development. The topic will also address the need for and implementation of supplier
recognition programs as well as the need for and establishment of Supplier
Relationship Management programs as well as methods to manage these.
3.
Formative Exercises
Study the prescribed work indicated below and test your understanding by
completing the formative exercises below:
Complete the following formative exercises individually and present your opinion
during your syndicate meetings. Debate your opinion and document it. This is
compulsory for the creation of your portfolio of evidence!
•
4.
Formative Exercise: In the service industry, suppliers and supplier
relationships are of paramount importance. This mainly due to the fact that
the quality and timeous delivery is depended on it. Identify some of the
principles of OM that might be followed in order to improve this situation.
Discuss how each might be applied.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
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69
5.
Recommended Reading
(Search for the latest editions)
Knod E M, and Schonberger R J. “Operations Management, Meeting
Customers’ Demands”, McGraw-Hill.
Oakland, John S. “Total Quality Management”, Butterworth Heinemann.
Rev 1 -23
70
Topic 3
Supply Issues:
Creating And
Managing Supplier
Relationships
Chapter 3
1
Keys to Successful
Partnerships - 1
Strong supplier partnerships
Important to achieving win-win competitive
performance for the buyer and supplier -- these
require a strategic perspective as opposed to a
tactical position
Involve “a mutual commitment over an extended
time to work together to the mutual benefit of
both parties, sharing relevant information and
the risks and rewards of the relationship”
2
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71
Keys to Successful
Partnerships - 2
Building Trust
With trust, partners are more willing to work
together, find compromise solutions to
problems, work toward achieving long-term
benefits for both parties, &, in short, go to the
extra mile.
Shared Vision & Objectives
Both partners must share the same vision &
have objectives that are not only clear but
mutually agreeable. The focus must move
beyond tactical issues & toward a more strategic
path to corporate success.
3
Keys to Successful
Partnerships - 3
Commitment & Top Management
Support
Both parties must dedicate their time, best
people, and resources to make the partnership
succeed
Partnerships tend to be successful when top
executives are actively supporting the partnership
Change Management
Companies must be prepared to manage change
that comes with the formation of new partnerships
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72
4
Keys to Successful
Partnerships - 4
Information Sharing & Lines of
Communication
Both formal & informal lines of communication should
be set up to facilitate free flow of information
Confidentiality of sensitive information must be
maintained
Relationship Capabilities
Suppliers must have the right technology &
capabilities to meet cost, quality, & delivery
requirements
Suppliers must flexible to respond quickly to
changing customer requirements
5
Keys to Successful
Partnerships - 4
Performance Metrics
You can’t improve what you don’t
measure
Measures related to quality, cost, delivery, & flexibility are
used to evaluate suppliers.
Metrics should be:1) understandable, 2) easy to measure,
& 3) focused on real value-added results
A multi-criteria approach is best
Total cost of ownership (TCO), is made up of all costs
associated w/acquisition, use, & maintenance of a good
or service
6
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73
Keys to Successful
Partnerships - 5
Continuous Improvement
Making a series of small improvements
over time results in the elimination of waste in
a system
Buyers & suppliers must be willing to
continuously improve their capabilities in
meeting customer requirements of cost,
quality, delivery, sustainability & technology
Partners should work proactively toward
eliminating mistakes
7
Supplier Evaluation
and Certification - 1
A process to identify best & most reliable suppliers
Sourcing decisions are made on facts & not on
perception
Frequent feedback can help avoid surprises &
maintain good relationships
Suppliers should be allowed to provide
constructive feedback to the customer
Supplier Certification refers to “an
organization’s process for evaluating the quality
systems of key suppliers in an effort to eliminate
incoming inspections.” -Institute for Supply
Management
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74
8
Supplier Evaluation
and Certification - 2
Supplier Scorecard Used for the XYZ Company
Performance Measure
Rating

Weight = Final Value
Technology
80
0.10
8.00
Quality
90
0.25
22.50
Responsiveness
95
0.15
14.25
Delivery
90
0.15
13.50
Cost
80
0.15
12.00
Environmental
90
0.05
4.50
Business
90
0.15
13.50
Total score
1.00
88.25
(Example 3.1. )
9
Supplier Evaluation
and Certification - 3
ISO 9000 family standards
ISO 9000:2015 - covers the basic concepts and
language
ISO 9001:2015 - sets out the requirements of a quality
management system
ISO 9004:2009 - focuses on how to make a quality
management system more efficient and effective
ISO 19011:2011 - sets out guidance on internal and
external audits of quality management systems
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75
10
Supplier Evaluation
and Certification - 4
ISO 14000 Family of standards
for environmental
management
Reduced energy consumption
Environmental liability
Reduced waste & pollution
Improved community goodwill
11
Supplier
Development
Supplier development (e.g. smme) & recognition
Activity buying firm takes to improve a supplier’s
performance and/or capabilities to better meet its needs.
Celebrate excellences
Seven-step approach to supplier development
1.Identify critical products & services
2.Identify critical suppliers not meeting performance
requirements
3.Form a cross-functional team
4.Meet with top management of supplier
5.Rank supplier development projects
6.Define details of Agreement
7.Monitor status & modify strategies
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12
Supplier Relationship
Management - 1
Supplier Relationship Management (SRM)
Streamlining processes and communication
between buyer and supplier using software
applications
SRM software automates the exchange of
information resulting in:
improved procurement efficiency
lower business costs
real-time visibility
faster communication between buyer and seller
enhanced supply chain collaboration
13
Supplier Relationship
Management - 2
Five key points of an SRM system
1. Automation handles routine transactions
2. Integration spans multiple departments,
processes, & software applications
3. Visibility of information & process flows
4. Collaboration through information sharing
5. Optimization of processes & decision making
14
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Supplier Relationship
Management - 3
Transactional SRM - used to track
supplier interactions such as order
planning, order payment and returns
focuses on short-term reporting and is
event driven
Analytic SRM allows the company to
analyze the complete supplier base
focuses on long-term procurement
strategies
15
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TOPIC 4:
SUPPLY ISSUES: ETHICAL AND SUSTAINABLE SOURCING
Specific Outcome:
On completion of this topic the student will be able to execute an ethical decision
process for the implementation of a sustainable sourcing strategy through early
supplier involvement, rewarding and benchmarking
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
•
•
•
2.
Understand the use of environmental supplier certifications
Discuss the benefits of strategic supplier alliances
Describe how and why sourcing practices are benchmarked
Discuss why firms would want to assess their sourcing capabilities
Understand the use of environmental supplier certifications
Discuss the benefits of strategic supplier alliances
Describe how and why sourcing practices are benchmarked
Discuss why firms would want to assess their sourcing capabilities
Topic Overview
The topic introduces ethical and sustainable sourcing by defining the construct. The
topic then leads to the development of ethical and sustainable sourcing strategies as
well as ethical and sustainable sourcing initiatives. The need for and use of early
supplier involvement is explained as is the need for and application of strategic
alliance development. Mechanisms to facilitate improvement of relationship is
discussed. These include rewarding supplier performance. In order to measure
performance, the industry must also apply benchmarking for successful sourcing
practices. Finally, the assessing and improving of the firm’s sourcing functions are
discussed.
COMPULSORY READING:
•
•
•
Rev 1 -23
Wisner, Tan, Leong. 2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5th Edition, South Western
Cengage Learning, Chapter 1.
Steyn Pieter G. 2001: “Managing Organisations through Projects
and Programmes: The Modern General Management
Approach”, Management Today, Vol 17, No 3, April.
Steyn Pieter G. 2010: “Programme Managing the Supply
Chain Portfolio”, PM World Today, Featured Paper, Vol XII,
Issue VI, June.
79
3.
Formative Exercises:
•
4.
Formative Exercise: Answer the “Discussion Questions” at the end of
Chapter 4.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
5.
Recommended Reading
Wisner, Tan, Leong. 2018. “Principles of Supply Chain Management, A
th
Balanced Approach”, 5 Edition, South Western Cengage Learning, Chapter
4 end notes
Rev 1 -23
80
Topic 4
Supply Issues:
Ethical and
Sustainable
Sourcing
Chapter 4
1
Introduction
Modern Goals Include
Reducing
Dependencies on
foreign suppliers
Delivery cycle
times
Carbon footprints
Improving
Quality
Customer
service
Ethical
reputations
2
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81
Introduction
-

Strategic sourcing managing the firm’s external resources to
support firm’s long term goals.
Drivers of Strategic Sourcing
Development of ethical & sustainable sourcing initiatives
Managing and improving supplier relationships & capabilities
Identification and selection of environmentally & socially
conscious supplier
Monitoring & rewarding supplier performance
Business Ethics (Corporate Social Responsibility) - the
application of ethical principles to business situations

Utilitarianism - an ethical act creates the greatest good for the
greatest number of people

Rights and duties – a theory stating that some actions are right
in themselves without regard for the consequences
3
Ethical and Sustainable
Sourcing Defined
Ethical sourcing practices include –
Promoting diversity by intentionally buying
from small firms, ethnic minority businesses,
and women-owned enterprises
Discontinuing purchases from firms that use
child labor or other unacceptable labor
practices
Buying from firms in underdeveloped
nations.
4
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82
Developing Ethical and
Sustainable Sourcing
Strategies
Framework for ethical and sustainable sourcing strategy
development –
Step 1 – Establish corporate ethical and sustainable
sourcing policies
Step 2 – Train purchasing staff and implement policies
Step 3 – Prioritize items based upon ethical and
sustainability opportunities and ease of
implementation
Step 4 – Develop performance measurement system
Step 5 – Monitor progress and make improvements.
Increase use of green and fair trade products
Step 6 – Expand focus to include other departments
5
Ethical and Sustainable
Supplier Certification
Programs
Firms use in-house formal certification
programs, & most require ISO 9000 / 14000 or
similar certifications as part of the certification
process
Ethical and environmental certifications used by various organisations to identify rogue
suppliers and suppliers who fail to certify
according to ethical requirements
6
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83
Outsourcing Products and
Services
Outsourcing – firms purchase materials
or services instead of producing them
in-house
Allows a firm to Concentrate on core business activities
Reach its sustainability goals
The Supplier Ethical Data Exchange
(Sedex)
Focuses on responsible and ethical business
practices
Helps reduce risks associated with
outsourcing
7
Early Supplier
Involvement
Early supplier involvement (ESI) highly effective
supply chain techniques where key suppliers become more
involved in the internal operations of their customer, which may
include
Managing inventories at their customers’ points of use
Participating in their customers’ new product & process
design processes
Vendor managed inventory (VMI) –
Suppliers manage buyer inventories to reduce inventory
carrying costs & avoid stock-outs for buyer
Co-managed inventories - buyer and supplier reach an
agreement regarding how information is shared, order
quantities, when order is generated and delivery timing
(High value items)
Value engineering activities help the firm to reduce
cost, improve quality & reduce new product
development time
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84
8
Rewarding Supplier
Performance
Rewarding suppliers provides an incentive to surpass
performance goals
Punishment is a negative reward, may be to reduce
future business; or a billback penalty equal to the
incremental costs resulting from a late delivery or poor
quality
Strategic supplier agreements can reward suppliers
by allowing –
A share of the cost reductions
More business and/or longer contracts
Access to in-house training seminars & other resources
Company & public recognition
9
Process Integration
(Source Blignaut)
10
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85
Availability/Cost
Relationship
(Source: Blignaut & Meyer)
11
Logistic System
Effectiveness
(Source: Blignaut & Meyer 1994)
12
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86
TOPIC 5:
SUPPLY ISSUES: DEMAND FORECASTING
Specific Outcome:
On completion of this topic the student will be able to manage a demand forecasting
technique through the understanding of forecasting methods, and knowledge of
software systems.
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
2.
Explain the role of demand forecasting in a supply chain
Identify the components of a forecast
Compare & contrast qualitative & quantitative forecasting techniques
Calculate and Assess the accuracy of forecasts
Explain collaborative planning, forecasting, & replenishment
Topic Overview
Read the Chapter 5 “Introduction” paragraph of the textbook.
The Importance of Demand Forecasting is presented in this topic and forecasting
techniques are introduced. The forecast accuracy of these are discussed and
debated. The topic also introduces the construct of collaborative planning,
forecasting, and replenishment (CPFR) as a cost saver to the organisation. Some
useful forecasting websites are supplied and some forecasting software introduced.
The topic is concluded with a discussion on cloud-based forecasting
Rev 1 -23
87
COMPULSORY READING:
•
•
•
•
•
•
•
•
3.
Wisner, Tan, Leong. 2018. “Principles of Supply Chain Management,
A Balanced Approach”, 5th Edition, South Western Cengage Learning,
Chapter 13.
Steyn Pieter G, 2001: “Managing Organisations through Projects
and Programmes: The Modern General Management Approach”,
Management Today, Vol 17, No 3, April.
Steyn Pieter G. 2010: “Programme Managing the Supply Chain
Portfolio”, PM World Today, Featured Paper, Vol XII, Issue VI, June.
Steyn Pieter G. 2010: “The Need for a Chief Portfolio Officer (CPO) in
Organisations”, PM World Today, Featured Paper, Vol XII, Issue VII, July.
Steyn Pieter G. 2010: The Need for a Chief Portfolio Officer in
Organizations”, Journal of Project, Program & Portfolio Management, Vol
1, No 2, University of Technology, Sydney.
Steyn Pieter G. 2012: “The Need for a Chief Portfolio Officer in
Organisations”, Russian Project Management Journal, No 3 (31).
Steyn Pieter G. 2012: “Sustainable Strategic Supply Chain
Leadership and Management”, PM World Journal, Vol. I, Issue V,
December.
Steyn Pieter G. 2013: “A Business Model for Programme Managing
the Supply Chain Portfolio”, PM World Journal, Vol. II, Issue III, March.
Formative Exercises:
•
4.
Formative Exercise: Answer the “Discussion Questions” at the end of
Chapter 5.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
5.
Recommended Reading
Wisner, Tan, Leong. 2018. “Principles of Supply Chain Management, A
th
Balanced Approach”, 5 Edition, South Western Cengage Learning, Chapter
5 end notes
Rev 1 -23
88
Topic 5
Supply Issues:
Demand Forecasting
Chapter 5
1
The Importance of
Demand Forecasting
A forecast is an estimate of future demand &
provides the basis for planning decisions
The goal is to minimize deviation between actual
demand and forecast
The factors that influence demand must be
considered when forecasting
Buyers and sellers should share all relevant
information to generate a single consensus forecast
Good forecasting provides reduced inventories,
costs, & stockouts, & improved production plans &
customer service
2
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89
Forecasting Techniques
Qualitative forecasting - based on
opinion & intuition (e.g. Delphi)
Quantitative forecasting - uses
mathematical models & historical data to
make forecasts
Time series and Cause & Effect models most frequently used among all the
forecasting models
3
Time Series
Forecasting Models
Data should be plotted to detect for the following
components : Trend, Cyclical, Seasonal or Random
Variations
Simple Moving Average Forecast – uses historical
data to generate a forecast. Works well when
demand is stable over time.
Weighted Moving Average Forecast – based on an nperiod weighted moving average
Exponential Smoothing Forecast – type of weighted
moving average - only two data points are needed
Linear Trend Forecast – trend can be estimated
using simple linear regression to fit a line to a time
series
Rev 1 -23
90
4
Cause and Effect Models
Simple regression – Only one
explanatory variable is used & is similar to
the previous linear trend model
Multiple regression – several explanatory
variables are used to predict the
dependent variable
5
Forecast Accuracy
Mean absolute deviation (MAD)- MAD of 0 indicates the
forecast exactly predicted demand
Mean absolute percentage error (MAPE) – provides a
perspective of the true magnitude of the forecast error
Mean squared error (MSE) – analogous to variance, large
forecast errors are heavily penalized
Running Sum of Forecast Errors (RSFE) – indicates bias
in the forecasts or the tendency of a forecast to be
consistently higher or lower than actual demand.
Tracking signal determines if forecast is within
acceptable control limits
If tracking signal falls outside pre-set control limits


there is bias problem with the forecasting method
evaluation of forecast generation is warranted
6
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91
Collaborative Planning,
Forecasting, and
Replenishment
CPFR Benefits
Strengthens partner relationships
Provides analysis of sales & order forecasts
Uses point-of-sale data, seasonal activity,
promotions, to improve forecast accuracy
Manages demand chain & eliminates problems before
they appear
Allows collaboration on future requirements & plans
Challenges with CPFR
Difficulty of making internal changes
Cost
Trust
7
END DAY 2
Rev 1 -23
92
TOPIC 6:
OPERATIONS ISSUES: RESOURCE PLANNING SYSTEMS
Specific Outcome:
On completion of this topic students will have detail knowledge of the resource
planning systems required to facilitate effective operations planning. Students will be
able to discern the various production plan strategies, apply the Master Production
Schedule, and understand the application of the BOM and capacity planning and
thresholds in the operation environment. The need for an ERP system under certain
condition will also be discussed
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
•
2.
Describe the chase, level, and mixed aggregate production strategies.
Describe the hierarchical operations planning process in terms of materials
planning (APP, MPS, MRP) and capacity planning (RRP, RCCP, CRP).
Compute available-to-promise quantities, MRP explosion, and DRP
implosion
Describe the limitations of legacy MRP systems, and why organizations are
migrating to integrated ERP systems.
Describe an ERP system, and understand its advantages and disadvantages.
Describe best-of-breed versus single integrator ERP implementations
Topic Overview
Read the Chapter 6 “Introduction” paragraph of the textbook.
This topic introduces the totality of operations planning. It follows with detail activities
such as aggregate production planning. The construct of the Master Production
Schedule (MPS) is introduced and discussed as is the further breakdown of this
construct into the Bill of Materials (BOM). The Material Requirements Plan MRP) is
introduced and discussed and married with capacity planning of the operations. A
very important aspect contributing to the cost of operations is distribution which is
discussed in the need for a Distribution Requirements Plan (DRP). The issues of
legacy material requirements planning systems are considered as is the need for the
development of Enterprise Resource Planning Systems (ERP). The topic concludes
with attention being given to the implementation of Enterprise Resource Planning
Systems (ERP) highlighting some Enterprise Resource Planning software
applications
Rev 1 -23
93
COMPULSORY READING:
•
•
•
3.
Formative Exercises:
•
4.
Wisner, Tan, Leong. 2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5th Edition, South Western
Cengage Learning, Chapter 6, end notes.
Steyn Pieter G, 2001: “Managing Organisations through Projects
and Programmes: The Modern General Management Approach”,
Management Today, Vol 17, No 3, April.
Steyn Pieter G. 2010: “Programme Managing the Supply Chain
Portfolio”, PM World Today, Featured Paper, Vol XII, Issue VI,
June.
Formative Exercise: Answer the “Discussion Questions” at the end of
Chapter 6 .
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
5.
Recommended Reading
Wisner, Tan, Leong. 2018. “Principles of Supply Chain Management, A
th
Balanced Approach”, 5 Edition, South Western Cengage Learning, Chapter
6 end notes
Rev 1 -23
94
Cranefield College
of
Project and Programme Management
MODULE M3
Supply Chain Quality
and
Performance Management
Facilitator: Professor Jan Meyer
1
Topic 6
Operations Issues:
Resource Planning Systems
Chapter 6
2
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95
HYBRID LEARNING ORGANISATION VALUE CHAIN SCHEMATIC
BALANCED SCORECARD
(BS)
CORPORATE STRATEGY
PORTFOLIO:
SUPPLY CHAIN
OPERATIONS &
PROJECTS
PORTFOLIO:
STRATEGIC
TRANSFORMATION
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
MAJOR BENEFITS:
OPERATIONAL
EFFECTIVENESS &
EFFICIENCY
PORTFOLIO:
CONTINUOUS
IMPROVEMENT
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
& EFFICIENCY
PORTFOLIO:
CAPITAL
EXPENDITURE
PROJECTS
FINANCE
CSFs
CUSTOMER
CSFs
INTERNAL
CSFs
LEARNING
&
GROWTH
CSFs
MAJOR BENEFITS:
ORGANISATIONAL
EFFICIENCY
PROJECT DRIVEN &
NON-PROJECT DRIVEN
(HYBRID) BUSINESS MODEL
SUPPLY CHAIN
FIN
SALES & M
PURCH
MANUF
LOG
HR
MEASUREMENT OF OUTPUT KPIs
FEEDBACK
IT
PROJECTS DONE FOR EXTERNAL CUSTOMERS
CUSTOMER RELATIONSHIP MANAGEMENT SERVING EXTERNAL CUSTOMERS
CUSTOMER SERVICE MANAGEMENT SERVING EXTERNAL CUSTOMERS
ORDER FULFILMENT MANAGEMENT SERVING EXTERNAL CUSTOMERS
PRODUCT DEVELOPMENT & COMMERCIALISATION PROJECTS FOR THE MARKET
DEMAND MANAGEMENT & CAPACITY PLANNING SERVING INTERNAL CUSTOMERS
SUPPLIER RELATIONSHIP MANAGEMENT (PROCUREMENT) SERVING INTERNAL CUSTOMERS
MANUFACTURING FLOW MANAGEMENT SERVING INTERNAL CUSTOMERS
HUMAN TALENT
INFORMATION ARCHITECTURE
3
INFORMATION VISIBILITY
©P G Steyn
2015
3
4
4
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96
Supply Chain Portfolio
Activities
Typical
Functions
Silos
Business
Processes
S
U
P
P
L
I
E
R
S
Customer
Relationship
Management
Sales &
Marketing
Account
Management
Account
Customer Service
Management
Administration
Technical
Logistics
Requirements Requirements
Definition
Definition
Manufacturing
Strategy
Sourcing
Strategy
Customer
Profitability
Priority
Assessment
Cost
To Serve
Trade-off
Analysis
Coordinated
Execution
Capability
Planning
Sourcing
Plant
Direct
Selected
Supplier(s)
Distribution
Cost
Production
Planning
Integrated
Supply
Manufacturing
Cost
Integrated
Planning
Supplier
Management
Materials
Cost
Material
Specifications
R & D Cost
Process
Requirements
Network
Planning
Fulfillment
Special
Orders
Environmental
Requirements
Distribution
Management
Product
Development and
Commercialisation
Finance &
Accounting
Performance
Specifications
Demand
Planning
Procurement
Purchasing
Technical
Service
Demand
Management
Manufacturing Flow Packaging
Management
Specifications
Manufacturing
Process
Stability
Order
Booking
Material
Specifications
Business
Plan
Product
Design
Prioritisation
Criteria
Inbound
Flow
Movement
Process
Requirements Specifications
C
U
S
T
O
M
E
R
S
Information Architecture, Data Base Strategy, Information Visibility
Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional barriers that
artificially separate the process flows.
5
Introduction
Resource planning - process of
determining the production capacity
required to meet demand
Capacity - maximum workload that an
organization is capable of completing
in a given period of time
Goal of resource planning - minimize
the discrepancy between an
organization’s capacity and demand
Missed due date or stock-out may
cascade downstream, magnifying the
bullwhip effect
6
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97
Operations Planning
Operations planning can be divided into three broad categories:
Long-range – Aggregate Production Plan (APP)
usually covers a year or more, involves the construction
of facilities & major equipment purchase
Intermediate – plan spans six to eighteen months.
Shows the quantity & timing of end items (i.e., master
production schedule – MPS)
Short-range – plan covers few days to few weeks.
Detailed planning process for components & parts to
support the master production schedule (i.e., materials
requirement planning – MRP)
7
Operations Planning
Planning Horizon
Capacity Plan
Materials Plan
Long Range
(More than 1 year)
Resource
Requirements
Planning (RRP)
Aggregate
Production
Planning (APP)
Product groups/fa milies
Demand
Management
Distribution
Requirements
Planning (DRP)
Medium Range
(6 to 18 months)
End-Items/Level 0
Short Range
(Days/Weeks)
Components/subassemblies
Rough-Cut
Capacity
Planning (RCCP)
Master
Production
Scheduling (MPS)
Capacity
Requirements
Planning (CRP)
Material
Requirements
Planning (MRP)
Production
Activity
Control
Bill of Materials
+
Inventory Status
Purchase
Planning &
Control
8
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98
Aggregate Production Plan
Aggregate Production Plan (APP) - process that translates
annual business plans & demand forecasts into a production plan for a
product family
Product family - different products sharing similar
characteristics, components, or manufacturing
processes
Sets aggregate output rate, workforce size, utilization
and inventory, and backlog levels for an the facility
Planning horizon at least one year & usually rolled
forward by three months every quarter
Relevant costs include inventory, setup, machine
operation, hiring, firing, training, & overtime
9
Aggregate Production Plan
Basic Production Strategies :
Chase Strategy
Adjusts capacity to match demand
Firm hires & lays off workers to match demand
Finished goods inventory remains constant
Works well for make-to-order firms
Generally produce one-of-a-kind, specialty
products
Generally require low skilled labor
Can be problematic when highly skilled workers
are needed in a tight labor market
10
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99
Aggregate Production Plan
Basic Production Strategies :
Level Strategy
Relies on constant output rate
varying inventory & backlog
according to fluctuating demand
Firm relies on fluctuating finished
goods & backlogs to meet demand
Works well for make-to-stock firms
Inventory carrying and stockout costs
are major cost concerns
Works well with highly skilled workers
11
Aggregate Production Plan
Basic Production Strategies :
Mixed Production Strategy
Maintains stable core workforce using overtime,
subcontracting & part time workers to manage shortterm demand
Complementary products (with different demand
cycles) may be produced
Additional shift may be scheduled
Works well with firms producing multiple products
12
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100
Master Production Schedule
-1
Master Production Schedule (MPS) - detailed
disaggregation of the aggregate production plan,
listing the exact end items to be produced by a
specific period.
More detailed than APP & easier to plan under
stable demand
Planning horizon shorter than APP, but longer
than the lead time to produce the item
Note: For the service industry, the master
production schedule may just be the
appointment book
13
Master Production Schedule
-2
The MPS - production quantity to meet
demand from all sources & used for
computing the requirements of all timephased end items
Material Requirements Plan (MRP) system of converting end items from the
master production schedule into a set of
time-phased component part
requirements
System nervousness - small changes in
the upper-level-production plan cause
major changes in the lower-level
production plan
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101
14
Master Production Schedule
-3
Time fences are used to deal with
nervousness by separating the
planning horizon into –
Firmed Segment (AKA demand time
fence) - from current period to several
weeks into future. Can only be altered
by senior management
Tentative segment (AKA planning
time fence) - from end of firmed
segment to several weeks into the
future
15
Master Production Schedule
-4
Available-to-Promise (ATP) Quantity difference between confirmed
customer orders & the quantity the
firm planned to produce
Three basic methods of calculating the
available-to-promise quantities –
1.
2.
3.
Discrete available-to-promise
Cumulative available-to-promise without look ahead, &
Cumulative available-to-promise with look ahead
16
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102
Master Production Schedule
-5
Discrete Available-to-Promise
Add Beginning Inventory to MPS for Period 1and
subtract Committed Customer Orders (CCO)
from Period 1 up to but not including the period
of the next scheduled MPS
2. For all subsequent periods, there are two
possibilities –
1.
If no MPS has been scheduled for the period, the ATP is zero
If an MPS has been scheduled for the period, the ATP is the MPS minus the sum
of all CCOs from that period up to the period of the next scheduled MPS
3. If an ATP for any period is negative, the deficit
must be subtracted from the most recent positive
ATP, and revise quantities to reflect changes
17
The Bill of Materials - 1
Bill of Materials (BOM) - document shows an
inclusive listing of all component parts &
assemblies making up the final product – shown in
various levels
Level 0 – Final Product – Called Independent
Demand item is affected by trends, seasonal
patterns, & general market conditions
Level 1 – Called Dependent Demand item - all
components and subassemblies required for the
final assembly of one unit
18
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103
The Bill of Materials - 2
All-Terrain
Vehicle (ATV)
Engine
Assembly
Engine
Block
Suspension
& Brake
Chassis
Cylinder
head
Piston
Assembly
Piston SubAssemblies (4)
Piston Rings
(3)
Exhaust &
Fuel System
Crankshaft
Connecting
Rods (4)
Piston
Camshaft
Level 0
(Finished Good)
Transmission
Seals &
Gaskets
Body &
Accessories
Level 1
Level 2
12” Steel
Bar (½)
Level 3
24” Solid
Steel Bar
Level 4
6” Steel
Bar (¼)
Level 5
24” Solid
Steel Bar
Level 6
denotes additional materials not shown
19
Material Requirements Plan - 1
MRP - computer-based materials
management system calculates
exact quantities, need dates, &
planned order releases for
subassemblies & materials required
to manufacture a final product
Requirements include –
Independent demand information
Parent-component relationships from BOM
Inventory status of final product & components
Planned order releases (most important output) - net
requirements of the final product and appropriate lead
times
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104
20
Material Requirements Plan - 2
Closed-loop MRP - includes aggregate
production planning, master production
scheduling, and capacity requirements
planning
MRP II – combined MRP with materials and
resource planning. Complete MRP II system
includes modules that
Book orders
Schedule production
Control inventory
Manage distribution
Perform accounting & financial
analyses
21
Material Requirements Plan - 3
Terms used in Material Requirements Planning
Parent: item generating the demand for lower level components
Components: parts demanded by a parent
Net requirement: equals gross requirement for that period minus
the current on-hand inventory and any scheduled receipts
Scheduled receipt: committed order awaiting delivery for a
specific period
Projected on-hand inventory: equals beginning inventory minus
gross requirement, plus scheduled receipt and any planned receipt
from an earlier planned order release
Planned order receipt: projected receipt based on generation of
a planned order release
Planned order release: specific order to be released to the shop
or supplier
Time bucket: time period used on the MRP
22
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105
Material Requirements Plan - 4
Terms used in Material Requirements
Planning
Explosion: describes process of converting a parent item’s
planned order releases into component gross requirements
Planning factor: number of components needed to make a
unit of the parent item
Firmed planned order: planned order that MRP software
logic system cannot automatically change when conditions
change
Pegging: relates gross requirements for a component to
planned order releases that created the requirements
Low-level coding: assigns lowest level on bill of materials
to all common components to avoid duplicate MRP
computations
Lot size: order size for MRP logic and may be determined
by various lot-sizing techniques
Safety stock: level set so minimum projected on-hand
inventory does not fall below the safety stock level
23
Material Requirements Plan - 5
Example 6.2
Production schedule for the ATV
corporation is obtained from the MPS
(table 6.4) and inventory status shows 30
units of Model A are available at
beginning of the period.
The parent-component relationships and
planning factors are available in the BOM
(figure 6.4). Assuming the following lot
sizes (Q), lead times (LT), and safety
stocks (SS), the MRP computations
follow for level 0 - 2
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106
24
Material Requirements Plan - 6
Example 6.2
Model A ATV—Level 0
1
2
3
4
5
6
7
8
Gross Requirements
10
10
20
0
20
0
0
20
20
20
20
20
20
20
7
8
0
0
0
5
6
7
8
22
22
22
22
Scheduled Receipts
Projected On-hand Inventory
10
30
Planned Order Releases
20
20
20
20
20
Q = 10; LT = 2; SS = 15
1
Engine Assembly—Level 1
1
Gross Requirements
20
Scheduled Receipts
Projected On-hand Inventory
1
2
3
1
4
5
20
6
20
20
2
Planned Order Releases
2
2
0
0
18
0
20
Q = LFL; LT = 2; SS = 0
1
Piston Assembly—Level 2
1
Gross Requirements
18
Scheduled Receipts
Projected On-hand Inventory
1
2
3
4
20
20
10
12
12
Planned Order Releases
12
22
30
Q = 30; LT = 1; SS = 10
25
Capacity Planning - 1
Capacity – refers to a firm’s labor and machine
resources
Capacity plans are used with materials plan to
ensure capacity is not over or underutilized
Resource Requirement Planning (RRP) - long-range
capacity plan checks whether aggregate resources
are capable of satisfying the aggregate production
Resources considered include gross labor hours &
machine hours
Rough-cut capacity plan (RCCP) - medium-range
capacity plan that checks feasibility of MPS
Converts MPS from production needed to capacity
required, then compares to capacity available
Rev 1 -23
107
26
Capacity Planning - 2
Capacity requirement planning (CRP) - a shortrange capacity planning technique that checks
feasibility of the material requirements plan
used to compute the detailed capacity requirements for each workstation
Lead capacity strategy – proactive approach - adds
or subtracts capacity in anticipation of future market
conditions and demand
Lag capacity strategy – reactive approach - adjusts
its capacity in response to demand
Match or tracking capacity strategy - moderate
strategy - adjusts capacity in small amounts in
response to demand and changing market
conditions
27
Distribution
Requirements Plan
Distribution requirement planning
(DRP) - time-phased net requirements
from warehouses & distribution centers
Links production with distribution planning
DRP is driven by customer demand for the
finished goods
Allocates finished goods inventory &
production capacity to improve customer
service and inventory investment
28
Rev 1 -23
108
Legacy Material
Requirements Planning
Systems
Legacy MRP system – describes an older information system
that usually works at an operational level to schedule
production
Drawbacks –
Continuous modifications of the systems made them
complex and cumbersome to work with
Visibility across functional areas was severely restricted
Lacked access to real-time information
Lacked analytical capabilities required for today’s
complex global environment
29
Manufacturing
Resource Planning
Manufacturing resource planning is an outgrowth
of the closed-loop MRP system
Business and sales plans were incorporated
Financial function was added
Provide management with current data,
including sales, purchasing, production,
inventory & cash flow
Can perform “what-if” analyses as internal and
external conditions change
Lacks the capability to directly interface with
external supply chain members
Rev 1 -23
109
30
Development of ERP
Systems
Enterprise Resource Planning
Systems (ERP) - integrates internal
operations with a common software
platform & centralized database
system
Eliminates inconsistency & incompatibility when different
functional areas use different systems
Automates business processes rapidly & accurately
Provides means for supply chain members to share
information so scarce resources can be fully utilized
Modifications are executed quickly & efficiently to
minimize delivery lead times
31
Development of ERP
Systems - 2
O p e r a t io n s
L o g is t ic s
and
W a re h o u se
E n g in e e r i n g
C e n tra l D a ta b a se
and
Se rv e rs
S u p p li e r
R e la t io n s h ip
M anagem ent
Hum an
R e sou rce s
H e a d q u a rte rs
and
B ra n c h e s
S a le s
and
M a rk e tin g
C ustom e r
R e la t io n s h ip
M anagem ent
D a ta
Sup po rt
System
F in a n c e
and
A c c o u n tin g
Figure 6.6 ‐ Generic
ERP System
32
Rev 1 -23
110
Rapid Growth of Enterprise
Resource Planning Systems
Businesses replaced legacy MRP systems to
deal with the Y2K problem
Rapid development of computer and info
technology over last three decades contributed
positively to the growth
Tasks previously limited to mainframe computers
are easy to implement on today’s systems at
lower cost
Cloud computing - cloud-based services where
end-users log on to remote servers without
installing any software or storing data on local
hard drives
33
Implementing ERP
Systems
Two types of ERP implementation
1. Best-of-breed - picks best application for each function
Some businesses require best-of-breed for advanced or big
data analytical decision making
Disadvantage - software may not integrate well with other
systems
2.
Single integrator solution - picks all desired
applications from single vendor
Advantages - all the applications should work well together
Getting system up and running should be easier
34
Rev 1 -23
111
Implementing ERP
Systems
Implementation Problems:
Lack of top management
commitment
Lack of adequate resources
Lack of proper training
Lack of communication
Incompatible system environment
35
Advantages &
Disadvantages of ERP
Systems
Advantages
Added visibility reduce supply chain inventories
Helps to standardize manufacturing processes
Measure performance & communicate via a
standardized method
Disadvantages
Substantial time & capital investment
Complexity and difficult to implement
Firms must change their business model and
processes to fit the ERP system
36
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112
ERP Software
Providers
Prominent ERP providers –
Oracle
SAP
Microsoft
Infor
37
ERP Software
Applications
Common modules of ERP
systems
Accounting and finance
Customer relationship
management
Human resource management
Manufacturing resource planning
Supply chain management
38
Rev 1 -23
113
TOPIC 7:
OPERATIONS ISSUES: INVENTORY MANAGEMENT
Specific Outcome:
On completion of this topic students will have a comprehensive view of the inventory
systems and their management requirements in order to optimize cost and
effectiveness and efficiency in the supply chain of the operations within an
organisation.
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
•
•
Distinguish dependent from independent demand inventories
Describe the four basic types of inventories & their functions
Describe the costs of inventory & inventory turnovers
Describe ABC classification, ABC inventory matrix & cycle counting
Describe RFID & how it can be used in inventory management
Describe the EOQ model & its underlying assumptions
Describe the Quantity Discounts & the EMQ Models & their relationships with
the basic EOQ model
• Describe the various statistical ROP models
• Describe the continuous review & periodic review systems.
2.
Topic Overview
This topic introduces the concepts of Dependent and Independent Demand in
inventory management. Other concepts and tools of Inventory Management is also
discussed. Specific focus is given to the following Inventory Models.
• Fixed Order Quantity Models
• Economic Order Quantity (EOQ) Model
• Economic Manufacturing Quantity Model or Production Order Quantity Model
Inventory can be one of the most expensive assets of an organization and
management must reduce inventory levels yet avoid stock-outs. In all this topic also
addressed the management of perishable inventory which presents a unique
challenge This topic also discussed the fact that excessive inventory is a sign of poor
inventory management as this adversely affects financial performance
Rev 1 -23
114
COMPULSORY READING:
•
•
•
•
3.
Study the Topic 7 PowerPoint slides in the study guide.
Steyn Pieter G, 2001: “Managing Organisations through
Projects and Programmes: The Modern General
Management Approach”, Management Today, Vol 17, No 3,
April.
Steyn Pieter G. 2010: “Programme Managing the Supply
Chain Portfolio”, PM World Today, Featured Paper, Vol XII,
Issue VI, June.
Steyn Pieter G. 2010: “The Need for a Chief Portfolio Officer
(CPO) in Organisations”, PM World Today, Featured Paper,
Vol XII, Issue VII, July.
Formative Exercises
Complete the following formative exercise: The discussion questions at the end of
chapter 7
4.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
5.
Recommended Reading
See p273 of your text book.
Rev 1 -23
115
Topic 7
Operations Issues:
Inventory
Management
Chapter 7
1
Introduction
Inventory can be one of the most
expensive assets of an organization
Management must reduce inventory
levels yet avoid stockouts
Managing perishable inventory
presents a unique challenge
Excessive inventory is a sign of poor
inventory management
Excessive inventory adversely
affects financial performance
2
Rev 1 -23
116
Dependent and
Independent Demand
Inventory management models –
Generally classified as dependent demand
and independent demand models
Dependent Demand –
internal demand for
parts based on demand of the final product in which parts are used
Examples include; Subassemblies, components, & raw materials
Independent Demand –
demand for end
products & has demand pattern affected by trends, seasonal patterns,
& general market conditions
3
Concepts and Tools of
Inventory Management
Primary functions of inventory are to
–
Buffer from uncertainty in the marketplace
Decouple dependencies in the supply chain (e.g., safety
stock)
Four broad categories of inventories
Raw materials- unprocessed purchase inputs
Work-in-process (WIP)- partially processed materials not
yet ready for sales
Finished goods- completed products ready for shipment
Maintenance, repair & operating (MRO)- materials &
supplies used in producing products (e.g., cleaners &
brooms)
Rev 1 -23
117
4
Concepts and Tools of
Inventory Management - 1
Inventory Costs
Direct costs- directly traceable to unit produced (e.g., labor)
Indirect costs- cannot be traced directly to the unit produced
(e.g., overhead)
Fixed costs- independent of the output quantity (e.g,
buildings, equipment)
Variable costs- vary with output level (e.g., materials)
Order costs- direct variable costs for placing an order
Holding or carrying costs- incurred for holding inventory in
storage
In manufacturing, setup costs are related to machine setups
5
Concepts and Tools of
Inventory Management - 2
Inventory Investment measurements include:
Absolute value of inventory (on balance sheet)
Cycle counting, or physically counting
inventory on a periodic basis
Inventory turnover or turnover ratio - how
many times inventory “turns” in an accounting
period. Higher number is better
Inventory Turnover
Ratio =
Cost of Revenue
Average Inventory
6
Rev 1 -23
118
Concepts and Tools of
Inventory Management - 3
ABC Inventory Control System
Determines which inventories should be
counted & managed more closely than others

Groups inventory as A, B, & C Items
A items are given the highest priority with larger safety stocks. A
items account for approximately 20% of the total items & about
80% of the total inventory cost
B items account for the other about 40% of total items & 15% of
total inventory cost.
C items have the lowest value and hence lowest priority. They
account for the remaining 40% of total items & 5% of total inventory
cost.
7
Concepts and Tools of
Inventory Management - 4
The ABC
Inventory
Matrix
8
Rev 1 -23
119
Concepts and Tools of
Inventory Management - 5
Radio Frequency Identification (RFID) tracks individual unit of goods. Does not require direct line of sight to read a tag and information on the
tag is updatable.
RFID Tags (Transponders)
Readers
Information Infrastructure (Local/ERP Servers)
Item
Box
Hand Held Readers
Shelf Readers
Fixed Portal Readers
Database
RFID Middleware
Local / ERP Server
Pallet
Crate
9
Concepts and Tools of
Inventory Management - 6
Near Field Communication (NFC) - secure form of
data exchange between an NFC tag & Androidpowered devices
Two major RFID standards:
1. Electronic product code (EPC) standard,
managed by the EPCglobal, Inc.
Classes 0, 1 and 2 are passive RFID tags - do not store power on the
tags
Classes 3 and 4 are active RFID tags contain a power source to boost
their range
Class 5 tags communicate with other class 5 tags and devices
2.
18000 standard of the International Standards
Organization (ISO)
10
Rev 1 -23
120
Concepts and Tools of
Inventory Management - 7
Components of Radio Frequency Identification System
Tag - computer chip and an antenna for wireless
communication
Reader - handheld or fixed-position RFID device that reads
the tags
Communication network - connects the readers to transmit
inventory information to the enterprise information system
RFID software - manages the collection, synchronization, and
communication of the data with systems, and stores the
information in a database
11
Concepts and Tools of
Inventory Management - 8
How RFID Automates the supply chain:
Materials Management – goods automatically
counted & logged as they enter supply
warehouse
Manufacturing – customer configurations
encoded on tag can be incorporated
automatically during the production process
Distribution Center – shipment leaving DC
automatically updates ERP to trigger
replenishment order & notify customer for
delivery
Retail Store – reader placed on store shelf to
trigger automatic replenishments when item
reaches its reorder point
12
Rev 1 -23
121
Concepts and Tools of
Inventory Management - 9
Global RFID Implementation and Challenges
Tagging strategies differ considerably by region
China is skeptical about sharing potentially
confidential information with foreign businesses
Consumer-privacy issues and high
implementation costs for hardware and tags
Differences between radio frequencies in
different parts of the world
UHF signals are reflected by metal and
absorbed by water
13
Concepts and Tools of
Inventory Management - 10
Big Data Decision-Making
Big data broadly refers to
collections of data sets too
large & complex to be
processed by traditional
database management tools
14
Rev 1 -23
122
Inventory Models - 1
Fixed Order Quantity Models
Economic Order Quantity Model
Quantity Discount Model
Economic Manufacturing Quantity Model
These models use fixed parameters to derive
the optimum order quantity to minimize total
inventory cost
15
Inventory Models - 2
Economic Order Quantity (EOQ) Model
– quantitative decision model based on
the trade-off between annual inventory
holding costs & annual order costs
Seeks to determine optimal order quantity
Order Cost is direct variable cost associated with placing an
order. (Sometimes called setup cost)
Holding Cost is cost incurred for holding inventory in storage.
(Sometimes called carrying cost)
16
Rev 1 -23
123
Inventory Models - 3

Assumptions of the EOQ Model
1.Demand must be known & constant
2.Order lead time is known & constant
3.Replenishment is instantaneous
4.Price is constant
5.Holding cost is known & constant
6.Ordering cost is known & constant
7.Stock-outs are not allowed
17
Inventory Models - 4
EOQ Model
If order size is smaller than EOQ
of 600 units
• annual holding cost is slightly
lower
• annual order cost is slightly
higher
18
Rev 1 -23
124
Inventory Models - 5
Physical Inventory with the EOQ Model
Inventory on hand & relationships to – EOQ, average inventory, lead time, reorder
point, & order cycle
19
Inventory Models - 6

The Statistical Reorder Point (ROP)
Lowest inventory level when a new order must be placed to
avoid a stockout
Demand and delivery lead time are never certain and require
safety stock
In-stock probability is commonly referred to as the service
level
Statistical ROP with Probabilistic Demand and Constant
Lead Time - assumes lead time is constant while demand
during delivery lead time is unknown but can be specified
using normal distribution
Statistical ROP with Constant Demand and Probabilistic
Lead Time - demand is constant and lead time is unknown
but can be specified by means of a normal distribution
Statistical ROP with Demand and Lead Time are both
Probabilistic - both demand and lead time are unknown but
can be specified by means of a normal distribution
20
Rev 1 -23
125
Inventory Models - 7
Continuous Review System
Reality shows that stock records and actual
quantity are different & requires continuous
review of inventory to determine when to
reorder
Can be difficult to achieve and expensive to
implement
Costly to conduct but requires less safety stock
Periodic Review Inventory System
Reviews physical inventory at specific points in
time and requires higher level of safety stock
21
END DAY 3
Rev 1 -23
126
TOPIC 8:
OPERATIONS ISSUES: PROCESS MANAGEMENT
Specific Outcome:
After completing this topic, the student will understand the Lean Production system
as well as the Six Sigma environmental orientation. The student will also be able to
identify and apply the elements and statistical tools for Six Sigma
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
•
•
2.
List & discuss the major elements of lean & Six Sigma
Describe why lean & Six Sigma are integral parts of SCM
Discuss the Toyota Production System & its association with lean production
Discuss the linkage between lean programs & environmental protection
Describe the historical developments of lean & Six Sigma
Describe & use the various tools of Six Sigma
Understand the importance of statistical process control for improving quality
Topic Overview.
Read the “Introduction” paragraphs in Chapter 8 of the textbook.
COMPULSORY READING:
•
•
•
•
Rev 1 -23
Wisner, Tan, Leong. 2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5th Edition, South
Western Cengage Learning, Chapter 8
Steyn Pieter G, 2001: “Managing Organisations through
Projects and Programmes: The Modern General
Management Approach”, Management Today, Vol 17, No
3, April.
Steyn Pieter G. 2010: “Programme Managing the Supply
Chain Portfolio”, PM World Today, Featured Paper, Vol
XII, Issue VI, June.
Steyn Pieter G. 2010: “The Need for a Chief Portfolio Officer
(CPO) in Organisations”, PM World Today, Featured Paper,
Vol XII, Issue VII, July.
127
3.
Formative Exercises.
•
4.
Formative Exercise: Answer the “Discussion Questions” at the end of
Chapter 8.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
5.
Recommended Reading
Wisner, Tan, Leong. 2018. “Principles of Supply Chain Management, A
th
Balanced Approach”, 5 Edition, South Western Cengage Learning, Chapter
8 end notes.
Knod E M and Schonberger R J. 2001. “Operations Management, Meeting
Customers’ Demands”, 7th Edition, McGraw-Hill, Chapters 4 and 5.
Anderson, C. K and Carroll, B. 2007. Demand management: Beyond
revenue management. Received (in revised form): 10th July.
Bursa, K. 2008-2009. “How to effectively manage demand with demand
sensing and shaping using point of sales data”. The journal of business
forecasting, Winter.
Montgomery, B. 2007. “How to build demand management plans in a
lean environment”. The journal of business forecasting, Spring.
ALSO SEE p325 of textbook.
Rev 1 -23
128
Cranefield College
of
Project and Programme Management
MODULE M3
Supply Chain Quality
and
Performance Management
Facilitator: Professor Jan Meyer
1
Topic 8
Operations Issues:
Process Management:
Lean & Six Sigma In The
Supply Chain
Chapter 8
2
Rev 1 -23
129
HYBRID LEARNING ORGANISATION VALUE CHAIN SCHEMATIC
BALANCED SCORECARD
(BS)
CORPORATE STRATEGY
PORTFOLIO:
SUPPLY CHAIN
OPERATIONS &
PROJECTS
PORTFOLIO:
STRATEGIC
TRANSFORMATION
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
MAJOR BENEFITS:
OPERATIONAL
EFFECTIVENESS &
EFFICIENCY
PORTFOLIO:
CONTINUOUS
IMPROVEMENT
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
& EFFICIENCY
PORTFOLIO:
CAPITAL
EXPENDITURE
PROJECTS
FINANCE
CSFs
CUSTOMER
CSFs
INTERNAL
CSFs
LEARNING
&
GROWTH
CSFs
MAJOR BENEFITS:
ORGANISATIONAL
EFFICIENCY
PROJECT DRIVEN &
NON-PROJECT DRIVEN
(HYBRID) BUSINESS MODEL
SUPPLY CHAIN
FIN
PURCH
SALES & M
MANUF
LOG
HR
MEASUREMENT OF OUTPUT KPIs
FEEDBACK
IT
PROJECTS DONE FOR EXTERNAL CUSTOMERS
CUSTOMER RELATIONSHIP MANAGEMENT SERVING EXTERNAL CUSTOMERS
CUSTOMER SERVICE MANAGEMENT SERVING EXTERNAL CUSTOMERS
ORDER FULFILMENT MANAGEMENT SERVING EXTERNAL CUSTOMERS
PRODUCT DEVELOPMENT & COMMERCIALISATION PROJECTS FOR THE MARKET
DEMAND MANAGEMENT & CAPACITY PLANNING SERVING INTERNAL CUSTOMERS
SUPPLIER RELATIONSHIP MANAGEMENT (PROCUREMENT) SERVING INTERNAL CUSTOMERS
MANUFACTURING FLOW MANAGEMENT SERVING INTERNAL CUSTOMERS
HUMAN TALENT
INFORMATION ARCHITECTURE
3
INFORMATION VISIBILITY
©P G Steyn
2015
CHIEF FINANCIAL
OFFICER
CHIEF OPERATING
OFFICER
CUSTOMER
FOCUS
PROGRAMME
MANAGER:
PROGRAMME
MANAGER:
CAPACITY
FOCUS
PORTFOLIO MANAGER:
SUPPLY CHAIN
OTHER PORTFOLIO MANAGERS
TIERS OF SUPPLIERS (EXTERNAL
ENVIRONMENT)
FUNCTIONAL MANAGERS PROVIDING RESOURCES TO CROSS‐FUNCTIONAL PROCESSES
Mark & Sales
Finance
Res
our
ces
Re
sou
rce
s
Process
Manager
Process
Manager
Process
Manager
Project
Manager
Process
Manager
Process
Manager
Process
Manager
Production
Purchasing
Res
our
ces
Res
our
ces
Logistics
Technical
Re
sou
rce
s
Res
our
ces
CUSTOMER RELATIONS
MANAGEMENT PROCESS
CUSTOMER SERVICE MANAGEMENT
PROCESS
ORDER FULFILMENT
MANAGEMENT/RETURNS PROCESS
PRODUCT DEVELOPMENT &
COMMERCIALISATION PROCESS
SUPPLIER RELATIONSHIP
MANAGEMENT PROCESS
MANUFACTURING FLOW
MANAGEMENT PROCESS
DEMAND MANAGEMENT & CAPACITY
PLANNING PROCESS
Re
sou
rce
s
TIERS OF CUSTOMERS (EXTERNAL
ENVIRONMENT)
CHIEF EXECUTIVE OFFICER
CHIEF
PORTFOLIO
OFFICER
VIRTUAL
NETWORK OF
SUPPLIER
PARTNERS
3
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
©P G Steyn
2015
4
Rev 1 -23
130
CHIEF OPERATING
OFFICER
PROGRAMME
MANAGER:
CUSTOMER
FOCUS
PORTFOLIO MANAGER:
SUPPLY CHAIN
PROGRAMME
MANAGER:
CAPACITY
FOCUS
OTHER PORTFOLIO MANAGERS
TIERS OF SUPPLIERS (EXTERNAL
ENVIRONMENT)
Mark & Sales
Resources
Project
P
j t
Manager
s
Process
Manager
Process
Manager
Process
Manager
Process
Manager
Process
Manager
Finance
Production
Resources
Resources
Purchasing
Resources
Logistics
Resources
Technical
Resources
PROJECT MANAGEMENT PROCESS
(FOR EXTERNAL CUSTOMERS)
CUSTOMER RELATIONSHIP
MANAGEMENT PROCESS
Re
sou
rce
s
CUSTOMER SERVICE MANAGEMENT
SUPPLIER RELATIONSHIP
MANAGEMENT PROCESS
MANUFACTURING FLOW MANAGEMENT
PROCESS
DEMAND MANAGEMENT & CAPACITY
PLANNING PROCESS
TIERS OF CUSTOMERS
(EXTERNAL ENVIRONMENT)
CHIEF FINANCIAL
OFFICER
FUNCTIONAL MANAGERS PROVIDING RESOURCES TO CROSS‐FUNCTIONAL PROCESSES
VIRTUAL
NETWORK OF
SUPPLIER
PARTNERS
CHIEF EXECUTIVE OFFICER
CHIEF
PORTFOLIO
OFFICER
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
5
Introduction
In 1990s, supply chain management combined:
Quick response (QR) - speed and flexibility
Efficient Consumer Response (ECR) - speed and
flexibility
Just-in-Time (JIT) - Continuous reduction of waste
Keiretsu Relationships – partnership arrangements
These approaches have emerged as
philosophies and practices known as Lean
Production (or Lean Manufacturing) or simply
Lean Thinking
6
Rev 1 -23
131
Lean Production & the Toyota
Production System - 1
Lean Production
an operating philosophy of waste
reduction & value enhancement &
was originally created as Toyota
Production System (TPS) by key
Toyota executives
Early versions were based on Ford
assembly plants & U.S. supermarket
distribution systems
7
Lean Production & the Toyota
Production System - 2
Key concepts incorporated in TPS
are –
Muda - waste in all aspects of
production
Kanban - signal card & part of JIT
Statistical process control (SPC) as
part of TQM efforts
Poka-Yoke - error or mistakeproofing
Yokoten – sharing of best practices
8
Rev 1 -23
132
Lean Production & the Toyota
Production System - 3
Lean Production emphasises –
Reduction of waste
Continuous improvement
Synchronisation of material flows within
the organisation
Channel integration- extending
partnerships in the supply chain
9
Lean Thinking and
Supply Chain
Management

Supply chain management (SCM)
seeks to incorporate Lean elements
using –
cross-training,
satisfying internal customer demand
quickly moving products in the production
system
communicating demand forecasts &
production schedules up the supply chain
optimising inventory levels across the
supply chain
Rev 1 -23
133
10
The Elements
of Lean
Waste Elimination
Lean Supply Chain Relationships
Lean Layouts
Inventory & Setup Time Reduction
Small Batch Production
Scheduling
Continuous Improvement
Workforce Empowerment
11
The Elements
of Lean
Waste (Muda) Reduction
Firms reduce costs & add value by
eliminating waste from the
productive system.
Waste encompasses wait times,
inventories, material & people
movement, processing steps,
variability, any other non-valueadding activity.
Taiichi Ohno described the seven
wastes
Rev 1 -23
134
12
The Elements
of Lean
The Seven Wastes (Table 8.2)
Wastes
Description
Overproducing
Unnecessary production to maintain high utilizations
Waiting
Excess idle machine & operator & inventory wait time
Transportation
Excess movement of materials & multiple handling
Over-processing
Non-value adding manufacturing & other activities
Excess Inventory
Storage of excess inventory
Excess Movement
Unnecessary movements of employees
Scrap & Rework
Scrap materials & rework due to poor quality
13
The Elements
of Lean - 1
The Five‐S’s
(Table 8.3)
Japanese S-Term
English
Translation
English S-Term
Used
1. Seiri
Organization
Sort
2. Seiton
Tidiness
Set in order
3. Seiso
Purity
Sweep
4. Seiketsu
Cleanliness
Standardize
5. Shitsuke
Discipline
Self-discipline
14
Rev 1 -23
135
The Elements
of Lean - 2
Lean Supply Chain Relationships
Suppliers & customers work to remove waste,
reduce cost, & improve quality & customer service
Lean Thinking includes delivering smaller
quantities, more frequently, to point of use
Firms develop lean supply chain relationships
with key customers. Mutual dependency &
benefits occur among these partners.
Locate production or warehousing facilities close
to key customers
15
The Elements
of Lean - 3
Lean Layouts
Move people & materials when & where needed,
ASAP
Lean layouts are very visual (lines of visibility are
unobstructed) with operators at one processing
center able to monitor work at another
Manufacturing cells

Process similar parts or components saving
duplication of equipment & labor

Are often U-shaped to facilitate easier operator
& material movements
16
Rev 1 -23
136
The Elements
of Lean - 4
U-shaped work cell (Fig. 8.1)
17
The Elements
of Lean - 5
Inventory and Setup Time Reduction
Excess inventory is a waste
Reducing inventory levels causes production
problems
Once problems are detected, they can be solved.
The end result is a smoother running organisation
with less inventory investment.
Reduce purchase order quantities and production lot
sizes
18
Rev 1 -23
137
The Elements
of Lean - 6
Relationship between Order Quantity,
Lot Size, and Average Inventory (Fig. 8.2)
When order quantity/lot size Q = 100, avg. inventory = 50; when Q is reduced to 50, avg. inventory falls to 25.
100
50
avg. inventory
for Q=100
25
avg. inventory for Q=50
Time
19
The Elements
of Lean - 7
Small Batch Production Scheduling
Small batch scheduling drives down
costs by –

Reducing purchased, WIP, & finished
goods inventories

Makes the firm more flexible to meet
customer demand
Small production batches are
accomplished with the use of kanbans
Kanbans generate demand for parts at
all stages of production creating a “pull”
system
20
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138
The Elements
of Lean - 8
Continuous Improvement (Kaizen)
Continuous approach to reduce process, delivery, &
quality problems, such as machine breakdown
problems, setup problems, & internal quality
problems
Kaizen Blitz -- rapid improvement event or
workshop, to find big improvements quickly
Workforce Commitment
Managers must support Lean Production by
providing subordinates with the skills, tools, time, &
other necessary resources to identify problems &
implement solutions
21
Lean Systems and the
Environment
Lean green practices –
Reduce waste
Reduce the cost of environmental
management
Lead to improved environmental
performance.
Increase the possibility that firms will
adopt more advanced environmental
management systems
22
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139
The Origins of Six
Sigma Quality
Near quality perfection (the statistical
likelihood of non-defects 99.99966%)
Or 3.4 defects/million observations
(DPMO)
Pioneered by Motorola in 1987
A statistics-based decision-making
framework designed for significant quality
improvements in value-adding processes
23
The Origins of Six
Sigma Quality
# of std dev
above the mean
Six Sigma DPMO Metrics
(Table 8.4)
% of defect-free
output
DPMO
2
69.15
308,537
2.5
84.13
158,686
3
93.32
66,807
3.5
97.73
22,750
4
99.38
6,210
4.5
99.865
1,350
5
99.977
233
5.5
99.9968
32
6
99.99966
3.4
Note: standard deviations include 1.5
sigma “drift”
Rev 1 -23
140
24
Normal Distribution:
Shaft Diameter
Note: Here,
 = 0.04 cm.
‐3
‐2
5.88 cm
‐1
µ
+1
+2
6.00 cm
Target
+3
6.12 cm
25
The Origins of Six
Sigma Quality
Calculating the DPMO
DPMO =
numberof defects
 1,000,000
(OFDper unit)(numberof units)
Where:
DPMO = Defects per million observations
OFD = Opportunities for a defect to occur
See: Ex. 8.2 Calculating the DPMO for Blakester’s
Speedy Pizza
26
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141
Comparing Six Sigma
& Lean
Lean Six Sigma (or Lean Six)
Describes the melding of lean
production and Six Sigma quality
practices.
Both use –
High quality input materials, WIP, and finished goods
Continuous Improvement (Kaizen)
Lean and Six Sigma use
complementary tool sets and are
not competing philosophies
27
Six Sigma & Supply
Chain Management
Process integration &
communication lead to fewer negative
chain reactions along the supply chain,
such as greater levels of safety stock,
lost
time & less productivity
Six Sigma is an enterprise and supply
chain-wide philosophy, that emphasizes
a commitment toward excellence &
encompasses suppliers employees, and
customers
28
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142
The Elements of Six
Sigma
Deming’s 14 Points
1.
2.
3.
4.
5.
6.
7.
8.
Create constancy of
purpose to improve
product & service.
Adopt the new
philosophy.
Cease dependence on
mass inspection.
End the practice of
awarding business on
the basis of price.
Constantly improve the
production & service
system.
Institute training on the
job.
Institute leadership.
9.
10.
11.
12.
13.
14.
Drive out fear.
Break down barriers
between
departments.
Eliminate slogans &
exhortations.
Eliminate quotas.
Remove barriers to
pride of
workmanship.
Institute program of
self-improvement.
Put everyone to
work to accomplish
the transformation.
29
The Elements of Six
Sigma - 1
Crosby’s Contributions
Table 8.6
Crosby’s Four Absolutes of Quality
1. The definition of quality is Adopt a do-it-right-the-first-time attitude. Never sell
conformance to
a faulty product to a customer.
requirements.
2. The system of quality is
prevention.
Use SPC as part of the prevention system. Make
corrective changes when problems occur. Take
preventative action.
3. The performance
Insist on zero defects from suppliers and workers.
standard is zero defects.
Education, training, and commitment will eliminate
defects.
4. The measure of quality is The price of nonconformance is the cost of poor
the price of
quality. Implementing a prevention program will
nonconformance.
eliminate this.
30
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143
The Elements of Six
Sigma - 2
Juran’s Contributions
Table 8.7 Juran’s Quality Trilogy
Quality Planning- Identify internal/external
customers & their needs, develop products that
satisfy those needs. Mangers set goals, priorities, &
compare results
Quality Control- Determine what to control,
establish standards of performance, measure
performance, interpret the difference, & take action
Quality Improvement- Show need for improvement,
identify projects for improvement, implement
remedies, provide control to maintain improvement.
31
The Elements of Six
Sigma - 3
Malcolm Baldrige National Quality
Award
Categories
Measured
1.
Leadership
2.
Strategic
planning
3.
Customer &
market focus
4.
Information &
analysis
5.
Human resource
focus
6.
Process
management
7.
Business Results
Objectives
Stimulate firms
to improve
Recognize firms
for quality
achievements
Establish
guidelines so
organizations
can evaluate
their
improvement &
provide
guidance to
others
32
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144
The Elements of Six
Sigma - 4
ISO 9000 and ISO 14000 Families of
Management Standards
ISO requires review of its standards at
least every five years.
Worldwide reputation as “generic
management system standards”
The ISO 9000 standards were adopted
in the US by ANSI and ASQC.
33
The Elements of Six
Sigma - 5
The DMAIC Improvement Cycle (Fig. 8.5)
Define
Measure
Analyze
Improve
Control
34
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145
The Elements of Six
Sigma - 6
The DMAIC Improvement Cycle
1. Define
Identify customers service or product requirements critical
to achieving customer satisfaction
2. Measure
Prepare a data-collection plan. Determine what to measure
for each process gap and how to measure it.
3. Analyze
Perform a process analysis .Use Pareto charts and fishbone
diagrams to identify the root causes of the process
variations or defects.
4. Improve
Design an improvement plan. Remove the causes of
process variation by implementing the improvement plan.
5. Control
Monitor the process to assure that performance levels are
maintained. If performance gaps are identified, repeat
Steps 1–5.
35
The Elements of Six
Sigma - 7
Six Sigma Training Levels (Table 8.9)
Levels
Description
Yellow Belt
Basic understanding of Six Sigma Methodology and tools in the
DMAIC problem solving process. Team member on process
improvement project.
Green Belt
A trained team member allowed to work on small, carefully
defined Six Sigma projects, requiring less than a Black Belt’s fulltime commitment.
Black Belt
Thorough knowledge of Six Sigma philosophies and principles.
Coaches successful project teams. Identifies projects and
selects project team members.
Master Black A proven mastery of process variability reduction, waste
Belt
reduction and growth principles and can effectively present
training at all levels
36
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146
The Statistical Tools
of Six Sigma
Flow Diagrams - Annotated boxes
representing process to show the flow of
products or customers.
Check Sheets - to determine frequencies
for specific problems.
Pareto Charts - for presenting data in an
organized fashion, indicating process
problems from most to least severe.
Cause and Effect Diagrams (Fishbone or
Ishikawa diagrams) - used to aid in
brainstorming & isolating the causes of a
problem.
37
Fishbone Chart: Truck
Delivery Failures
Shipping
Documents
Trucking
Leave at
Latest traffic
wrong time
and road
conditions
Invoice
Driver does not
not updated
missing
know route
Poor truck
maintenance
Truck
Delivery
Failure
Wrong
No protective
information
packing
Label
Wrong container
stuck on
Wrong
label
poorly
Quality in
location
container
incorrect
Container
Packing
Labeling
Packing
list
incorrect
38
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147
The Statistical Tools
of Six Sigma - 1
Statistical Process Control

Allows firms to –
visually monitor process performance
compare the performance to desired levels or
standards
take corrective action

Firms –
gather process performance data
create control charts to monitor process variability
then collect sample measurements of the process
over time and plot on charts.
39
The Statistical Tools
of Six Sigma - 2
Statistical Process Control
Natural variations expected and random (can’t
control)
Assignable variations have a specific cause (can
control)
Variable data continuous (e.g., weight, length, time)
Attribute data indicates some attribute such as color
& satisfaction, or beauty (yes/no, good/bad)
40
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148
The Statistical Tools
of Six Sigma - 3
Statistical Process Control
Variable Control Charts (2 types):
x-bar chart tracks central tendency of sample means
R-chart tracks sample ranges
Steps –
1.
Gather data when the process is in control.
2.
Calculate the mean & the range for each sample.
3.
Calculate the overall mean and average range of
all the samples. Use the x-means to calculate the
upper & lower control limits.
4.
Use the means & control limits to construct x-bar
and R control charts.
5.
Collect samples over time and plot.
41
The Statistical Tools
of Six Sigma - 4
Statistical Process Control
x
chart for the Hayley Girl Soup
Co. (Fig. 8.10)
12.2
12.1
12
11.9
11.8
ounces
11.7
11.6
11.5
1
3
5
7
9
11
13
15
17
19
21
23
hours
42
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149
The Statistical Tools
of Six Sigma -5
Statistical Process Control
R chart for the Hayley Girl
Soup Co. (Fig. 8.10)
1
ounces
0.8
0.6
0.4
0.2
23
21
19
17
15
13
11
9
7
5
3
1
0
hours
43
The Statistical Tools
of Six Sigma - 6
Acceptance Sampling
When shipments are received from suppliers,
samples are taken and measured against the
quality acceptance standard. The shipment is
assumed to have the same quality.
Sampling is less time-consuming than testing
every unit but can result in errors
Producer’s risk- A buyer rejects a shipment of
good quality units because the sample quality
level did not meet standards (type I error)
Consumer’s risk- Buyer accepts a shipment of
poor-quality units because the sample falsely
provides a positive answer (type II error)
44
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150
HYBRID LEARNING ORGANISATION VALUE CHAIN SCHEMATIC
BALANCED SCORECARD
(BS)
CORPORATE STRATEGY
PORTFOLIO:
SUPPLY CHAIN
OPERATIONS &
PROJECTS
PORTFOLIO:
CONTINUOUS
IMPROVEMENT
PROJECTS
PORTFOLIO:
STRATEGIC
TRANSFORMATION
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
MAJOR BENEFITS:
OPERATIONAL
EFFECTIVENESS &
EFFICIENCY
PORTFOLIO:
CAPITAL
EXPENDITURE
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
& EFFICIENCY
FINANCE
CSFs
CUSTOMER
CSFs
INTERNAL
CSFs
LEARNING
&
GROWTH
CSFs
MAJOR BENEFITS:
ORGANISATIONAL
EFFICIENCY
PROJECT DRIVEN &
NON-PROJECT DRIVEN
(HYBRID) BUSINESS MODEL
SUPPLY CHAIN
FIN
PURCH
SALES & M
MANUF
LOG
HR
MEASUREMENT OF OUTPUT KPIs
FEEDBACK
IT
PROJECTS DONE FOR EXTERNAL CUSTOMERS
CUSTOMER RELATIONSHIP MANAGEMENT SERVING EXTERNAL CUSTOMERS
CUSTOMER SERVICE MANAGEMENT SERVING EXTERNAL CUSTOMERS
ORDER FULFILMENT MANAGEMENT SERVING EXTERNAL CUSTOMERS
PRODUCT DEVELOPMENT & COMMERCIALISATION PROJECTS FOR THE MARKET
DEMAND MANAGEMENT & CAPACITY PLANNING SERVING INTERNAL CUSTOMERS
SUPPLIER RELATIONSHIP MANAGEMENT (PROCUREMENT) SERVING INTERNAL CUSTOMERS
MANUFACTURING FLOW MANAGEMENT SERVING INTERNAL CUSTOMERS
HUMAN TALENT
INFORMATION ARCHITECTURE
45
INFORMATION VISIBILITY
©P G Steyn
2015
CHIEF EXECUTIVE OFFICER (Proj Driven)
CHIEF FINANCIAL
OFFICER
CHIEF OPERATING
OFFICER
PROGRAMME
MANAGER:
CAPACITY
FOCUS
PROGRAMME
MANAGER:
CUSTOMER
FOCUS
PORTFOLIO MANAGER:
SUPPLY CHAIN
OTHER PORTFOLIO MANAGERS
TIERS OF SUPPLIERS (EXTERNAL
ENVIRONMENT)
FUNCTIONAL MANAGERS PROVIDING RESOURCES TO CROSS‐FUNCTIONAL PROCESSES
Mark & Sales
Resources
Project
P
j t
Manager
s
Process
Manager
Process
Manager
Process
Manager
Process
Manager
Process
Manager
Finance
Production
Resources
Resources
Purchasing
Resources
Logistics
Resources
Technical
Resources
PROJECT MANAGEMENT PROCESS
(FOR EXTERNAL CUSTOMERS)
CUSTOMER RELATIONSHIP
MANAGEMENT PROCESS
Re
sou
rce
s
CUSTOMER SERVICE MANAGEMENT
SUPPLIER RELATIONSHIP
MANAGEMENT PROCESS
MANUFACTURING FLOW MANAGEMENT
PROCESS
DEMAND MANAGEMENT & CAPACITY
PLANNING PROCESS
TIERS OF CUSTOMERS
(EXTERNAL ENVIRONMENT)
CHIEF
PORTFOLIO
OFFICER
VIRTUAL
NETWORK OF
SUPPLIER
PARTNERS
45
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
46
Rev 1 -23
151
CHIEF OPERATING
OFFICER
CUSTOMER
FOCUS
PROGRAMME
MANAGER:
PROGRAMME
MANAGER:
CAPACITY
FOCUS
PORTFOLIO MANAGER:
SUPPLY CHAIN
OTHER PORTFOLIO MANAGERS
TIERS OF SUPPLIERS (EXTERNAL
ENVIRONMENT)
Mark & Sales
Finance
Res
our
ces
Re
sou
rce
s
Process
Manager
Process
Manager
Process
Manager
Project
Manager
Process
Manager
Process
Manager
Process
Manager
Production
Purchasing
Res
our
ces
Res
our
ces
Logistics
Technical
Re
sou
rce
s
Res
our
Re
sou
rce
s
ces
CUSTOMER RELATIONS
MANAGEMENT PROCESS
CUSTOMER SERVICE MANAGEMENT
PROCESS
ORDER FULFILMENT
MANAGEMENT/RETURNS PROCESS
PRODUCT DEVELOPMENT &
COMMERCIALISATION PROCESS
SUPPLIER RELATIONSHIP
MANAGEMENT PROCESS
MANUFACTURING FLOW
MANAGEMENT PROCESS
DEMAND MANAGEMENT & CAPACITY
PLANNING PROCESS
TIERS OF CUSTOMERS
(EXTERNAL ENVIRONMENT)
CHIEF FINANCIAL
OFFICER
FUNCTIONAL MANAGERS PROVIDING RESOURCES TO CROSS‐FUNCTIONAL PROCESSES
VIRTUAL
NETWORK OF
SUPPLIER
PARTNERS
CHIEF EXECUTIVE OFFICER (Non-Proj Driven)
CHIEF
PORTFOLIO
OFFICER
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
©P G Steyn
2015
47
Supply Chain Portfolio
Activities
Typical
Functions
Silos
Business
Processes
S
U
P
P
L
I
E
R
S
Customer
Relationship
Management
Sales &
Marketing
Account
Management
Account
Customer Service
Management
Administration
Technical
Logistics
Requirements Requirements
Definition
Definition
Sourcing
Strategy
Customer
Profitability
Priority
Assessment
Cost
To Serve
Trade-off
Analysis
Coordinated
Execution
Capability
Planning
Sourcing
Plant
Direct
Selected
Supplier(s)
Distribution
Cost
Production
Planning
Integrated
Supply
Manufacturing
Cost
Integrated
Planning
Supplier
Management
Materials
Cost
Material
Specifications
R & D Cost
Process
Requirements
Network
Planning
Fulfillment
Special
Orders
Environmental
Requirements
Distribution
Management
Product
Development and
Commercialisation
Manufacturing
Strategy
Performance
Specifications
Demand
Planning
Procurement
Finance &
Purchasing Accounting
Technical
Service
Demand
Management
Manufacturing Flow Packaging
Management
Specifications
Manufacturing
Process
Stability
Order
Booking
Material
Specifications
Business
Plan
Product
Design
Prioritisation
Criteria
Inbound
Flow
Movement
Process
Requirements Specifications
C
U
S
T
O
M
E
R
S
Information Architecture, Data Base Strategy, Information Visibility
Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional
barriers that artificially separate the process flows.
48
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152
TOPIC 9:
DISTRIBUTION ISSUES: GLOBAL LOGISTICS
Specific Outcome:
On completion of this topic the student will be able to discern the fundamentals of
transportation, warehousing and distribution issues, the position and impact of
distribution logistics on the Supply Chain, the use of global distribution and logistics
and the effect and impact of reverse logistics.
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
•
•
2.
Understand the strategic importance of logistic
Identify the various modes of transportation
Understand how U.S. regulation and deregulation have impacted
transportation
Discuss the global aspects of logistics Examine and understand the
interrelatedness of transportation, warehousing, and material handling
Identify a number of third-party logistics service providers
Describe the various reverse logistics activities
Describe how logistics affects supply chain management
Topic Overview
Read the “Introduction” paragraph in Chapter 9 of the textbook.
COMPULSORY READING:
• Wisner, Tan, Leong. 2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5th Edition, South
Western Cengage Learning, Chapter 9.
• Steyn Pieter G, 2001: “Managing Organisations through
Projects and Programmes: The Modern General
Management Approach”, Management Today, Vol 17, No 3,
April.
• Steyn Pieter G. 2010: “Programme Managing the Supply
Chain Portfolio”, PM World Today, Featured Paper, Vol XII,
Issue VI, June.
• Steyn Pieter G. 2010: “The Need for a Chief Portfolio Officer
(CPO) in Organisations”, PM World Today, Featured Paper,
Vol XII, Issue VII, July.
• Steyn Pieter G. 2012: “Sustainable Strategic Supply Chain
Leadership and Management”, PM World Journal, Vol. I,
Issue V, December.
• Steyn Pieter G. 2013: “A Business Model for Programme
Managing the Supply Chain Portfolio”, PM World Journal,
Vol. II, Issue III, March.
Rev 1 -23
153
3.
Formative Exercises
•
Formative Exercise: Answer the “Discussion Questions” at the end of
Chapter 9.
1. Reflection
Reflect on what you have learned in this discussion and the application thereof in
the organisation where you work.
5. Recommended Reading
•
•
Rev 1 -23
Wisner, Tan, Leong. 2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5 th Edition, South Western
Cengage Learning, Chapter 9 End notes.
Knod E M, and Schonberger R J. 2001. “Operations Management,
Meeting Customers’ Demands”, 7th Edition, McGraw-Hill, Chapter 6.
154
Topic 9
Distribution
Issues:
Global Logistics
Chapter 9
GLOBAL
LOGISTICS
1
Introduction
Logistics is necessary to:
Move goods from suppliers to buyers
Move finished goods to the customer
Move work-in-process materials within a firm
Return or recycle goods
Store items along the way in supply chains
Products have little value to the customer until
they are moved to the customer’s point of
consumption
Logistics provides:
Time utility- products are delivered at the right time
Place utility- products are delivered to the desired location
2
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155
Transportation
Fundamentals - 1
The Objective of Transportation
Maximize value to firm through negotiation to
provide profit contribution
Make sure service is provided effectively
Satisfy customer requirements while minimizing
costs
3
Transportation
Fundamentals - 2
Legal Forms of Transportation
Transportation service companies
are classified legally as either
common, contract, exempt, or
private carriers.
Common carriers- offer transportation services to all
shippers at published rates between designated
locations without discrimination
Contract carriers- not bound to serve the general
public. Contract carriers serve specific customers
under contractual agreements
4
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156
Transportation
Fundamentals - 3
Legal Forms of Transportation
Exempt carriers - exempt from
regulation of services & rates & if they
transport certain exempt products like
produce, livestock, coal, or newspapers
Private carrier - not subject to economic
regulation & typically transports goods
for the company owning the carrier
5
Transportation
Fundamentals - 4
Modes of Transportation
Motor Carriers (trucks) - most
flexible mode of transportation
Account for 70 percent of all freight tonnage moved in
the U.S.
Competes w/rail & air for short-to-medium hauls
Less-than-truckload (LTL) & truck-load (TL) carriers move small
shipments & fees are higher
General freight carriers carry the majority of goods shipped &
include common carriers
Specialised carriers transport liquid petroleum, agricultural
commodities, building materials, & other specialized items
6
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157
Transportation
Fundamentals - 5
Modes of Transportation
Rail Carriers - compete when the
distance is long & the shipments are
heavy or bulky
Slow & inflexible
New - purchasing motor carriers to offer point-to-point
pickup & delivery service known as trailer-on-flatcar
(TOFC) service
One trend is use of high-speed trains which range in
the U.S. from 85 to 120 miles per hour
7
Transportation
Fundamentals - 6
Modes of Transportation
Rail CarriersRail companies use each other’s rail cars but can be
problematic keeping track of rail cars & getting them
where needed.
Real-time location systems (RTLSs) on rail cars have
helped the problem. It uses active, Wi-Fi-enabled
radio frequency identification (RFID) tags to track rail
cars (and their assets) in real time.
8
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158
Transportation
Fundamentals - 7
Modes of Transportation
Air Carriers - Expensive relative to
other modes but fast
Account for a small portion of total freight hauled
Cannot carry extremely heavy or bulky cargo
For light, high value goods over long distances quickly
Limited in terms of geographic coverage
Half of the goods transported by air are carried by
freight–only airlines, like FedEx.
9
Transportation
Fundamentals - 8
Modes of Transportation
Water Carriers- Inexpensive, slow &
inflexible. Includes inland waterway,
coastal & intercoastal, & deep-sea.
 Inland waterway transportation is used for heavy, bulky,
low-value materials (e.g., coal, grain)
 Development in deep-sea transportation and use of
supertankers & containerships have made water
transportation cheaper and more desirable
 Competes w/rail & pipeline
 Water carriers paired w/trucks for door-to-door delivery
10
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159
Transportation
Fundamentals - 9
Modes of Transportation
Pipeline Carriers - limited in
variety they can carry
Little maintenance once pipeline is running
Materials hauled in a liquid or gaseous state
Transported items include water, oil, gasoline, natural
gas & coal slurry (pulverize coal suspended in water)
Latest controversial pipeline is the proposed Keystone
XL pipeline
11
Transportation
Fundamentals - 10
Modes of Transportation
Intermodal – the use of multiple
modes of transportation
Most common trailer-on-flatcar (TOFC) service,
container-on-flatcar (COFC), or piggy-back service
same containers can be placed on board
containerships and freight airliners
Water & motor offer point to point service for overseas
manufacturers
RO-ROs or roll-on-roll-off containerships truck
trailers & containers directly driven on & off the
ship, without the use of cranes
12
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160
Transportation
Fundamentals - 11
Transportation Pricing
Cost-of-service pricing - prices based on fixed & variable
costs of transportation
Value-of-service Pricing - services priced at market
bearing competitive levels
Negotiated pricing - prices fall somewhere between
above two levels
Terms of Sale - includes transportation
FOB (free on board) destination - supplier is legal
owner of the product until it safely reaches its
destination.
FOB origin pricing - goods are legal responsibility of
buyer at supplier’s finished goods pickup location
13
Transportation
Fundamentals - 12
Transportation Pricing
Rate Categories –
Line haul rates – charges for moving goods to nonlocal
destination
Class rates - published annually by National Motor Freight Traffic
Association
Exception rates - rates are lower than NMFC class rates &
generally are established on an account-by-account basis.
Commodity rates - apply to minimum quantities of products
shipped between two specified locations
Miscellaneous rates - contract rates negotiated between two
parties and shipments containing a variety of products
14
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161
Transportation
Fundamentals - 13
Transportation Security
Aviation & Transportation Security Act (2001) created
Transportation Security Administration (TSA) to oversee
transportation security which oversees 430 US airports.
Department of Homeland Security (DHS) (2002) created to
coordinate and unify national homeland security efforts.
100 % of air cargo prescreened, as mandated by the
Improving America’s Security Act of 2007.
Transportation Worker Identification Credential (TWIC)
became mandatory for all port workers in 2009.
PrePass - prequalified U.S. motor carriers bypass state
inspection & weigh stations at highway speeds, using
automated vehicle identification technology.
15
Transportation
Fundamentals - 14
Transportation Regulation &
Deregulation
Pro- Regulation assures adequate transportation
service throughout the country - protects consumers
from monopoly pricing, safety, & liability
Con- Deregulation encourages competition allows prices to adjust as supply, demand &
negotiations dictate
Today, transportation industry remains essentially
deregulated
16
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162
TOPIC 10: DISTRIBUTION ISSUES: CUSTOMER RELATIONSHIP
MANAGEMENT
Specific Outcome:
On completion of this topic the student will be able to design a CRM program for the
organisation based on the existing trends and applying specific tools and
techniques.
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
•
•
2.
Discuss the strategic importance of CRM
Describe the components of a CRM initiative
Calculate customer lifetime value
Discuss the implementation procedures for CRM programs
Describe how information is used to create customer satisfaction & greater
profits for the firm
Discuss the importance of data security in CRM
Describe how social media and cloud computing have impacted CRM
Topic Overview
Read the “Introduction” paragraph in Chapter 10 of the textbook.
COMPULSORY READING:
• Wisner, Tan, Leong. 2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5th Edition, South
Western Cengage Learning, Chapter 10
• Steyn Pieter G, 2001: “Managing Organisations through
Projects and Programmes: The Modern General
Management Approach”, Management Today, Vol 17, No 3,
April.
• Steyn Pieter G. 2010: “Programme Managing the Supply
Chain Portfolio”, PM World Today, Featured Paper, Vol XII,
Issue VI, June.
• Steyn Pieter G. 2010: “The Need for a Chief Portfolio Officer
(CPO) in Organisations”, PM World Today, Featured Paper,
Vol XII, Issue VII, July.
• Steyn Pieter G. 2012: “Sustainable Strategic Supply Chain
Leadership and Management”, PM World Journal, Vol. I,
Issue V, December.
• Steyn Pieter G. 2013: “A Business Model for Programme
Managing the Supply Chain Portfolio”, PM World Journal,
Vol. II, Issue III, March.
Rev 1 -23
163
3.
Formative Exercises
•
4.
Formative Exercise 1: Answer the “Discussion Questions” at the end of
Chapter 10.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
5.
Recommended Reading
Wisner, Tan, Leong. 2018. “Principles of Supply Chain Management,
A Balanced Approach”, 5 th Edition, South Western Cengage
Learning, Chapter 10 End notes.
Knod E M and Schonberger R J. 2001. “Operations Management,
Meeting Customers’ Demands”, 7th Edition, McGraw-Hill, Chapter 6.
Rev 1 -23
164
Topic 10
Distribution Issues:
Customer Relationship
Management
Chapter 10
CHIEF FINANCIAL
OFFICER
CHIEF OPERATING
OFFICER
CUSTOMER
FOCUS
PROGRAMME
MANAGER:
PROGRAMME
MANAGER:
CAPACITY
FOCUS
PORTFOLIO MANAGER:
SUPPLY CHAIN
OTHER PORTFOLIO MANAGERS
TIERS OF SUPPLIERS (EXTERNAL
ENVIRONMENT)
FUNCTIONAL MANAGERS PROVIDING RESOURCES TO CROSS‐FUNCTIONAL PROCESSES
Mark & Sales
Finance
Res
our
ces
Re
sou
rce
s
Process
Manager
Process
Manager
Process
Manager
Project
Manager
Process
Manager
Process
Manager
Process
Manager
Production
Purchasing
Res
our
ces
Res
our
ces
Logistics
Technical
Re
sou
rce
s
Res
our
ces
CUSTOMER RELATIONS
MANAGEMENT PROCESS
CUSTOMER SERVICE MANAGEMENT
PROCESS
ORDER FULFILMENT
MANAGEMENT/RETURNS PROCESS
PRODUCT DEVELOPMENT &
COMMERCIALISATION PROCESS
Re
sou
rce
s
SUPPLIER RELATIONSHIP
MANAGEMENT PROCESS
MANUFACTURING FLOW
MANAGEMENT PROCESS
DEMAND MANAGEMENT & CAPACITY
PLANNING PROCESS
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
TIERS OF CUSTOMERS (EXTERNAL
ENVIRONMENT)
CHIEF EXECUTIVE OFFICER (Non-Proj Driven)
CHIEF
PORTFOLIO
OFFICER
VIRTUAL
NETWORK OF
SUPPLIER
PARTNERS
1
©P G Steyn
2015
2
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Introduction
“Finding a new customer costs five
times as much as keeping an old
customer”
CRM means focusing on customer requirements, then
delivering products and services in a manner resulting in
high levels of customer satisfaction
CRM refers to automated transaction and communication
applications—a suite of software modules or a portion of
the larger enterprise resource planning system
CRM must still include talking to customers, understanding
their behavior and their requirements, and then building a
system to satisfy those requirements
3
Customer Relationship
Management Defined - 1
“The infrastructure that enables the delineation of and
increase in customer value, and the correct means by
which to motivate valuable customers to remain loyal—
indeed to buy again.”
“…managing the relationships among people within an
organization and between customers and the company’s
customer service representatives in order to improve the
bottom line.”
“…a core business strategy for managing and optimizing all
customer interactions across an organization’s traditional
and electronic interfaces.”
More simply – CRM is building & maintaining profitable,
long-term customer relationships
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166
4
Customer Relationship
Management Defined - 2
Seven Deadly Sins of CRM Failure
1. Viewing CRM primarily from a technology
perspective
2. Lack of customer-centric vision
3. Not understanding the concept of a customer’s
lifetime value
4. Insufficient top management support
5. Not reengineering business processes
6. Underestimating the challenges in integrating
various sources of data
7. Underestimating the challenge in effecting
change
5
Customer Relationship
Management Defined - 3
Successful CRM programs require:
cultural change
effective CRM project management
employee engagement
strategies that cultivate long-term
relationships with customers
information gathered from CRM
software applications
treating customers right & making
them feel valued
6
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167
Key Tools and
Components of CRM - 1
Segmenting Customers - Grouping
customers to create specialized
communications about products
Target marketing efforts – addressing
specific customer segments avoids
becoming a nuisance to other customers
Relationship marketing or permission
marketing - customers select the type &
time of communication (opting-in or optingout)
Mobile marketing - placing advertising messages on mobile phones
QR codes - using the camera function on a smartphone and downloading
a QR code reader app
Facebook, LinkedIn, and Instagram users create their own customized
Web pages that potential consumers can choose to visit
7
Key Tools and
Components of CRM - 2
Cross selling - Additional products
are sold as the result of an initial
purchase (e.g., e-mails from
Amazon.com describing other
books the customer might like).
If successful, customers perceive this as individualized
attention, and it results in more satisfied and loyal
customers
Predicting Customer Behaviors firms forecast likelihood of
customers’ future purchases
8
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168
Key Tools and
Components of CRM - 3
Customer Defection Analysis - finding
methods to retain customers
Churn reduction - reducing customer defections
Customer Value Determination - calculating
the customer lifetime value for firms
Personalizing Customer Communications Understanding customer behaviors &
preferences, firms customize
communications
Clickstream, how a customer navigates a Web site
Event based Marketing - offer the right
products & services to customers at the right
time
9
Key Tools and
Components of CRM - 4
Automated Sales Force Tools
Sales Force Automation (SFA)- Used for documenting field activities,
communications with the home office, & retrieving sales history
Sales Activity Management- Tool offering sales reps a guided
sequence of sales activities
Sales Territory Management- Sales managers obtain
information of each sales rep’s activities (e.g., total sales per
sales rep.)
Lead Management- Sales reps can follow prescribed tactics
when dealing with prospects to aid closing the deal.
Knowledge Management System (KMS) - Enables quick
decision making, better customer service, & a betterequipped & happy sales staff.
10
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Key Tools and
Components of CRM - 5
Managing Customer Service Capabilities
What does customer service actually mean?
The “Seven Rs Rule”: Having the right product, in
the right quantity, in the right condition, at the right
place, at the right time, for the right customer, at
the right costs.
Performance measures are often designed
around satisfying the seven Rs. These kinds of
services can come at a cost.
Perfect order: When the seven Rs are all satisfied.
11
Key Tools and
Components of CRM -6
Customer Service Elements
Pretransaction elements - precede the sale (e.g.,
customer service policies, the mission statement,
org. structure, & system flexibility)
Transaction elements - occur during the sale &
include the order lead time, the order processing
capabilities & the distribution system accuracy
Posttransaction elements - occur after the sale &
include warranty repair capabilities, complaint
resolution, product returns, & operating information
12
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Key Tools and
Components of CRM - 7
Call Centers - can categorize calls,
determine average resolution time, forecast
future demand, and improve the overall
productivity of the staff, increasing customer
satisfaction levels
Virtual queuing allows callers to request a callback
from an agent without losing their place in the phone
queue
Viewed as a source of revenue - staff are expected to
pursue cross-sell and up-sell opportunities
13
Key Tools and
Components of CRM - 8
 Measuring
Customer Satisfaction
Customers are frequently given
opportunities to provide feedback about a
product, service, or organisation
Customers communicate through surveys
or feedback cards
Website surveys often don’t ask the proper
questions
14
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171
Designing & Implementing
a Successful CRM Program
Step 1. Creating the CRM Plan
Step 2 - Involve CRM Users from the Outset Employees should understand how it affects their jobs
Step 3 - Select the Right Application & Provider Find an appropriate application & determine the extent
of customization
Step 4 - Integrate Existing CRM Applications - CRM
is a collection of various applications implemented
over time
Step 5 - Establish Performance Measures – This
allows the firm to monitor progression of the system
Step 6 - Training for CRM Users
15
Trends in CRM - 1
Ease of Use
Easy CRM interfaces
eliminate much of the training
Empowers users and
enhances CRM adoption
Personal Value Creation
Brings useful information and
insights to users
In many cases, basic
platform is free
16
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Trends in CRM -2
Continuous Connectivity
Integrated CRM anytime, anyplace, for quick
decision-making
Cloud CRM applications
CRM on smart phones/tablets
Small data
Data that was around prior to big data
Meaningful insights about one customer’s next
purchase
Provide demographic analyses of customers
17
END DAY 4
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TOPIC 11: DISTRIBUTION ISSUES: GLOBAL LOCATION DECISIONS
(SELF-STUDY)
Specific Outcome:
SELF STUDY Wisner et al Chapter 11.
1.
Learning Objectives
At the end of the self-study, the student should be able to:
•
•
•
•
•
•
2.
Explain the impact of global location decisions on a supply chain.
Identify the factors influencing location decisions.
Understand the impact of the regional trade agreements on location
decisions.
Use several location evaluations models.
Understand the advantages of business clusters.
Explain the impact of sustainable development on facility location.
Topic Overview
Read the “Introduction” paragraph in Chapter 11 of the textbook.
Rev 1 -23
174
Cranefield College
of
Project and Programme Management
MODULE M3
Supply Chain Quality
and
Performance Management
Facilitator: Professor Jan Meyer
1
Topic 11
Global Location
Decisions
Self Study
2
Rev 1 -23
175
TOPIC 12:
DISTRIBUTION ISSUES: SERVICE RESPONSE LOGISTICS
Specific Outcome:
On completion of this topic the student will be able to react on the requirements for
service quality in the supply chain based on the primary concerns such as queue
times and channel management in order to improve productivity.
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
2.
Understand how supply chain management for services differs from supply
chain management for manufacturing.
Define service response logistics and all of its elements.
Understand the importance of service layouts and perform a layout
analysis using several techniques.
Describe the strategies for managing capacity, wait times, distribution, and
quality in services
Topic Overview
Read the “Introduction” paragraph in Chapter 12 of the textbook.
COMPULSORY READING:
• Wisner, Tan, Leong. 2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5th Edition, South
Western Cengage Learning, Chapter 12.
• Steyn Pieter G, 2001: “Managing Organisations through
Projects and Programmes: The Modern General
Management Approach”, Management Today, Vol 17, No 3,
April.
• Steyn Pieter G. 2010: “Programme Managing the Supply
Chain Portfolio”, PM World Today, Featured Paper, Vol XII,
Issue VI, June.
• Steyn Pieter G. 2010: “The Need for a Chief Portfolio Officer
(CPO) in Organisations”, PM World Today, Featured Paper,
Vol XII, Issue VII, July.
• Steyn Pieter G. 2012: “Sustainable Strategic Supply Chain
Leadership and Management”, PM World Journal, Vol. I,
Issue V, December.
• Steyn Pieter G. 2013: “A Business Model for Programme
Managing the Supply Chain Portfolio”, PM World Journal,
Vol. II, Issue III, March.
Rev 1 -23
176
3.
Formative Exercises
•
4.
Formative Exercise: Answer the “Discussion Questions” at the end of
Chapter 12.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
5.
Recommended Reading
Wisner, Tan, Leong. 2018. “Principles of Supply Chain Management,
A Balanced Approach”, 5 th Edition, South Western Cengage
Learning, Chapter 10 End notes.
Knod E M, and Schonberger R J. 2001. “Operations Management,
Meeting Customers’ Demands”, 7th Edition, McGraw-Hill, Chapter 6.
Rev 1 -23
177
Topic 12
Distribution Issues:
Service Response Logistics
Chapter 12
1
Introduction
Many services are pure services, offering few or no tangible
products to customers (e.g., lawyers & entertainers)
Some services have end products with a larger tangible
component (e.g., restaurants & repair facilities)
Customers are often involved in the production of the
service
Services may provide state utility - they do something to
things owned by the customer (e.g., store supplies &
provide healthcare)
Developed countries becoming more service oriented
Services playing a more important role in the global
economy
Service jobs are replacing those in manufacturing
2
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178
An Overview of Service
Operations - 1
Differences between goods &
services
Services cannot be inventoried
Services are often unique
Services have high customerservice interaction
Services are decentralised due
to inability to inventory &
transport service products
3
An Overview of Service
Operations - 2
Service Productivity
Improving service productivity is challenging due
to:
High labor content
Individual customized services
Difficulty of automating services
Problem of assessing service quality
4
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179
An Overview of Service
Operations - 3
Global Services Issues
Global services are increasing all over
the world and managing them
involves a number of issues
Labor, facilities, & infrastructure support
Legal & political issues
Domestic competitors & the economic
climate
Identifying global customers
5
An Overview of Service
Operations - 4
Service Strategy Development

Cost Leadership Strategy
Requires large capital investment
Significant efforts to control & reduce costs

Differentiation Strategy
Unique service is created as companies listen to
customers

Focus Strategy
Serve a narrow niche or target market
6
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180
An Overview of Service
Operations -5
The Service Delivery System
Service
Bundles
Explicit services (ex. storage & use of your
money)
Supporting facility (ex. bank w/drive-up tellers)
Facilitating goods (ex. deposit forms, monthly
statements),
Implicit services (ex. security provided, the
atmosphere in the bank, privacy, & convenience)
7
Supply Chain
Management in Services
Service Quality and Customers
Perceived level of quality by a
customer is of paramount concern to
most services
Service quality includes many
elements which can change over time
Elements of sustainability or being
”green” allows a firm to stand out
Call centers offer customers
opportunities for service quality
assessments
8
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181
The Primary Concerns of
Service Response Logistics
Service Response Logistics (SRL) - management
and coordination of the organisation’s service
activities
The four primary activities of SRL –
Managing Service Capacity
Managing Queue Times
Managing Distribution Channels
Managing Service Quality
9
The Primary Concerns of
Service Response
Logistics - 1
10
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182
The Primary Concerns of
Service Response
Logistics - 2



Managing Perceived Waiting Times
Often, demand exceeds expectations & capacity
First & Second Laws of Service
Rule 1: Satisfaction = perception – expectation
Rule 2: It is hard to play catch-up ball
Waiting time management techniques
Keep customers occupied
Start the service quickly
Relieve customer anxiety
Keep customers informed
Group customers together
Design a fair waiting system
11
The Primary Concerns of
Service Response
Logistics - 3
Managing Distribution Channels
 Internet Distribution Strategies
Internet retailing is growing faster than traditional
retailing
Primary advantages of Internet - ability to offer
convenient sources of real-time information,
integration, feedback, & comparison shopping
Many retailers today sell products exclusively over
the Internet (a pure strategy), while others use it
as a supplemental distribution channel (a mixed
strategy)
12
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183
The Primary Concerns of
Service Response
Logistics - 4
Managing Service Quality
Customer satisfaction with service
depends on ability of firm to deliver what
customers want and customers’
perceptions of the quality of service
received
Service quality depends on the firm’s
employees to satisfy customers varying
expectations
13
The Primary Concerns of
Service Response
Logistics - 5
Managing Service Quality
 The Five Dimensions of Service
Quality
Reliability - consistently performing the service
correctly & dependably
Responsiveness - promptly & timely service
Assurance - ability to convey trust & confidence to
customers
Empathy - providing caring attention to customers
Tangibles - the physical characteristics of the service
including e.g. facilities, servers, equip., & other
customers
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14
The Primary Concerns of
Service Response
Logistics - 6
Table 12.3
Examples of Service Quality Criteria
Service Quality Dimensions
Reliability
Responsiveness
Assurance
Empathy
Tangibles
Criteria



















billing accuracy
order accuracy
on-time completion
promises kept
on-time appointment
timely callback
timely confirmation of order
skills of employees
training provided to employees
honesty of employees
reputation of firm
customized service capabilities
customer recognition
degree of server-customer contact
knowledge of the customer
appearance of the employees
appearance of the facility
number of customers at facility
quality of equipment and other goods used
15
Product
Development
and
Commercialisation
-A Project Management
Process
16
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185
Product Development
Projects
Product development projects are done:
In the cross-functional Product
Development and Commercialisation
process of the Supply Chain Portfolio
(normal work)
Through a Virtual Network of Partners
Portfolio (for high innovation
solutions)
17
Non Project Driven and
Project Driven Business
Models
In the Non Project Driven Business
Model the Product Development and
Commercialisation cross-functional
process stands alone.
In the Project Driven Business Model it
forms an integral part of the Project
Management cross-functional processes
serving external customers.
18
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186
NON-PROJ DRIVEN BUSINESS MODEL VDLO VALUE CHAIN SCHEMATIC
BALANCED SCORECARD
(BS)
CORPORATE STRATEGY
PORTFOLIO:
STRATEGIC
TRANSFORMATION
PROJECTS
PORTFOLIO:
SUPPLY CHAIN
OPERATIONS &
PROJECTS
MAJOR BENEFITS:
SUPPLY CHAIN
EFFECTIVENESS &
EFFICIENCY
PORTFOLIO:
CONTINUOUS
IMPROVEMENT
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
& EFFICIENCY
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
PORTFOLIO:
CAPITAL
EXPENDITURE
PROJECTS
FINANCE
CSFs
CUSTOMER
CSFs
INTERNAL
CSFs
LEARNING
&
GROWTH
CSFs
MAJOR BENEFITS:
ORGANISATIONAL
EFFICIENCY
NON-PROJECT DRIVEN
BUSINESS MODEL
SUPPLY CHAIN
FIN
PURCH
SALES & M
MANUF
LOG
HR
IT
CUSTOMER RELATIONSHIP MANAGEMENT SERVING EXTERNAL CUSTOMERS
CUSTOMER SERVICE MANAGEMENT SERVING EXTERNAL CUSTOMERS
ORDER FULFILMENT MANAGEMENT SERVING EXTERNAL CUSTOMERS
PRODUCT DEVELOPMENT & COMMERCIALISATION PROJECTS FOR THE MARKET
DEMAND MANAGEMENT & CAPACITY PLANNING SERVING INTERNAL CUSTOMERS
SUPPLIER RELATIONSHIP MANAGEMENT (PROCUREMENT) SERVING INTERNAL CUSTOMERS
MANUFACTURING FLOW MANAGEMENT SERVING INTERNAL CUSTOMERS
HUMAN TALENT
INFORMATION ARCHITECTURE
MEASUREMENT OF OUTPUT KPIs
FEEDBACK
INFORMATION VISIBILITY
©P G Steyn
2015
19
Product Dev
Process
and
Virtual Network
20
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187
VDLO STRUCTURE FOR PRODUCT DESIGN AND DEVELOPMENT
CEO
CPO
CFO
COO
PORTFOLIO MANAGER:
SUPPLY CHAIN
PROGRAMME MANAGER:
CAPACITY COMPONENT
VIRTUAL NETWORK OF
PARTNER
ORGANISATIONS
For Innovative Product
Design and Development
PROGRAMME MANAGER:
CUSTOMER COMPONENT
PROJECT MANAGER:
Innovative Product Design and
Development
PORTFOLIO MANAGER:
CONT IMPROV PROJECTS
PORTFOLIO MANAGER:
CAPEX PROJECTS
©Steyn/Semolic 2016
CHIEF FINANCIAL
OFFICER
CHIEF OPERATING
OFFICER
CUSTOMER
FOCUS
PROGRAMME
MANAGER:
PROGRAMME
MANAGER:
CAPACITY
FOCUS
PORTFOLIO MANAGER:
SUPPLY CHAIN
OTHER PORTFOLIO MANAGERS
TIERS OF SUPPLIERS (EXTERNAL
ENVIRONMENT)
FUNCTIONAL MANAGERS PROVIDING RESOURCES TO CROSS‐FUNCTIONAL PROCESSES
Mark & Sales
Finance
Res
our
ces
Re
sou
rce
s
Process
Manager
Process
Manager
Process
Manager
Project
Manager
Process
Manager
Process
Manager
Process
Manager
Production
Purchasing
Res
our
ces
Res
our
ces
Logistics
Technical
Re
sou
rce
s
Res
our
ces
CUSTOMER RELATIONS
MANAGEMENT PROCESS
CUSTOMER SERVICE MANAGEMENT
PROCESS
ORDER FULFILMENT
MANAGEMENT/RETURNS PROCESS
PRODUCT DEVELOPMENT &
COMMERCIALISATION PROCESS
Re
sou
rce
s
SUPPLIER RELATIONSHIP
MANAGEMENT PROCESS
MANUFACTURING FLOW
MANAGEMENT PROCESS
DEMAND MANAGEMENT & CAPACITY
PLANNING PROCESS
TIERS OF CUSTOMERS (EXTERNAL
ENVIRONMENT)
CHIEF EXECUTIVE OFFICER (Non-Proj Driven)
CHIEF
PORTFOLIO
OFFICER
VIRTUAL
NETWORK OF
SUPPLIER
PARTNERS
21
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
©P G Steyn
2015
22
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188
Supply Chain
Portfolio Activities
Typical
Functions
Silos
Business
Processes
S
U
P
P
L
I
E
R
S
Customer
Relationship
Management
Sales &
Marketing
Account
Management
Account
Customer Service
Management
Administration
Technical
Logistics
Requirements Requirements
Definition
Definition
Finance &
Accounting
Sourcing
Strategy
Customer
Profitability
Priority
Assessment
Cost
To Serve
Performance
Specifications
Coordinated
Execution
Capability
Planning
Sourcing
Plant
Direct
Selected
Supplier(s)
Distribution
Cost
Production
Planning
Integrated
Supply
Manufacturing
Cost
Integrated
Planning
Supplier
Management
Demand
Planning
Process
Requirements
Network
Planning
Fulfillment
Special
Orders
Environmental
Requirements
Distribution
Management
Procurement
Purchasing
Technical
Service
Demand
Management
Manufacturing Flow Packaging
Management
Specifications
Manufacturing
Manufacturing
Strategy
Process
Stability
Order
Booking
Material
Specifications
Business
Plan
Product
Design
Prioritisation
Criteria
Inbound
Flow
Trade-off
Analysis
Materials
Cost
23
Product
Development and
Commercialisation
Movement
Process
Requirements Specifications
Material
Specifications
R & D Cost
C
U
S
T
O
M
E
R
S
Information Architecture, Data Base Strategy, Information Visibility
Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional
barriers that artificially separate the process flows.
23
Design: Dual
Focus
Design has two interrelated targets:
Output goods and services:
The design aim is to impart
properties that are needed
and therefore perceived as
valuable by customers,
from
the next process on
through
end consumers.
Processes that
make those output
goods and services:
The design aim is
to create processes
with improved value
for the provider…
and thus of greater
value to customers
as well.
24
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189
Quality Action
Cycle
5.
Carry Out
Process
Improvement
Projects
4.
Collect & Analyse
Process Data
1.
Design
Quality In
2.
Perform
Self-Inspection
& Correction
3.
Find Defects
…in next process
…in next company
…by final consumer
25
Research, Design,& Development
Strategy
(products, services and processes)
Research pushes the boundaries of
science, aiming for new products,
services, and processes
Development translates those
innovations into useful tools for
employees (implementation) and/or into
practical outputs for customers
(commercialisation)
Product Development is best achieved
by utilising a cross-functional project
management process
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26
Weaknesses of
Conventional Design
Too slow -- Production and Marketing must play
catch up and financial returns are delayed.
Myopic-- Overly narrow target, often on product
design with little attention paid to processes.
Staffed-off -- Designers separated from their
various customers, users not in on design.
Unfocused -- Lack of guidelines to keep the
design program true to function and purpose.
27
Comprehensive Design
Programme - 1
(goods, services and processes)
Competitive Environment (strategic)
- select products and services to offer (BSC)
Design Strategy (BSC-Guided)
- to be positioned and implemented within the
competitive environment
- environmental scanning (customers’ changing
needs)
- competitors shifting abilities
- note financial-, marketing-, production
strategies also need changes (emergent)
28
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191
Comprehensive Design
Programme - 2
(goods, services and processes)
Multi-functional design teams (one
coffee-pot)
- action follows strategy
- address historical design weaknesses
Design Team Responsibilities
Customer needs, competitor capabilities
Design objectives (design/ops
interfaces)
Measures of design effectiveness
(appraisal and review) (BSC-Guided)
29
Teaming Up for Effective
Design
(preferably a cross-functional
project team)
Concept development
(project conceptualisation)
Concurrent Design
(processes, products, services)
Simultaneous team effort
Design, operate and maintain
See “Into Practice”
Environmental Awareness
30
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192
Comprehensive Design
Creating:
- Understand the business competitive (Plan &
Org) environment
- Position design strategy to facilitate
design program implementation
Implementing:
- Use multifunctional design teams
- Incorporate customers’ needs and
competitor’s capabilities
- Design to specific targets; the
functions to be performed
Improving:
- Use appropriate measures of design
effectiveness; feedback sparks
improvement.
31
Exh. 7-4
Design
Objectives
Design for Operations (DF0):
Guidelines
Design for Reliability and
Serviceability (Note both are
Order Winners)
Design for Automation
Design Appraisal and Review
32
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DFO Guidelines - 1
General Guidelines:
1. Design to target markets and target costs.
2. Minimise number of parts and number of
operations.
Quality Guidelines:
3. Ensure that customer requirements are known
and design to those requirements.
4. Ensure that process capabilities are known
(those in your firm and of your suppliers)
and
33
design to those capabilities.
5. Use standard procedures, materials, and
processes with already known and proven
quality.
33
DFO Guidelines - 2
Operability guidelines:
6.Design multifunctional / multi-use
components and service elements and
modules.
7.Design for ease of joining, separating,
rejoining (goods) and ease of
coupling/uncoupling (services).
8.Design for one-way assembly, one-way travel
(avoid backtracking and return visits).
9.Avoid special fasteners and connectors
(goods) and off-line or misfit service elements
10.Avoid fragile designs requiring extraordinary
effort or attentiveness -- or that otherwise tempt
substandard or unsafe performance.
34
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Design for Reliability
and Availability
Reliability is the probability of successful
operation over a period of time, or at some
point in time.
Availability is the proportion of time that a
resource is ready for use... that is, it could
be used if needed.
Maintainability is the cost and sustainable
probability for availability over the product
lifecycle
35
35
Design for
Automation
Don’t automate wasteful or unnecessary
processes and activities.
Eliminate unneeded ones, clean up
wasteful ones.
Aim at simplification... reduce steps and
complexity
Involve suppliers, users, and customers
in the design program
36
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Design Appraisal
and Review
Measures of design success:
Number of parts or steps required
Percentage of standard parts (steps) used
Attainment of target costs
Availability and reliability
Design lead time
Frequency and magnitude of design changes
Rework and warranty costs
Ergonomic, environmental, aesthetic factors
37
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TOPIC 13:
INTEGRATION ISSUES: SUPPLY CHAIN PROCESS INTEGRATION
Specific Outcome:
On completion of this topic the student will be able to compile a SCM integration
model for the organisation based on the organisational performance metrics,
identifying the potential obstacles and determining the risk and security mitigation
strategies.
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
•
•
2.
Discuss the overall importance of process integration in supply chain
management
Describe the advantages of, and obstacles to process integration
Understand the important issues of internal and external process
integration
Understand the role played by information systems in creating information
visibility along the supply chain
Describe the various processes requiring integration along the supply
chain
Understand the various causes of the bullwhip effect and how they impact
process integration
Discuss the various issues associated with supply chain risk and security
Topic Overview
Read the “Introduction” paragraph in Chapter 13 of the textbook.
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197
COMPULSORY READING:
• Wisner, Tan, Leong. 2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5th Edition, South
Western Cengage Learning, Chapter 13.
• Steyn Pieter G, 2001: “Managing Organisations through
Projects and Programmes: The Modern General
Management Approach”, Management Today, Vol 17, No 3,
April.
• Steyn Pieter G. 2010: “Programme Managing the Supply
Chain Portfolio”, PM World Today, Featured Paper, Vol XII,
Issue VI, June.
• Steyn Pieter G. 2010: “The Need for a Chief Portfolio Officer
(CPO) in Organisations”, PM World Today, Featured Paper,
Vol XII, Issue VII, July.
• Steyn Pieter G. 2012: “Sustainable Strategic Supply Chain
Leadership and Management”, PM World Journal, Vol. I,
Issue V, December.
• Steyn Pieter G. 2013: “A Business Model for Programme
Managing the Supply Chain Portfolio”, PM World Journal,
Vol. II, Issue III, March.
3.
Formative Exercises
•
4.
Formative Exercise: Answer the “Discussion Questions” at the end of
Chapter 13.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
5.
Recommended Reading
Wisner, Tan, Leong.
2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5 th Edition, South Western
Cengage Learning, Chapter 13 End notes.
Knod E M, and Schonberger R J. 2001. “Operations Management,
Meeting Customers’ Demands”, 7th Edition, McGraw-Hill, Chapter 6.
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198
Topic 13
Integration Issues:
Supply Chain Process
Integration
Chapter 13
1
Introduction
Firms in the supply chain must integrate
processes to create value for the
services and products provided to end
customers.
Process integration means sharing
information and coordinating resources
to jointly manage a process or
processes.
The benefits of collaboration and
information sharing between trading
partners can be significant.
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2
The SCM
Integration Model
3
The Supply Chain
Management Integration
Model
1.
Identify Critical Supply Chain (SC) Trading Partners
2.
Review & Establish SC Strategies
3.
Align SC Strategies with key SC Process Objectives
4.
Develop Internal Performance Measures for Key Processes
5.
Assess & Improve Internal Integration of Key SC Processes
6.
Develop Supply Chain Performance Measures for Key
Processes
7.
Assess & Improve External Process Integration &
Performance
8.
Extend Process Integration to 2nd Tier Supply Chain Partners
9.
Reevaluate the Integration Model Annually
4
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The Supply Chain
Management Integration
Model
Eight Key Supply Chain Business Processes:
1.
2.
3.
4.
5.
6.
7.
8.
Customer relationship management
Customer service management
Demand management
Order fulfillment
Manufacturing flow management
Supplier relationship management
Product development & commercialisation
Returns management
5
Obstacles to Process
Integration along the Supply
Chain
The Silo Mentality (Firm must align Supply Chain goals
& the goals of the firm). Avoid: “I win, you lose” & Using
the cheapest suppliers.
Lack of Supply Chain Visibility (easier with use of
cloud-based communication platforms & RFID)
Lack of Trust – Successful process integration requires
trust and trust is earned over time
Lack of Knowledge – should execute training of
supply chain partner employees known as collaborative
education
Eliminate Activities Causing the Bullwhip Effect –
e.g. variations in inventory and production scheduling,
introducing vendor managed inventory & batch ordering
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6
Managing Supply Chain
Risk & Security
Supply Chain Risk
Increase safety stocks also known as stockpiling
and forward buying (stopgap alternative)
Identify backup suppliers & logistics services for
emergency sourcing
Diversify the supply base geographically (exposes
additional political, customs and exchange rate
risks)
Utilize a supply chain IT system – collect and
share information
Develop a formal risk management program
(identifies potential disruptions)
7
Managing Supply Chain
Risk & Security
Supply Chain Security
Reducing the risk of intentionally created
disruptions in supply chain operations
A supply chain is only as secure as its
weakest link
Security management collaboration
should include, for example, contractual
requirements for secure systems
8
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Managing Supply Chain
Risk & Security
Table 13.4 - Supply Chain Security System Response
Level of Security
System Response
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Description
Basic initiatives
Physical security; personnel security; standard risk
assessment; computing security; continuity plan; freight
protection.
Reactive initiatives
Larger security organization; C-TPAT compliance; supply
base analysis; supply continuity plan; limited training.
Proactive initiatives
Dir. of security; personnel with military or gov’t. experience;
formal security risk assessment; adv computing security;
participation in security groups.
Advanced initiatives
Customer/supplier collaboration; learning from the past;
formal security strategy; SC drills, simulations, emergency
control center.
203
9
TOPIC 14:
INTEGRATION ISSUES: SUPPLY CHAIN PROCESS INTEGRATION
Specific Outcome:
On completion of this topic the student will be able to identify and implement a
performance management requirement plan as well as the metrics in measuring
performance in their organisation by applying an approved tool (e.g. BSC or SCOR).
1.
Learning Objectives
By the end of this discussion, the student should be able to:
•
•
•
•
•
2.
Discuss why managers need to assess the performance of their firms as
well as their supply chains
Discuss the merits of financial and nonfinancial performance measures
List and describe a number of traditional and world-class performance
measures
Describe how the balanced scorecard and the supply chain operations
reference models work
Describe how to design a supply chain performance measurement system
Topic Overview
Read the “Introduction” paragraph in Chapter 14 of the textbook.
COMPULSORY READING:
• Wisner, Tan, Leong. 2018. “Principles of Supply Chain
Management, A Balanced Approach”, 5th Edition, South
Western Cengage Learning, Chapter 14.
• Steyn Pieter G, 2001: “Managing Organisations through
Projects and Programmes: The Modern General
Management Approach”, Management Today, Vol 17, No 3,
April.
• Steyn Pieter G. 2010: “Programme Managing the Supply
Chain Portfolio”, PM World Today, Featured Paper, Vol XII,
Issue VI, June.
• Steyn Pieter G. 2010: “The Need for a Chief Portfolio Officer
(CPO) in Organisations”, PM World Today, Featured Paper,
Vol XII, Issue VII, July.
• Steyn Pieter G. 2012: “Sustainable Strategic Supply Chain
Leadership and Management”, PM World Journal, Vol. I,
Issue V, December.
• Steyn Pieter G. 2013: “A Business Model for Programme
Managing the Supply Chain Portfolio”, PM World Journal,
Vol. II, Issue III, March.
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204
3.
Formative Exercises
•
4.
Formative Exercise: Answer the “Discussion Questions” at the end of
Chapter 14.
Reflection
Reflect on what you have learned in this discussion and the application thereof in the
organisation where you work.
5.
Recommended Reading
Wisner, Tan, Leong. 2018. “Principles of Supply Chain Management, A
Balanced Approach”, 5 th Edition, South Western Cengage Learning,
Chapter 14 End notes.
Knod E M, and Schonberger R J. 2001. “Operations Management,
Meeting Customers’ Demands”, 7th Edition, McGraw-Hill, Chapter 6.
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205
Topic 14
Integration Issues:
Performance Management
Chapter 14
1
Introduction
“You can’t improve what you don’t
measure”
Firms with best supply chains create hierarchies of precise
performance measures at the execution level
Designing standards & monitoring them provides better
information for decision-making
Adding several tiers of suppliers & customers complicates
performance measurement
Firms aim toward achieving adequate performance and
continually improving on those measures
Performance measures must be visible & communicated to
all members of the Supply Chain
2
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206
Viewing the Supply Chain
as a Competitive Force
Understanding End Customers
Supply chains must look at each segment of the
market they serve & determine needs of those
customers including:
Variety of products required
Quantity & delivery frequency needed
Sustainability level desired
Product quality desired
Price of the products
3
Viewing the Supply Chain
as a Competitive Force
Understanding SC Partner Requirements
Supply chain strategies must consider
potential trade-offs existing between:
Cost
Quality
Companies along supply chain must become more responsive
Ways to increasing supply chain efficiency
Use slower transportation modes
Buy in larger quantities
Reduce quality of the parts and supplies
4
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Viewing the Supply Chain
as a Competitive Force
Adjusting Supply Chain Member
Capabilities
Audit their capabilities to determine consistency
with needs of end customers & Supply Chain
Continually reassess performance with respect
to requirements
Be more responsive to customer needs, quicker
to anticipate changes in the markets, & control
costs
5
Traditional Performance
Measures - 1
Use of Organisation Costs, Revenue, &
Profitability Measures
Problems using costs & profits to gauge
performance
Uncontrollable environmental forces (e.g., windfall
profits that occur when prices rise due to supply
interruptions)
Difficulty attributing financial contributions to various
functional units or business units
Reductions in one area may get transferred
somewhere else in the firm
6
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Traditional Performance
Measures - 2
Use of Performance Standards &
Variances
Establishing standards for comparison
purposes can be troublesome
Employees & managers do whatever it takes
to reach the goal
Shoddy work & “Cooking” the books
7
Traditional Performance
Measures - 3
Use of Performance Standards & Variances
Performance variance - the difference between the
standard & actual performance
Managers are pressured to find ways to make up
variances, resulting in poor decisions
Standards can reinforce the idea of functional silos
(departments only concerned with what is going on in
their department)
8
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Traditional Performance
Measures - 4
Productivity & Utilisation Measures
Useful but have same problems as revenues,
costs, & profits
Productivity decisions may
& reduce quality
actually increase costs
Tendency to continue producing & adding to
inventory to keep machines & people busy
Less time spent doing preventive maintenance &
training for greater performance & profits in future
Traditional measures favor the short-term
9
Traditional Performance
Measures - 5
Cost-based and financial statistics reported to
shareholders in annual report, balance sheet, and income
statement data
Problems This information does not reflect the underlying
performance of an organisation’s productive
systems
Costs & profits can be hidden or manipulated
Maximising current stock prices does not mean
firm is performing well
Financial performance measures cannot
adequately capture a firm’s ability to excel in these
areas
10
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Traditional Performance
Measures - 6
Example 14.1 - Productivity Measures at the Ultra Ski Emporium
The Ultra Ski company makes top-of-the-line custom snow skis for high-end ski
shops as well as their own small retail shop, and employs fifteen people. The
owner has been adamant about finding a way to increase productivity because
her sales have been flat for the past two seasons. The table contains her
company data.
Inputs and Outputs
Last Year
Skis produced
1,000
Labor hours
10,800
Materials purchased
$18,000
Lease payments
$24,000
11
Traditional Performance
Measures - 7
Example 14.1
She calculated the annual single-factor and total productivity
values as:
Labor productivity = 1,000 skis/10,800 hours = 0.093
skis/labor hour
Material productivity = 1,000 skis/$18,000 = 0.056
skis/material $
Lease productivity = 1,000 skis/$24,000 = 0.042 skis/lease
$
She calculates their total productivity by multiplying the labor
hours by their average wage of $17 per hour, and finds:
Total productivity = 1,000 skis/[10,800($17) + $18,000 +
$24,000] = 0.0044 skis per dollar
12
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211
Traditional Performance
Measures - 8
Example 14.1 (Continued)
The owner figures she can get some great
improvements in productivity by finding a low-cost
supplier, moving to a cheaper location and laying off
six workers (reducing her workforce by 40 percent),
making the new single-factor productivities:
Labor productivity = 1,000 skis/10,800(.6) hours
= 0.154 (a 66 percent increase)
Material productivity = 1,000 skis/$12,000
= 0.083 (a 48 percent increase)
Lease productivity = 1,000/$18,000
= 0.056 (a 33 percent increase)
13
Traditional Performance
Measures - 9
Example 14.1
The new total productivity:
(Continued)
Total productivity = 1,000 skis/[10,800($17)(.6) +
$12,000 + $18,000]
= 0.0071 skis per dollar (a whopping 61 percent
increase!)
Consequently, the owner decided to make the
changes for the coming year. Unfortunately, they
went out of business in six months due to poorquality materials, a bad location and overworked,
low-morale employees.
14
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World-Class Performance
Measurement Systems - 1
Developing World Class Performance
Measures
Identify the firm’s strategic objectives
Develop an understanding of each functional
area’s requirements for achieving strategic
objectives
Design and document performance measures for
each functional area that adequately track each
required capability
Assure compatibility and strategic focus of
performance measures to be used
15
World-Class Performance
Measurement Systems - 2
Developing World Class Performance
Measures
Implement the new performance monitoring
system
Identify internal and external trends likely to
affect firm and functional area performance over
time
Periodically re-evaluate the firm’s performance
measurement system as trends and changes
occur
16
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213
HYBRID LEARNING ORGANISATION VALUE CHAIN SCHEMATIC
BALANCED SCORECARD
(BS)
CORPORATE STRATEGY
PORTFOLIO:
SUPPLY CHAIN
OPERATIONS &
PROJECTS
PORTFOLIO:
CONTINUOUS
IMPROVEMENT
PROJECTS
PORTFOLIO:
STRATEGIC
TRANSFORMATION
PROJECTS
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
& EFFICIENCY
MAJOR BENEFITS:
ORGANISATIONAL
EFFECTIVENESS
MAJOR BENEFITS:
OPERATIONAL
EFFECTIVENESS &
EFFICIENCY
PORTFOLIO:
CAPITAL
EXPENDITURE
PROJECTS
FINANCE
CSFs
CUSTOMER
CSFs
INTERNAL
CSFs
LEARNING
&
GROWTH
CSFs
MAJOR BENEFITS:
ORGANISATIONAL
EFFICIENCY
PROJECT DRIVEN &
NON-PROJECT DRIVEN
(HYBRID) BUSINESS MODEL
SUPPLY CHAIN
FIN
PURCH
SALES & M
MANUF
LOG
HR
IT
PROJECTS DONE FOR EXTERNAL CUSTOMERS
CUSTOMER RELATIONSHIP MANAGEMENT SERVING EXTERNAL CUSTOMERS
CUSTOMER SERVICE MANAGEMENT SERVING EXTERNAL CUSTOMERS
ORDER FULFILMENT MANAGEMENT SERVING EXTERNAL CUSTOMERS
PRODUCT DEVELOPMENT & COMMERCIALISATION PROJECTS FOR THE MARKET
DEMAND MANAGEMENT & CAPACITY PLANNING SERVING INTERNAL CUSTOMERS
SUPPLIER RELATIONSHIP MANAGEMENT (PROCUREMENT) SERVING INTERNAL CUSTOMERS
MANUFACTURING FLOW MANAGEMENT SERVING INTERNAL CUSTOMERS
HUMAN TALENT
INFORMATION ARCHITECTURE
MEASUREMENT OF OUTPUT KPIs
FEEDBACK
INFORMATION VISIBILITY
©P G Steyn
2015
17
VALUE
SYSTEM
REVIEW
TQM PHILOSOPHY
FEEDBACK FOR APPRAISAL
STRATEGY MAP
Improvements
Behavioural
strategy
IMPORTANT
IN THE DEVELOPMENT
OF AN SCM SOLUTION
Structural
strategy
Operations
strategy
ORGANISATIONAL PERFORMANCE
EFQM MODEL
ENABLERS
PROCES
S
1. HUMAN TALENT
2. INFO ARCHITECTURE
RESULTS
KPIs
18
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World-Class Performance
Measurement Systems - 3
Table 14.1
World‐Class Performance Measures
Capability
Areas
Quality
Performance Measures
1. No. of defects per unit produced and per unit
purchased
2. No. of product returns per units sold
3. No. of warranty claims per units sold
4. No. of suppliers used
5. Lead time from defect detection to correction
6. No. of work centers using statistical process control
7. No. of suppliers who are quality certified
8. No. of quality awards applied for; No. awards won
19
World-Class Performance
Measurement Systems - 4
Table 14.1
Capability
Areas
Cost
World‐Class Performance Measures
Performance Measures
1. Scrap or spoilage losses per work center
2. Average inventory turnover
3. Average setup time
4. Employee turnover
5. Avg. safety stock levels
6. No. of rush orders required for meeting delivery
dates
7. Downtime due to machine breakdowns
20
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World-Class Performance
Measurement Systems - 5
Table 14.1
Capability
Areas
Customer
Service
World‐Class Performance Measures
Performance Measures
Flexibility
1. Average number of labor skills
2. Average production lot size
3. No. of customised services available
4. No. of days to process special or rush orders
Dependability
1. Average service response time or product lead time
2. % of delivery promises kept
3. Avg. no. of days late per shipment
4. No. of stockouts per product
5. No. of days to process a warranty claim
6. Avg. number of hours spent with customers by engineers
Innovation
1. Annual investment in R&D
2. % of automated processes
3. No. of new product or service introductions
4. No. of process steps required per product
21
Supply Chain Performance
Measurement Systems - 1
Performance measurement systems must
–
Link SC trading partners to achieve
breakthrough performance in satisfying end
users
Overlay the entire supply chain to assure that all
contribute to supply chain strategy
Members must jointly agree on a Supply
Chain performance measurement system
Focus of system should be on value creation
for end customers
22
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Supply Chain Performance
Measurement Systems -2
Environmental sustainability
Include assessments of environmental performance
Green supply chain management
(GSCM)
Design of an effective green supply chain performance
system and discuss with all key supply chain members
Carbon footprint
Supply chains evaluate design configurations and
various options for reducing total carbon emissions
23
Supply Chain Performance
Measurement Systems - 3
Specific measures to adopt 1.
2.
3.
4.
5.
6.
7.
Total SCM costs - costs to process orders; purchase & manage
inventories; & information systems.
Supply Chain cash to cash cycle time - avg. # of days between paying
for materials & getting paid by SC partners.
Supply Chain production flexibility - avg. time required to provide an
unplanned 20% increase in production.
Supply Chain delivery performance - avg. % of orders filled by
requested delivery date.
Supply Chain perfect order fulfillment performance - average % of
orders that arrive on time, complete, & undamaged.
Supply chain e-business performance - avg. % of electronic orders
received for all SC members.
Supply Chain Environmental Performance - % of SC w/ISO 14000
partners, avg. % env. goals met, avg. # of policies adopted to reduce
greenhouse gas emissions, or avg. % of carbon footprints offset.
24
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217
The Balanced
Scorecard - 1
BSC framework consists of four perspectives –
Financial perspective
Internal business process perspective
Customer perspective
Learning & growth perspective
Also referred to as scorecarding
25
The Balanced
Scorecard - 2
26
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218
The Balanced
Scorecard - 3
Web-Based Scorecards & Dashboards
Web-based software applications use scorecards, and
link via the Web to a firm’s enterprise software system
Performance dashboards let managers track “big
picture” corporate objectives, core process
performance & more tactical detailed data
Managers see real-time progress toward
organizational milestones
Help ensure decisions remain in sync with the firm’s
overall strategies
27
Supply Chain Operations
Reference (SCOR) Model - 1
SCOR model helps integrate operations of
supply chain members by linking the delivery
operations of a seller to the sourcing operations
of a buyer
Separates supply chain operations into 6
process categories
1.
2.
3.
4.
5.
6.
Plan
Source
Make
Deliver
Return
Enable
28
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219
Supply Chain Operations
Reference (SCOR) Model - 2
29
Supply Chain Operations
Reference (SCOR) Model - 3
Table 14.2 SCOR Performance Categories and Attributes
Performance Attribute
Performance
Category
Reliability
1. On-time delivery performance
2. Order fill rates
3. Order accuracy rates
Responsiveness
Agility
1. Order lead times or speed
1. Response times for unforeseen events
2. Production flexibility
Cost
1. Supply chain management and logistics
costs
2. Cost of goods sold
3. Warranty and returns processing costs
1. Cash-to-cash cycle time
2. Inventory days of supply
3. Asset turns
Asset
Management
30
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220
Supply Chain Operations
Reference (SCOR) Model - 4
SCORmark is a new tool which allows
member firms to benchmark performance
against peer companies
Companies use SCOR-based
benchmarking to:
Set reasonable performance goals
based on the SCOR model
Calculate performance gaps against a
global database
Develop company-specific roadmaps
for supply chain competitive success
31
END DAY 5
32
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ADDITIONAL COMPULSORY READING
6.1 Customer Relationship Management (CRM): A Programme Management
Perspective
6.1.1 Introduction
Customer relationship management (CRM) has developed into a major element of
corporate strategy for many organisations. CRM is also known by other terms, such
as: relationship marketing; customer management (Payne, 2001:1); and one-to-one
marketing (Winer, 2001:3). CRM is concerned with the creation, development and
enhancement of individualised customer relationships with carefully targeted
customers and customer groups, resulting in maximising their total customer lifetime
value.
According to Payne (2001:1), industry leaders are now addressing how to transform
their approach to customer management: “Narrow functionally-based traditional
marketing is being replaced by a new form of cross-functional marketing –
CRM”. The traditional approach to marketing (which has been increasingly
questioned in recent years) emphasised management of the key marketing mix
elements: product, price, promotion and place, within the functional context of the
marketing department. Whilst recognising that these key elements still needs to be
addressed, CRM emphasises the need to create an integrated cross-functional focus
on marketing to keep existing customers but also to win new customers. In this new
approach, the focus is shifting from customer acquisition to customer retention and
ensuring that appropriate amounts of time, money and managerial resources are
directed at both these key tasks. This new paradigm (CRM) reflects a change from
traditional marketing to what is now described as “customer management”.
In this section, attention will be given to a discussion of customer relations marketing
as the foundation of CRM and customer service management (CSM) and the
technical aspects of creating sound customer relations information architecture to
service customers and to retain them in order to maximise their lifetime value.
6.1.2 What is Relationship Marketing?
Relationship marketing is the ongoing process of identifying and creating new value
with individual customers and then sharing the benefits from this over a lifetime of
associations (Gordon, 1998:9). It involves the understanding, focusing and
management of ongoing collaboration between suppliers and selected customers for
mutual value creation and sharing through interdependence and organisational
alignment. Brink et al (2004:6) postulates that in modern marketing at least one
business rule from the past remains constant, and that is that the customer reigns
supreme. Successful companies never lose sight of their customers’ demands, and
are careful to keep track of these needs as they evolve and change. Since the
1990s, the relationship marketing concept represented a new marketing paradigm –
a shift in business thinking – which was the biggest change in 50 years, taking
marketing back to its roots. According to Brink et al., relationship marketing became
the “battle cry” of the 1990s.
Relationship marketing is not an independent philosophy but draws on traditional
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marketing principles. This view suggests that the basic focus on customer needs still
applies, but it is the way marketing is practised that requires changing fundamentally
(Christopher, 1996: 55). Grönroos (1994:4) provides the following comprehensive
definition of relationship marketing:
The objectives of relationship marketing are to identify and
establish, maintain and enhance, and, when necessary,
terminate
relationships
with
customers
and
other
stakeholders, at a profit so that the objectives of all parties
involved are met. This is done by mutual exchange and
fulfilment of promises.
This definition may be seen to include various dimensions that differ significantly
from the historical definition of marketing. Gordon (1998:37) comments as follows on
Grönroos’s view:
•
•
•
•
•
•
•
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Relationship marketing (RM) seeks to create new value for customers and
then to share that value between producer and customer;
RM recognises the key role that individual customers have, not only as
purchasers, but also in defining the value that they want. Previously,
companies would be expected to identify and to provide this value in what
the company would consider a “product”. With RM, according to Gordon
(1998:9), the customer helps the company to provide the benefits bundle
that the customer values. Value is thus created with customers, not for
them.
RM requires that a company, because of its business strategy and
customers focus, design and align its business processes, communications,
technology and people in support of the value that individual customers
want.
RM is a continuously cooperative effort between buyer and seller. As such it
operates in real time.
RM recognises the value of customers over their purchasing lifetimes, rather
than individual customers or organisations that must be resold on each
purchasing occasion. In recognising lifetime value, RM seeks to bond
progressively more tightly with customers.
RM seeks to build a chain of relationships within the organisation to create
the value that customers want, and between the organisation and its main
stakeholders, including suppliers, distribution channel intermediaries and
shareholders.
One of the main principles of RM is to identify the most profitable customers
so that the business can focus on customers appropriate to its strategy.
223
Relationship marketing became the new philosophy of
marketing. The implementation of this philosophy usually
takes place in the popularly known term of CUSTOMER
RELATIONSHIP MANAGEMENT (CRM).
Gordon (1998:9-10) and others also support the opinion that RM draws from
traditional marketing principles, yet it is different. Marketing is traditionally defined as
the process of identifying and satisfying customers’ needs in a competitively superior
manner in o rder to ach ieve the organisation ’s ob ject ives. RM builds on this, but,
according to Gordon, has six dimensions that differ materially from the historical view
referred to above. TAKEN TOGETHER, THESE DIFFERENCES HAVE THE
POTENTIAL TO TRANSFORM A COMPANY’S VIEW OF THE MARKETING THAT
IT UNDERTAKES AND ALMOST EVERYTHING ABOUT THE ENTERPRISE:
FROM THE WORK IT DOES TO THE TECHNOLOGY IT EMPLOYS, TO THE
PRODUCTS IT PRODUCES TO THE STRUCTURE BY WHICH IT ACHIEVES ITS
OBJECTIVES.
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6.1.3 Components of Relationship Marketing
Authors agree that RM comprises 8 main components. For the purpose of this
discussion, we will draw on the conceptualisation of Gordon (1998:22-31), as his
view completely accords with Cranefield’s view. The 8 components are:
1)
2)
3)
4)
5)
6)
7)
8)
Culture and values
Leadership
Strategy
Structure
People
Technology
Knowledge and insight
Process
The goal of RM is to align the above organisational variables with the company’s
chosen customers and stakeholders as depicted in the figure below:
COMPONENTS OF RELATIONSHIP MARKETING
CULTURE AND VALUES
CULTURE AND VALUES
LEADERSHIP
LEADERSHIP
STRATEGY
STRATEGY
STRUCTURE
STRUCTURE
People
Technology
People
Technology
Relationship Marketing
Knowledge &
Insight
Process
Knowledge &
Insight
SUPPLIER
Process
CUSTOMER
Source: Gordon (1998: 23)
Figure 1: Relationship Marketing (Source: Gordon, 1998:23)
Culture and Values
Companies with dissimilar cultures can create value together, but the similarities and
differences between cultures need to be understood at the outset. Extremes of
cultural difference can work against the formation and maintenance of a relationship
according to Gordon (1998:22). The message is that the customer’s culture and
values must be conducive to the formation of an enduring relationship.
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Leadership
The leaders within your company and those of your customers must be prepared to
focus on the value that can be unlocked through RM and on the mutual interests of
individual customers and suppliers. Leadership, both customer and supplier, must
be prepared to choose those companies with which each will engage, and both
must be prepared to forego certain types of customers/suppliers and the possible
value that they will create if they are to focus their firms on just one type of
relationship. They must then align their companies in support of this type of
relationship. In brief, the message in this regard is that leadership must view
sharing as a virtue and must understand the real meaning of a relationship before
committing the company to RM. Where companies have bargaining power relative
to customers and suppliers, it is their role to initiate RM in the interests of their firm,
customers and suppliers.
Strategy
Strategy needs to occur on multiple levels. This includes customer strategy and
strategies to develop the underlying capabilities needed to advance the customer
relationship. The customer – not the product, research and development or other
competencies – must be central to the business strategy if the firm is to implement
RM effectively. Strategy also needs to be aligned between the company and its
customers to ensure that both understand the direction of the other, enabling each to
assess the other in its role as long-term partner and to create the value each wants.
The message: Strategy needs to be customer-centric, with relationship
objectives and strategies geared to individual customers.
Structure
The structure of a company must enhance strategy execution. In fact, the easiest
way to see if a company has strategy problems is to review how often they
reorganise (1998:26). Companies that reorganise frequently, without strategic
context and rationale, often have difficulty defining and implementing a winning
strategy. RM, influencing, as it does, the entire firm, can result in an entirely different
way to structure a company. A company organised according to RM will have
managers who own a specific category of relationship, such as that of current
customers, employees, suppliers, or investors. Therefore, rather than having a sales
and marketing department, it may have a department to create new value with
current, important customers, while another may be charged with gaining new
customers whose profile matches the firm’s best customers. In brief, the message is
to go beyond considering traditional organisational structures such as business units
organised by product or market. Consider organising by relationships and capability
or material category.
People
Gordon (1998:26) states that people are key to any relationship. Business is still
people, but now technologies and processes, to multiply their capabilities and to
make them even more effective, must support these people. In the marketing era,
market and customer knowledge was centralised and the marketer sought to involve
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others in the company in strategic marketing programmes. In RM, customer
information is pushed to the frontline, where customers and company interact. Many,
if not most, people in a company focused on RM should move from being functional
experts to being process owners for specific categories of relationships. Their
role is to work with others within the company, its customers and suppliers to
develop the new value that customers want. In the RM era, selling, marketing,
servicing and supporting customers become integrated processes incorporating the
eight dimensions of Relationship Marketing discussed here. The RM process owner
must be geared to being the integrator, and must be rewarded and recognised for
successful integration. The basic message is to train, develop and grow people into
owners of a process which seeks to build customer bonding and produce
favourability.
Technology
Technology can serve multiple roles within a company and its customers, according
to Gordon (1998:27), amongst others:
External Communications
▪ Facilitating two-way interaction between individual customers and the
company about every aspect of their requirements, such as
collaborations in product or service design, product code development,
pilot testing, ordering, reviewing the inventory levels in one another’s
warehouses and account status information;
▪ Providing a more rapid or informed communication than was possible
with manual interventions;
▪ Opening new approaches to communicate with customers, such as
interactive video response, electronic data interchange with customers
and distribution channel intermediaries, and using the Internet to
communicate with customers, channel members and other partners;
▪ Communicating with other stakeholders, including investors, board of
directors, employees, management, suppliers and distribution channel
intermediaries.
Internal Communications
▪ Removing “stove-pipe” functionality from the many individual internal
processes and technologies that face the customer, including call
centres, Internet access, order, shipping, billing, field sales forces, dealer
sales, direct mail and mass advertising so that customer relationship can
receive clearer attention;
▪ Tying together diverse communications systems, call centres,
communication channels and databases so that the company becomes
a more informed supplier with whom it is easier to do
business.
Computing
▪ The role of computing in RM is to provide organisational memory for
customer relationships, a predictive ability and current content needed by
relationship marketers to add value to the account.
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▪ Computing is used primarily to facilitate storage and retrieval of huge
amounts of data that provide the history of a number of factors important
to the advancement of the customer relationship.
Content
•
•
•
•
•
Content includes customer information, customer context, customer
behaviours and customer profitability.
Customer information includes data describing customer demographics,
locations, usage patterns, order frequency, favourability and preferences.
Customer context captures information to describe the priorities that the
customers emphasise, the decision-making unit, criteria for buying, and
the purchase processes.
Customer behaviours capture information reflecting interactions before
the sale, during and post-sale, the number, nature and scale of orders,
and other behavioural information.
Customer profitability tracks the financial performance of the account with
a costing methodology that recognises all the cost and time associated
with selling to, servicing and financing a customer, not just the cost of
goods sold.
The basic message in this regard is to deploy technology to provide a better
customer memory. Give customers the communications options they want to help
them repeat the purchase experience. This will be discussed in more detail later.
Knowledge and Insight
▪ Technology must enable the relationship marketer to develop new
knowledge and insight about the customer relationship and must facilitate
action on the information. The challenge is to do this economically, of
particular interest to companies with widespread customer databases and
modest margins.
▪ Software, modelling and reporting tools can help to add value to the
underlying data and can even predict what an individual customer will do,
helping the marketer to be proactive in customer management.
▪ A key challenge to the marketer is to secure resources for investment in
individual customer knowledge and insight over the longer term.
The message: Invest in customer knowledge and insight,
and do it through thick and thin.
Process
Re-engineering, applied as it has been over the last decade, excluded the customer
and individual customer relationship as the core around which the business should
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be engineered. Firms struggling for survival may have found a re-engineering effort
productive, but others may now find that re-engineering cuts off their feet. They are
now being asked to run a different race than that originally intended – for profitable
revenue growth. RM requires that processes be engineered around the customer,
which may require essential changes to existing processes.
The basic message according to Gordon (1998:31) is to focus processes around
existing customers, giving each the value that they want and communicating as
everyone wishes to be engaged by the company.
6.1.4 The Evolution of Customer Relationship Management (CRM)
A review of current literature on CRM reveals that it has evolved through three
phases of evolution: technology, integration and process (originally driven by an
inside-customer focus) to a fourth phase: customer-driven CRM – an outside-in
approach.
▪
Technology. CRM was first to mean applying automation to existing sales,
marketing support and channel processes as organisations attempted to improve
communications, planning, opportunity and campaign management, forecasting,
problem solving, and to share best practices. To some degree, it worked. (Source
unknown, 2005:1). However, automating poorly performing activity processes
rarely improves the quality of the outcome. Therefore, the quality of the return on
investment was meager – if measured at all. The promise of the technology was
there, but few organisations were realising the pinnacle of performance. The metric
of success was increased efficiency in sales, marketing, support and channel
processes.
▪ Integration. Organisations began to create a customised view of the customer
once they started to develop cross-functional integration, supported by direct
warehousing and shared roles and responsibilities. Support issues, web hits, sales
calls and marketing inquiries started to build a deeper understanding of the
customer and allowed aggressive organisations to adapt their tactics to individual
needs.
▪ Process. By rethinking the quality and effectiveness of customer-related
processes, many organisations started to eliminate unnecessary activities to
improve outdated processes, and redesign activities that had failed to deliver the
desired outcomes. Then, by re-creating the process through an understanding of
the capabilities of the technology, the outcomes were predictable and the promises
for a meaningful ROI more substantial and realistic. The measure of success
became the improved effectiveness in the customer.
In the foregoing, almost everything about CRM has focused on improving the
effectiveness and efficiency of the seller’s organisation. Organisations have evolved
from sales representatives working from paper notebooks, or a card system, to a
tightly integrated network that sees movement in sales activity, predicts product
demand on manufacturing, and manages the logistics of complex teams to serve the
buyer and seller. Marketing, support services, channel management, revenue stream
management, resource
allocation/management, forecasting, manufacturing, and
even research and development, have all seen the benefits of a well-designed crossfunctional CRM strategy.
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The past decade of CRM and its associated improvements were based on three
assumptions (source unknown):
▪ The past would be a logical foundation to predict future customer needs
and profitability.
▪ Demand for traditional value propositions would remain constant.
▪ Better customer relationships would deter attrition.
All three these assumptions have failed or at least became unstable in the post9/11 environment. Historical purchases or inquiries are not a clear indication of
future needs, as buyers are rapidly redefining requirements to satisfy their current
business, market or shareholder demands. Value propositions are changing in
highly competitive markets as sellers are working aggressively to re-establish
structural bonds.
Customer-Driven CRM – The Fourth Phase.
Recently, revenue performance has become the central theme for CRM as
organisations seek to achieve and maintain expected financial results. Leading
executives are asking:
✓ Which o f my customers have the potential for a high-profit,
sustainable relationship?
✓ What defines profitable and unprofitable customer segments?
✓ What must change to realise that optimal potential?
✓ Where is my opportunity for growth?
✓ Where is my risk for loss?
✓ Am I making the right decisions related to balancing acquisitions, crossfunctional and up-selling – and for the right customer groups?
It is important to understand that a disruptive change has occurred, causing large
segments of customer organisations to reassess many of their basic needs, values
and assumptions. Research indicates that this event was triggered by the
complexities of the post-9/11 world. Organisations are now challenging everything
from how they create value, to how they serve their markets, to how they meet
shareholders expectations. It is the answers to these questions that provide the
framework for phase-four CRM.
Without a deep understanding of what is going on in the customer’s head –
specifically what will influence buying power - it is difficult to establish customer
strategies that mutually serve the needs and expectations of the buyer and seller
communities.
Understanding the difference. In the past, CRM has followed a basic Balanced
Scorecard technique involving the four categories: customer, financial, operations,
and people. From an inside-out perspective, organisations first analysed the
capabilities of operations and their people to determine what could be delivered to
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the customer. From that, they drew conclusions and predictions to determine the
impact on the financial category.
As this has changed, so have the priorities. Now the focus is first on the customer:
✓
✓
✓
✓
What will they buy, when, why and for how much?
What creates value for them?
What services can we perform that merit premium margins?
Can we establish a new market segmentation strategy focused on
potential profitability and willingness to purchase?
✓ Do we understand their business drivers, financial metrics, buying
procurement criteria?
Customer-driven CRM means that organisations first understand the customer
before moving inward to operations. Within the context of the customer, the
systems information infrastructure capabilities need to serve those customers, and
segmentation requirements must be reassessed. Next, it is imperative to explore the
skills and competency requirements for the people component of the CRM design. A
dead CRM has taught us that nothing happens until your people interact with the
customer in a manner consistent with new customer strategies and systems. Finally,
one needs to reassess financial modeling for forecasting purposes.
6.1.5 The Role of
Management (CRM)
Information
Technology
in
Customer
Relationship
Payne (2001:2) is of the opinion that information technology has a pivotal role to play
in considering how CRM should be implemented. Information technology can enable
organisations to maximise profitability through more precise targeting of marketing
segments and the micro segments within them. He further states that the world is
now in an era of technology-enabled marketing that involves leveraging
relationships, using technology.
TRADITIONAL MARKETING ACTIVITIES THAT EMPHASISE
CUSTOMER ACQUISITIONING ARE NO LONGER
SUFFICIENT. CRM RECOGNISES THAT MARKETING STARTS
AFTER THE SALE IS OVER, NOT WHEN THE SALE IS
COMPLETED!!!
New technological approaches involving the use of databases, data marts, data
warehouses, data mining and one-to-one marketing are now assisting organisations
to increase customer value and their own profitability. According to Payne (2001:2)
information technology can greatly assist in managing the data required to
understand customers so that appropriate CRM strategies can be adopted. In
addition, the use of IT can enable the necessary data to be collected to determine
the economics of customer acquisition, retention and lifetime value. Research shows
(Payne, 2001:3) that a 5% points increase in customer retention yields a profit, in net
present value terms, of between 20% and 125%. Although many managers are now
familiar with these findings, few managers know the profit impact of retention in their
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own companies, and few companies segment their customer base by lifetime value.
The dramatic effect that improved customer retention can have on business
profitability, forces organisations to follow a strategy that will lead to increased
customer loyalty and retention. In this regard, he (2001:3) recommends that to
improve customer retention, three steps are needed: (1) measurement of customer
retention; (2) identification of root causes of defection and related key service issues;
and (3) the development of corrective action to improve retention. Regardless of the
approach taken to modelling the economics of acquisition and retention, lifetime
value will need to be identified by market segment and need to address how to
improve it. To facilitate improved acquisition, retention and lifetime value, companies
need to utilise the appropriate technology tools to assist this process.
In this regard Payne (2001:3) states that in the business-to-business context an
example of this would-be sales force automation – creating an informationempowered sales force which increases the sophistication of customer management.
This can dramatically improve sales force productivity and significantly enhance the
bonds with the customer. In business-consumer organisations that are dealing with a
large number of customers, a critical issue will be increasing the quality of customer
contact through tools such as sophisticated call centres and electronic commerce.
6.2
Customer Service Management (CSM)
6.2.1 Introduction
Customer service management (CSM) forms an integral part of CRM.CSM,
according to Wei and Nair (2006:1), is reflected as the way organisations manage
their customer services to create value and satisfaction. It is considered as a
way to deliver customer satisfaction through fulfilment of customers’ needs and
wants. For example, in the banking context, customer services are performed to
assist customers to achieve their needs and wants through tellers via banking
counters, personal financial assistance, automatic teller machines, telephone
banking and Internet banking.
Customers are the driving force of enterprises ardently desiring success. Likewise,
the survival of an enterprise also depends on its customers. Consumers and
customers select products and services that satisfy their needs. In the new economy,
competition prods consumers and customers to switch products easily when they are
dissatisfied. Therefore, there is a dire need for customer retention in a globalised
economy; hence the need for an effective CSM strategy.
6.2.2 Customer Service
According to Kotler (2000:45) customer service is “all the activities involved in
making it easy for customers to reach the right parties within the company and
receive quick and satisfactory service, answers and resolutions of problems”. Brink
and Berndt (2004:48) describe customer service as “the totality of what the
organisation does to add value to its products and services in the eyes of the
customer”. A briefer version of what customer service entails is that it is anything that
the organisation can do to enhance the customer experience.
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Brink and Berndt (2004:48) are of the opinion that there has been a change in how
customer service is perceived in organisations. Initially customer service was seen
as the exclusive domain of the sales person who is in direct contact with the
customer. Thereafter, customer service was seen as the responsibility of the
department dealing with customer complaints. Organisations today, however, realise
that every staff member and all the organisation’s activities must strive to increase
customer service. Customer service provides the basis for customer retention.
When there is a high customer retention rate, it indicates that these retained
customers are satisfied with the service offered by the enterprise. Therefore, there
exists a positive correlation between customer retention and customer satisfaction.
6.2.3 Customer Satisfaction
Kotler (2000:36) defines customer satisfaction as “a person’s feeling of pleasure or
disappointment resulting from comparing a product’s perceived performance (or
outcome) in relation to his or her expectations”. If the performance matches or
exceeds the expectations, then the customer is satisfied; if the performance is below
par, then the customer is dissatisfied. There is consensus in the world that when
customers are satisfied, they have a higher propensity to be loyal. It is therefore very
While business executives overwhelmingly agree that technology
has helped them strengthen relationship with their customers, the
majority say that CRM shortfalls can be attributed in part to
inadequate support from top management. Brink and Berndt
(2004:10)
important for the organisation to ensure that everything possible is done to provide
customer satisfaction. This is in line with CRM, where the aim of the organisation is
to build long-term relationships with customers and to enhance customer loyalty. The
objective here is to increase the bottom line of the organisation.
6.2.4 Key Elements of Effective Customer Service
Brink and Berndt (2004:50) present the following customer service pentagon to
demonstrate the key elements of effective customer service.
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Field organisation
support
Preventative
analysis
People and
process
Computer
systems support
Telecommunication
support
Figure 2: The customer service pentagon (Source: Brink and Berndt, 2004:50)
▪ People and process: One of the most effective drivers of effective customer
service is the people (employees) that must deliver the service. In most cases,
the customer service department is seen as an administrative instrument doing
only the clerical work, instead of being seen as the first line of contact with the
customer, thus requiring professional and responsible people who are
accustomed to the role of being problem solvers. What is of importance is that the
policies, procedures and support regarding customers’ service must also be in
place in order for the employees to operate efficiently.
▪ Telecommunications support: Telecommunication technical support (e.g.,
sufficient telephone lines and up-to-date equipment) must also be in place. Brink
et al. state that one of the problems that South African customers encounter,
even today at call centres, is to be told that their telephone call “will be answered
shortly”, while stating that they are number 100 in the queue to be answered.
▪ Computer systems support: Some of the basic requirements of computer
systems support that a customer service department needs to have are:
✓ Integrated databases, word processing and reporting software.
✓ Information that can be retrieved quickly from other databases.
✓ Quick response time (maximum two seconds between screens).
✓ Flexible entry to allow users (employers) to talk and type, and support
direct entry and contact data in real time.
✓ The ability to track multiple questions and problems per contact.
✓ Support satisfaction tracking that is tied to each caller and to the
representative who handled the call.
Field organisation support: It has been proved that customer satisfaction is
amplified when problems are resolved at the level closest to the customer.
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Organisations with extensive distribution outlets are in a better position to solve
customer problems than an organisation with no field support.
▪
Preventative analysis: The customer service department forms an
important part of the feedback loop to ensure that a job is done the right way, the
first- t im e round. The customer care service department will also be able to
identify problems early and to ensure that they do not repeat themselves
unnecessarily.
6.2.5 Requirements for a Relationship Strategy in
Management
Customer
Service
Grönroos (1994:20) has identified a number of requirements that a firm needs to
meet in order to follow a relationship strategy in servicing customers. According to
Grönroos:
•
The first is that companies have to have an in-depth knowledge and
understanding of the long-term needs of their customers, and offer added value
on top of the actual product itself. In other words, customers are looking for a
holistic service/product offering to be delivered in an effective and timely manner.
The ability of the company to manage the additional value-added elements of the
offering better than its competitors will be an important key success factor.
•
The second requirement is that a process management approach be
followed. This means that the company should direct its efforts towards meeting
the demands and expectations of the customers through a total service offering.
Working in the traditional functional areas of a business, without using crossfunctional teams, will not facilitate the process orientation needed to break through
the ‘silo’ thinking that arises by having planning done by only one functional area.
For example, marketing cannot develop marketing plans without consulting
production, finance and IT, amongst others.
•
The need to have better knowledge about the customer, so as to choose
the customers to invest in for relationship building, leads to the next requirement.
Systems will have to be implemented that supply as much information of the
customers as possible. This can be done through face-to-face contacts or by using
the advances in IT to obtain the required information.
•
Lastly, creating a customer-centred culture is important, because
relationship marketing is dependent on the attitude, commitment and performance
of the people in the organisation. This means that success in the marketplace with
customers is dependent on the company motivating its staff to be committed to the
customer.
Only through the achievement of a relationship with its customers and consistency,
in terms of enhancing the relationship through added value, can a company generate
loyalty in its customer base.
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6.3
Developing and implementing a Customer-Driven CRM system
6.3.1 General.
Before embarking on CRM, a company must know who its customers are, their
value, what they buy, where they are located and through which channels, they want
to interact with the company. Management needs to formulate a CRM strategy at all
levels, including the people, the business processes, the organisational structure and
the technological infrastructure.
An organisation wishing to implement CRM must have support at executive level,
and there needs to be commitment to CRM. Brink and Berndt (2004:9) state that it is
necessary for the entire organisational culture to change. The CEO must take the
lead and ensure that the message is communicated throughout the organisation,
understand the real meaning of a relationship before committing the company to
CRM and focus on the value that can be created through relationships with key
stakeholders – a value that must be shared by the company and the customers.
Also, the most profitable customers to focus on must be identified, and the CEO
must be strong enough to terminate relationships with unprofitable customers.
Management needs to recognise the fact that the relationship with customers’ needs
to be managed. A relationship manager should work with customers to ensure that
they receive the value that they seek (Brink and Berndt, 2004:9-11). Each person in
the company communicates and creates value with its customer counterpart, with
the relationship manager guiding the overall process. In this process, it is necessary
to integrate all communications with the customer with the aid of technology, as well
as people and process.
Brink and Berndt (2004:9-11) recommend the following action by top management
for the implementation of a customer-centric approach in the company:
•
•
•
•
•
•
Convince senior management of the need to become customer-focused.
For example, IBM’s top 470 executives are personally responsible for
more than 1300 customer accounts.
Obtain outside help and guidance. Consulting firms have the experience
to help companies move toward a customer orientation.
Develop strong in-house marketing training programmes for corporate
management, divisional managers, marketing and sales personnel,
manufacturing personnel and others.
Establish an annual marketing excellence recognition programme.
Reward the winning teams at a special ceremony.
Shift from a department focus to a process-outcome focus. This means
appointing process leaders and cross-disciplinary teams to reengineer
the processes around the customers.
Empower employees. Progressive managers empower their employees
to settle customer complaints and other problems to save the customers’
business.
The next important prerequisite for CRM to be successful is a change in the
organisations’ processes. Process management involves all the procedures, tasks,
schedules, mechanisms, activities and routines by which a products and services are
delivered to the customers. In the traditional functional approach, all business
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functional units operate as ‘silos’ – that is,
they keep strictly to functional areas with
no interaction with or dependency on other functions of the organisation.
A company wishing to implement CRM needs to manage and link all work processes
according to Brink and Berndt (2004:11). High-performance companies are
increasingly focusing on the need to manage core business processes such as
product development, customer attraction and retention, and order fulfilment. They
are re-engineering the workflows and building cross-functional teams responsible for
each process. As CRM requires that processes should be engineered around the
customers, this often necessitates essential changes to existing processes; every
process should integrate with the customer. Thus, functional silos are eliminated.
▪ At Xerox a customer operations group links sales,
shipping, installation, service and billing so that these
activities flow smoothly into one another.
▪ Motorola and Polaroid are companies that have
reorganised their employees into cross-functional teams.
Brink and Berndt (2004:11)
Gordon (1998:31) states that management should focus on building customers into
the main processes and those customers should collaborate with management in all
the processes that are geared to creating value.
However, according to Brink and Berndt (2004:12), a company must have an
excellent customer service in place before embarking on a CRM strategy. Excellent
customer service forms an integral part of CRM. No company can ever
contemplate implementing CRM if it does not offer excellent customer service.
Excellent customer service can be achieved only by training all employees, even
those who do not have direct contact with the customer, such as the back office.
Employees must also understand that their own job satisfaction ultimately rests
on the success of the organisation – happy employees make happy customers.
Technologies and processes to make them more effective must support employees.
In the traditional marketing era, market and customer knowledge was centralised. In
the CRM era, people in the front lines should have the ability to communicate with
customers in a manner that recognises them, remembers their contract history,
understands the current customer issues, predicts anticipated behaviour and
suggests appropriate responses or solutions. Frontline employees are becoming
consultants, working with customers to add value to the company.
Gummerson (2002:14) provides the following relevant example of excellent
customer service in the box below.
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Disneyland: Superior Service
The staff at Disneyland is either on or off stage. Onstage,
everyone participates in a show, regardless whether they are
actors in the traditional sense, sells tickets, serve hamburgers
or pick-up litter. Consequently, everyone knows their part, and
this creates satisfied customers. One of the ten
commandments of Disneyland says: “We’re on stage and we
know our role in the show. We’re entertainers, we know our
“script”, we know our standards and we never miss a cue. We
consistently give a good show - all the time.”
Technology to gain customer knowledge and insight
Brink and Berndt (2004:13) state that once a company has established customercentricity, technology enables an organisation to acquire knowledge about
customers, to establish a database, and to gain insight into the knowledge through
data mining. Only once these have been accomplished should the organisation
implement CRM.
CRM is technologically driven, but technology is only the enabler (Gordon, 1998:32).
Through the effective use of technology, an organisation can serve customers as
individuals. However, technology is merely the facilitator of CRM and does not solve
all problems that a business may have.
Brink and Berndt (2004:13-15) list the following that must be in place before a
CRM system is acquired:
o First establish customer-centricity: Before an organisation decides to deploy
CRM technology, it must first include customer-centricity as part of its corporate
vision and mission. Customer-centricity requires a focus on the primacy of the
customer, whereas previously, the focus may have been on marketing strategies
designed to promote the sales of specific products or services.
o Develop a database: Once the concept of customer primacy has been
established, the task to weave the various databases required to support this
primacy into a comprehensive whole, and then to manage them, comes to the
fore. CRM systems must be capable of integrating all knowledge about key
customers into valuable business intelligence in real time through any channel. This
business intelligence is the key to unlocking real value for a CRM strategy.
Successful companies are capturing information every time a customer meets any of
their departments. The touch points include a customer purchase, a customerrequested service call, an online query, or a mail-in rebate card. These data are
collected by the company’s contact centre and organised into a data warehouse.
Company personnel can then capture, query and analyse the data. Inferences can
then be drawn about an individual customer’s needs and responses.
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In this way, a unified view of the customer is achieved, which enables any employee
to access all information pertinent to a client, from their purchasing history to their
service record and credit rating.
o Use data mining to predict: Marketing statisticians can predict and
extrapolate useful information about individuals, trends, and segments from the
mass of data contained in the data mine. Data mining involves the use of
sophisticated statistical techniques such as cluster analysis and predictive
modelling to:
✓
✓
✓
✓
✓
Identify prospects
Decide which customers should receive a particular offer
Deepen customer loyalty
Reactivate customer purchases
Avoid serious customer mistakes
Kotler (2003:26-27) states that to acquire a suitable CRM system requires a large
investment. Integrating multiple customer interactions channels with customer
service operations, existing in-house running applications and external business
suppliers can be complex, time-consuming and expensive. According to Brink and
Berndt (2004:15), a CRM solution must support all channels of customer interaction
and connect easily with all a company’s front- and back-office enterprise
applications, and with its other business functions, as well as with those of its
external suppliers and business partners. To ensure appropriate, relevant use of
customer data, companies need databases that integrate customer information and
business intelligence across every point of customer interaction and across every
business function.
To have the required customer knowledge, an organisation thus needs an
infrastructure of technology that captures, stores and processes data needed to
derive customer knowledge, and architecture of technology that places customer
data at its strategic heart. Companies should focus on gaining customer knowledge
and insight and then using this to deepen and to extend customer relationships.
Winer (2001:4) developed a CRM model (depicted below as Figure 3) to provide a
managerially useful, end-to-end view of the CRM process from a marketing
perspective. The basic perspective taken is that of the customer, not the company. In
other words, what do managers need to know about their customers and how can
this information be used to develop a complete CRM perspective?
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Create Database
Analysis
Customer Selection
Customer Targeting
Relationship
Marketing
Privacy Issues
Metrics
Figure 3: Customer Relationship Management Model (Source: Winer, 2001)
6.3.2 A Customer Database
A necessary first step to a complete CRM solution is the construction of a customer
database or information file. According to Winer (2001:4) this is the foundation for
any CRM activity. For web-based businesses, this should be a relatively
straightforward task, as the customer transaction and contact information are
accumulated as a natural part of the interaction with customers. For existing
companies that have not previously collected much customer information, the task
will involve seeking historical customer contact data from internal sources such as
accounting and customer services.
Ideally, a CRM database should contain information about the following:
•
•
•
•
Transactions: This should include a complete purchase history with
accompanying details;
Customer contacts: Today there is an increasing number of customer
contact points from multiple channels and contexts.
Descriptive information: This is for segmentation and other data analysis
purposes.
Response to marketing stimuli: This part of the information file should
contain whether or not the customer responded to a direct marketing
initiative, a sales contact, or any other direct contact.
6.3.3 Analysing the data
Traditionally, customer databases have been analysed with the intention of defining
customer segments. A variety of multivariate statistical methods, such as cluster and
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discriminant analysis, have been used to group together customers with similar
behaviour patterns and descriptive data, which are then used to develop different
product offerings or direct marketing campaigns. Direct marketers have used such
techniques for many years. Their goals are to target the most profitable prospects for
catalogue mailings and to tailor the catalogues to different groups.
More recently, such segmentation approaches have been heavily criticised (Winer,
2001:8). Taking a large number of customers and forming groups or segments
presumes a marketing effort towards an “average” customer in the group. Given the
range of marketing tools available that can reach each customer individually using
personalised messages (what has been referred to as “1-to-1” marketing), there is
less need to consider the usual marketing segmentation schemes. Increased
attention is being paid to understanding each customer and what he or she can
deliver to the company in terms of profits. As a result, a new term (Winer, 2001), LCV
(lifetime customer value), has been introduced. The idea is that each new customer
of the database should be analysed in terms of current and future profitability to the
company. When a profile figure can be assigned to each customer, the marketing
manager can then decide which customers to target.
6.3.4 Customer selection
The next step is to consider which customers to target with the company’s marketing
programmes. Winer (2001:11) states that the results from a customer analysis can
yield different categories or types. If segmentation type analyses are performed on
purchasing or related behaviour, the customers in the most desired segments (e.g.
highest purchasing rates, greatest brand loyalty) would normally be selected first.
Other segments could also be chosen, depending on additional factors. For example,
if the customers in the heaviest purchasing segment already purchase at a rate that
implies that further purchasing is unlikely, a second tier with more potential would
also be attractive. The descriptor variables for these segments (e.g., age, industry
type) provide information for deploying the marketing tools. In addition, these
variables could be matched with commercially available databases of names to find
additional customers matching the profiles of those chosen from the database.
6.3.5 Customer targeting
Winer (2001:13) is of the opinion that mass marketing approaches, such as
television, radio, or print advertising, are useful for generating awareness and
achieving other communication objectives, but that they are poorly suited for CRM
due to their impersonal nature. A portfolio of direct marketing methods, such as
telemarketing, direct mail, and direct sales in some cases, are considered more
conventional methods to target selected customers. Peppers and Rogers (in Winer,
2001:13) have urged companies to begin to dialogue with their customers through
these targeted approaches rather than talking “at” customers with mass media.
The new mantra “1-to-1” marketing implies using the Internet to facilitate individual
relationship building with customers. An extremely popular form o f Internet-based
direct marketing is the use of personalised e-mails (Winer 2001:13).
When this form of direct marketing first appeared, customers considered it no
different from “junk mail” that they received at home, and they treated it as such.
However, with the use of permission-based programmes, whereby customers must
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“opt-in” or agree to receive messages
from a company, direct e-mail has
become a very popular and effective method for targeting customers for CRM
purposes.
6.3.6 Relationship marketing
E-mails are more a technique for implementing CRM than a programme as such.
Relationships are not built and sustained with direct e-mails themselves (Winer,
2001:15), but rather through the types of programmes that are available for which emails may be the delivery mechanism. Winer (2001:15) further states that the overall
goal of relationship programmes is to deliver a higher level of customer satisfaction
than competing firms deliver. He says that research indicates that managers today
realise that customers match realisations and expectations of product performance,
and that it is critical for them to deliver such performance at higher and higher levels
as expectations increase due to competition, marketing communications and
changing customer needs. In addition, there is a strong positive relationship
between customer satisfaction and profits. Therefore, it is imperative that managers
must continually measure satisfaction levels and implement continuous improvement
measures to deliver performance past targeted customer expectations.
A comprehensive set of relationship programmes is depicted in the figure below.
CUSTOMI=
SATION
CUSTOMER
SERVICE
FREQUENCY/
LOYALTY
PROGRAMMES
CUSTOMER
RELATIONSHIP
MANAGEMENT:
SATISFACTION
REWARDS
PROGRAMMES
COMMUNITY
BUILDING
Figure 4: Customer retention programmes (Source: Winer; 2001:30)
▪
Customer service. Because customers have more choices today and the
targeted customers are more valuable to the company, customer service must
receive a high priority within the company. Winer says that any contact that a
customer has with a firm is a customer service encounter and has the potential to
gain repeat business and CRM or have the opposite effect. He (2001:16)
distinguishes between two types of programmes to enhance customer service:
Reactive service is where the customer has a problem (product failure; questions
about a bill; product returned.) and contacts the company to solve it. Most
companies today have an established infrastructure to deal with a reactive service
through 0800 telephone numbers, fax-back systems, e-mail addresses, and a
variety of other solutions. Proactive service is a different matter. In situations like
this, managers have decided not to wait for customers to contact the firm but
rather to be aggressive in establishing a dialogue with customers prior to
complaining or other behaviour sparking a reactive solution.
▪
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This is more a matter of good account management, where the sales force or
other people dealing with specific customers are trained to reach out and
anticipate customer needs.
▪
Loyalty/frequency programmes. These programmes provide rewards to
customers for repeat purchasing. Research (Winer, 2001:17) has identified three
leading problems with such programmes:
✓ They are expensive,
✓ Mistakes can be difficult to correct, as customers see the company as
taking away benefits, and
✓ There are significant questions about whether they work to increase
loyalty or average spending behaviour.
▪
Customisation. The notion of mass customisation goes beyond 1-to-1
marketing, since it implies the creation of products and services for individual
customers, not simply communicating to them. Some companies have developed
processes and systems for creating customised products according to customers’
tastes (Winer, 2001:18). The idea is that it has turned customers into product
makers rather than simply product takers. Such customisation is, according to
Winer called “versioning”. This is of course easier to do for services than for
tangible products.
▪
Community. Winer (2001:18) is of the opinion that one of the major uses of
the Internet for both online and offline business is to build a network of customers
for exchanging product-related information and to create relationships between the
customer and the company or brand. These networks and relationships are called
communities. According to Winer, the goal is to take a prospective relationship with
a product and turn it into something more personal. In this way, the manager can
build an environment that makes it more difficult for the customer to leave the
“family” of other people who also purchase from the company.
6.3.7 Privacy issues
The CRM system described above depends upon a database of customer
information and analysis of that data for more effective targeting of marketing
communications and relationship-building activities. There is an obvious trade-off
between the ability of companies to deliver customised products and services and
the amount of information necessary to enable this delivery. Particularly with the
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popularity of the Internet, many consumer and advocacy groups are concerned
about the amount of personal information that is contained in databases and how it is
utilised. Thus, the privacy issue extends all the way through the hierarchy of steps
outlined in the model above.
6.3.8 Metrics
The increased attention paid to CRM means that the traditional metrics used by
managers to measure the success of their products and services in the marketplace
have to be updated (Winer, 2001:21). Financial and market-based indicators like
profitability, market share, and profit margins have been and will continue to be
important. However, in a CRM world, increased emphasis is being placed on
developing measures that are customer-centric and give the manager a better idea
of how CRM policies and programmes are working.
Some of these CRM-based Internet- as well as non-Internet-based measures are
the following (Winer, 2001:21):
✓
✓
✓
✓
✓
✓
Customer acquisitioning cost
Conversion rates (from lookers to buyers)
Retention/churn rates
Same customer sales rates
Loyalty measures
Customer share or share of requirements (the share of a customer’s
purchases in a category devoted to a brand).
All of these measures imply doing a better job acquiring and processing internal
data to focus on how the company is performing at the customer level.
6.4 Conclusion
The objective of this section was to inform the student that both customer
relationship management (CRM) and customer service management (CSM) are
cross-functional processes that add value to both the organisation and the customer
(whether the customer is a buyer or supplier of goods or services) over the lifetime of
both parties. Relationship marketing (RM) has developed from the traditional
functional marketing concept in such a way that today it also entails customer
service. Customer service management is one of the cornerstones of sound
customer relationship management that breeds customer loyalty and retention. The
successful execution of both CRM and CSM can take place only through crossfunctional processes and through the application of sound and competitive
information architecture.
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