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Summary Mastering the Supply Chain
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Summary study book Mastering the Supply Chain of Ed Weenk (1 t/ 1o) - ISBN: 9780749484484 (Chapter 1 - 10)
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ContentsWHAT IS A SUPPLY CHAIN?........................................................................................................................................4
Importance of the supply chain: technical area or business function?...........................................................4
Definitions of supply chain..............................................................................................................................5
Importance of definitions................................................................................................................................7
WHAT DOES THE SUPPLY CHAIN LOOK LIKE?..................................................................................................................7
The length and width of the supply chain.......................................................................................................7
The impact of size and power in the supply chain..........................................................................................7
Building blocks of the supply chain: the pieces of the puzzle.........................................................................8
What does my supply chain look like? Supply chain mapping.....................................................................10
SUMMARY.............................................................................................................................................................12
INDUSTRY PERSPECTIVE: COMPETITIVE STRATEGY..........................................................................................................13
About industries and markets.......................................................................................................................13
Competitive strategy.....................................................................................................................................14
THE ‘WHAT’ OF THE COMPANY’S BUSINESS: CUSTOMERS AND VALUE PROPOSITIONS..........................................................14
The concept of value: why would they buy from me?..................................................................................14
Being everything to everyone/One size fits all? Or smart customer segmentation?...................................16
Customer and consumer: not (always) one and the same...........................................................................16
THE ‘HOW’ OF THE COMPANY’S BUSINESS: COMPETITIVE ADVANTAGES............................................................................17
On how to create value: the value chain......................................................................................................17
Key to superior performance: competitive advantages................................................................................18
THE SUPPLY CHAIN AND A COMPANY’S FINANCIALS: THE ‘HOW MUCH?’...........................................................................18
Receive and spend: the income statement...................................................................................................18
Own and owe: the balance sheet.................................................................................................................20
Hot topic: working capital and supply chain finance (SCF)...........................................................................21
Integrated financial view: ROI......................................................................................................................22
THE SUPPLY CHAIN AS PART OF A SUSTAINABLE BUSINESS..............................................................................................23
Outside-in: ‘what’ and ‘how’ together as part of the business model.........................................................23
Inside-out: the external environment...........................................................................................................25
The triple bottom line: how responsible is your supply chain?.....................................................................26
About things that can go wrong: risk and resilience....................................................................................27
SUMMARY.............................................................................................................................................................29
FROM CORPORATE STRATEGY TO SUPPLY CHAIN STRATEGIES: TYPOLOGIES........................................................................30
Predictability and volatility drive supply chain design: efficient or responsive............................................30
The world is changing: more refined supply chain typologies are required.................................................30
Decision making at various levels: strategic, tactical, operational..............................................................33
PHYSICAL INFRASTRUCTURE OR NETWORK: PUSH/PULL, FACILITIES AND TRANSPORTATION...................................................35
Products: physical characteristics and the development chain....................................................................35
Push/pull: economies of scale versus market flexibility...............................................................................37
Facilities: the warehousing and manufacturing hubs in a network.............................................................39
Transportation: the spokes between the hubs.............................................................................................39
FORWARD AND BACKWARD INTEGRATION: OUTSOURCING AND EXTERNAL COLLABORATION.................................................40
Network design: connecting the dots...........................................................................................................41
PLANNING AND CONTROL: PROCESSES, FORECASTING, INVENTORIES, PRODUCTION............................................................43
Getting things done via supply chain processes: O2C, P2P, D2S..................................................................43
Uncertainty in demand and supply...............................................................................................................44
Key 1 to D2S: forecasting market demand...................................................................................................44
Key 2 to D2S: capacity planning....................................................................................................................45
Key 3 to D2S: production planning and scheduling, batches, frozen periods...............................................45
Key 4 to D2S: production and quality...........................................................................................................47
Key 5 to D2S: inventory management (warehouse replenishment).............................................................47
Keys to O2C and P2P: payment terms and Incoterms..................................................................................49
INFORMATION AND SYSTEMS, AND ORGANIZATIONAL ASPECTS........................................................................................53
Information at the heart of decision making: ERP-suite systems.................................................................53
Organizational aspects: the supply chain department and the chief supply chain officer (CSCO)...............53
, SUMMARY.............................................................................................................................................................54
SUPPLY CHAIN............................................................................................................................................ 55
MAKING PEOPLE MOVE: PERFORMANCE MEASUREMENT AND TARGET SETTING..................................................................55
STAKEHOLDER MANAGEMENT, FUNCTIONAL SILOS AND CORPORATE CULTURE...................................................................57
TRUST AND COORDINATION: INTERNAL COLLABORATION AND TEAM PERFORMANCE...........................................................57
Team attributes: what successful teams seem to have in common.............................................................57
Characters and personalities: team composition, team roles, and team dynamics....................................58
Stages in the life of the team........................................................................................................................59
Motivation....................................................................................................................................................59
Communication: questioning, listening, using common language...............................................................60
Overall team performance: tasks and relationships.....................................................................................60
TRUST AND COORDINATION: EXTERNAL COLLABORATION AND TRANSPARENCY...................................................................61
Lack of transparency: bullwhip effect...........................................................................................................61
Vendor managed inventory (VMI): a potential solution to lack of transparency?.......................................62
THE ROLE OF LEADERSHIP IN THE SUPPLY CHAIN...........................................................................................................64
SUMMARY.............................................................................................................................................................66
SIMPLE BUT NOT EASY (2)........................................................................................................................... 68
COMPLEXITY!.........................................................................................................................................................68
TRADE-OFFS: YOU CAN’T HAVE IT ALL.........................................................................................................................69
CROSS-FUNCTIONAL ALIGNMENT: S&OP AND IBP.......................................................................................................70
SUMMARY.............................................................................................................................................................71
KNOWLEDGE IN ACTION WITH A SUPPLY CHAIN SIMULATION: GAME ON!...................................................73
THE FRESH CONNECTION BUSINESS SIMULATION GAME.................................................................................................73
INTRODUCING: TEAM SUPERJUICE.............................................................................................................................74
INTRODUCING: BOB MCLAREN, THE OWNER OF OUR COMPANY.....................................................................................75
TFC: THE COMPANY, THE MISSION, THE EXPERIENCE....................................................................................................75
BACK TO THEORY FOR A MOMENT.............................................................................................................................77
WHAT’S WRONG WITH TFC?...................................................................................................................................79
A step-by-step approach to analyse the baseline.........................................................................................79
Step 1: supply chain infrastructure and flows...............................................................................................79
Step 2: what were the decisions taken by the previous management team?..............................................80
Step 3: what happened as a result of the previous management team’s decisions?..................................81
Step 4: what happened between decisions and results – gap analysis........................................................82
Step 5: what should be done now – action plan...........................................................................................82
TFC GAMEPLAY: WHAT YOU NEED TO KNOW...............................................................................................................83
SUMMARY.............................................................................................................................................................86
COMPETITIVE STRATEGY...........................................................................................................................................87
CUSTOMERS AND VALUE PROPOSITIONS......................................................................................................................88
SUPPLY CHAIN AND FINANCE.....................................................................................................................................89
SUMMARY.............................................................................................................................................................90
MASTERING THE TECHNICAL DIMENSION OF THE SUPPLY CHAIN.................................................................91
SUPPLY CHAIN STRATEGIES.......................................................................................................................................91
Efficient or responsive supply chains............................................................................................................91
AVERAGES KILL!.....................................................................................................................................................93
PHYSICAL INFRASTRUCTURE......................................................................................................................................94
Products: physical characteristics of components........................................................................................95
Products: physical characteristics of finished goods....................................................................................95
Push/pull: customer–order decoupling point...............................................................................................96
Facilities: warehousing and production........................................................................................................96
Transportation..............................................................................................................................................96
Outsourcing and collaboration.....................................................................................................................97
Network design.............................................................................................................................................98
PLANNING AND CONTROL.........................................................................................................................................98
, Uncertainty and variability...........................................................................................................................98
Key 1 to D2S: forecasting market demand...................................................................................................99
Key 2 to D2S: capacity planning..................................................................................................................102
Key 3 to D2S: production planning and scheduling....................................................................................102
Key 4 to D2S: production and quality.........................................................................................................103
Key 5 to D2S: inventory management (warehouse replenishment)...........................................................104
O2C and P2P processes: payment terms....................................................................................................104
INFORMATION AND SYSTEMS..................................................................................................................................105
ERP system, reporting and data availability...............................................................................................105
Decision support systems, analytical and visualization tools.....................................................................105
SUMMARY...........................................................................................................................................................106
PERFORMANCE MEASUREMENT AND TARGET SETTING.................................................................................................108
STAKEHOLDER MANAGEMENT: FUNCTIONAL SILOS......................................................................................................109
TRUST AND COORDINATION: INTERNAL COLLABORATION AND TEAM PERFORMANCE.........................................................110
TRUST AND COORDINATION: EXTERNAL COLLABORATION AND TRANSPARENCY.................................................................110
STAKEHOLDER MANAGEMENT (DIRECT STAKEHOLDERS)...............................................................................................111
SUMMARY...........................................................................................................................................................111
SUPPLY CHAIN STRATEGIES REVISITED.......................................................................................................................113
COMPLEXITY!.......................................................................................................................................................113
MAKING PROS AND CONS EXPLICIT: BUSINESS CASES TO SUPPORT DECISION MAKING........................................................114
CROSS-FUNCTIONAL ALIGNMENT: S&OP..................................................................................................................115
SUMMARY...........................................................................................................................................................115
01 Supply chain
, General introduction
In this chapter, we will start the journey of exploring the fundamentals of the supply chain
and take a first look at:
the role of the supply chain within the context of a company;
some definitions of the supply chain and related terms;
how big our supply chain would need to be;
the impact of the size of a company;
the building blocks of the supply chain.
What is a supply chain?
Importance of the supply chain: technical area or business
function?
What is the supply chain, and why should we bother to study the topic at all? There are many
ways to answer that question, but rather than producing statistics about supply chain
expenditure on a company or country level, perhaps an easy way to visualize the importance
of the supply chain as an integral area of business is to see what happens if it doesn’t seem to
work properly.
Frequently, we read stories in the newspapers that illustrate the consequences of
disruptions in the supply chain. The articles might not even use the term supply chain as such,
but speak, for example, of suppliers, manufacturing or logistics. Because such supply chain
disruptions are happening all the time, we’ll propose an exercise about them later in this part.
But first let’s look at some recent examples on a larger scale that happened around the time of
writing of this book in 2017–18. Examples that come to mind are the story about the apparent
problematic ramp-up of Tesla’s Model 3, due to a wide variety of issues ranging from
production difficulties with robots, obliging the company to switch to manual labour, through
continuous product design changes causing problems with tool makers, to supplier
relationship management problems (Financial Times, 2017). As CNN published in March
2018 (Isidore, 2018): ‘the company had originally promised it would be making 5,000 Model
3’s every week by the end of last year [2017], but delivered only 222 in the third quarter, and
another 1,542 throughout the entire fourth quarter. It has now pushed the 5,000 a week target
back to the end of June’ [of 2018]. Meanwhile, Tesla is obviously working hard to fix the
issues and get back on the original track. On 3 April 2018, the company stated in an official
press release that ‘Tesla continues to target a production rate of approximately 5,000 units per
week in about three months, laying the groundwork for Q3 to have the long-sought ideal
combination of high volume, good gross margin and strong positive operating cash flow. As a
result, Tesla does not require an equity or debt raise this year, apart from standard credit line’
(Tesla, 2018). Independent of the questions of why and how this could have happened and
who might be blamed for it, the matter is probably not that simple and straightforward. The
company could run the risk of burning its cash and experience a drop in share price, should
the problem persist. In addition, customer trust could potentially be harmed in the process.
Hopefully, Tesla will indeed be able to turn things around, but for the moment it looks as if
it’s been a long and tough supply-chain ride for them.
Or take the news about global ocean shipping giant Hanjin, at the time a top-five player in
the industry, filing for bankruptcy while large numbers of containers were still waiting for
their ships at numerous ports around the world, and many of their ships were still at sea full
of containers, but with no liquidity left in the company to bring them to shore (Guardian,
2016). Or the story about the supply problems of paper-fibre manufacturers in Brazil, plus a
season with a more than average number of forest fires in Canada, leading to a toilet-paper
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