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Value creation through supply chain integrations: relationship management & technology issues. Prof. Xiande Zhao Director, Center for Supply Chain Management & Logistics Li & Fung Institute of Supply Chain Management/ Logistics Chinese University of Hong Kong

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Value creation through supply chain integrations relationship management technology issues l.jpg

Value creation through supply chain integrations: relationship management & technology issues

Prof. Xiande Zhao

Director, Center for Supply Chain Management & Logistics

Li & Fung Institute of Supply Chain Management/ Logistics

Chinese University of Hong Kong

http://lf-scml.baf.cuhk.edu.hk/index/


Enhancing competitive advantages through supply chain integration l.jpg

Enhancing competitive advantages through supply chain integration

  • What is Value and how do you create value?

  • What is Supply Chain Integration (SCI)?

  • What are the different types of SCIs?

  • Cases and Research Findings on SCIs

  • What are the key factors that influence SCI?

    • Relationship Management Issues:

      • Trust,

      • Relationship Commitment

    • Technology Issues


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Some Basic Questions

  • How do you win over your customers?

  • What is value?

  • How do you provide better value to your customer?


What is value l.jpg

What is value?


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Some Basic Questions

  • How do you provide better value to your customer?


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What are the Order Qualifiers and Order Winners?

Exhibit 2.5


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Time Line for Operations Strategies


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What can we do to enhance our capabilities in:

  • Delivery speed/Dependability?

  • Flexibility?

  • Services?

  • Innovation?


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The Answer is:

  • Supply chain Integration (SCI)


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What is Supply Chain Integration?

the degree to which the firm can strategically collaborate with their supply chain partners

and collaboratively manage the intra- and inter-organization processes to achieve the effective and efficient flows of

  • Product and services,

  • Information,

  • Money,

  • Decisions

    With the objective of providing the maximum value to the customer at low cost and high speed


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How LI & FUNG Adds Value?

Li & Fung does the high-value-added front-and back-end tasks front endback end

design quality control

engineering testing

production planning logistics

it organizes the lower-value-added middle stages through its network of 7,500 suppliers, 2,500 of which are active at any one time.

raw material and component sourcing

managing production


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  • What are some of the major types of integrations?


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SCI

Strategic Integration

  • Focus on core competencies

  • Outsource other activities

  • Leverage over the strength of the strategic partners to gain competitive advantages

  • Jointly develop strategies with partners

  • structure the strategic goals and objectives into consensus and contractual agreements

  • share resources, rewards and risks across organizations in order to achieve competitiveness.


Internal integration l.jpg

SCI

Internal Integration

Linking the internally performed work by different functional units into a seamless process to support customer requirements

  • Cross-functional team work: managers of cross functional teams use information from multiple sources to and are empowered to make immediate decisions.

  • Standardization: Establishment of cross-functional policies and procedures to facilitate synchronous operations

  • Simplification: Identification, adoption, implementation, and continuous improvement of best practices

  • Compliance: Adherence to established operational and administrative policies and procedures


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SCI

External Integration

the degree to which a firm can partner with its key supply chain members (customers / suppliers)

  • to structure their inter-organizational practices, procedures and behaviors

  • into collaborative, synchronized and manageable processes in order to fulfill the customer requirement.


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SCI

Customer Integration

Building lasting and distinctive relationships with customers of choice

  • development of customer specific programs designed to generate maximum customer success.

  • customer focus to continuously match changing expectations

  • Accommodation of unique and/or unplanned customer requirements


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SCI

Supplier Integration

Linking externally performed work into a seamless congruency with internal work process

  • development of a common vision of the total value creation process and planning clarity concerning shared responsibility

  • linkages of systems and operational interfaces to reduce duplication, and redundancy while maintaining operational synchronization.

  • extended management to include the supplier’s suppliers


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SCI

Information Integration

the degree to which a firm can coordinate the activities of information sharing and combine core elements from heterogeneous data management systems, content management systems, data warehouses, and other enterprise applications into a common platform in order to substantiate the integrative supply chain strategies.

  • Commitment and capabilities to facilitate supply chain resource allocation through seamless transactions across the total order to delivery cycle

  • Capability to exchange information across internal factional boundaries in a timely, responsive and usable format

  • Capability to exchange information with external supply chain partners in a timely, responsive and usable format

  • Collaborative Forecasting and Planning: Customer Collaboration to develop shared visions and mutual commitments to jointly generated action plans.


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Some cases of SCI

  • Luen Thai’s D2S supply chain model

  • ASTEC’s SCI with Customers and Supplier

  • Ford Motor Company’s integration with its suppliers


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Information Technology Platform 信息科技平台

Logistics and Compliance Platform 物流及推行平台

Winning Model in the New Era新时代的致胜模型

Winning Model: Design and Logistics Driven

致胜模型﹕由设计及物流所推动

Manufacturing

生产

Design & Development

设计及开发

Sourcing

采购

Logistics

物流

Store

零售店

联泰

Pioneering the New Model

新模型的先驱


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雅达电子产品

Mobile phone charger

(2W-5W)

- standard/Custom design

- constant current

Adapter (7.5W - 100W)

- Multi - O/P

- Wide-range AC input

- OVP, S/C protection

- High efficiency

- High MTBF

Lower Power Series

(25W - 350W)

- Auto ranging input

- Build-in EMI filter

- Active power factor correction

- Multi - O/P

- Medical safety approval

- OVP, OCP

Medium Power Series

(400W - 1200W)

- Wide-range AC input

- C-share

- Power factor correction

- Multi - O/P

- Warning signal

AC, DC Router 1360W

- N+1 redundancy

- Hot plug, hot swap

- Current share on all outputs

- Status signals

- EEprom

AC - DC Family

1W – 6KW

Server PSU (250W - 3000W)

- Active power factor correction

- N+1 parallel redundant operation, hot pluggable

- I2C port for Vital Product Data and fault status

- Built-in fans (in series) with temperature

controlled speed

DC - DC Modules

1W - 1200W

DC/DC Industry standard pin-out

Series (10W - 150W)

- Industry standard pin-out

- High efficiency

- Zero load operation

DC/DC module (50W-300W)

- Secondary side control

- 24V, 48V, 300V input

- High efficiency

- Low noise/ripple

Fast Transient VRM (100W)

- Programmable output

- High efficiency


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Nokia in Europe

ASTEC

Forecast

Global Commodity Manager

13 weeks Forecast

Invoicing based on pull information

Nokia manufacturing facilities

Hub Planning

ISR

Outbound Shipment

Periodic Inventory Report

Weekly total Pull Report

Production Requirements

Pick & pack inventory

HUB

Hungary

  • 1 week trans-shipment

Finland

Bao’an, China

Germany

  • 6 weeks in-transit time

Goods flow

Information flow

Example: Nokia customer hub process


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FORD’s Case


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Supply chain nodes of Ford

Other Plants

Distant Suppliers

Logistic Centre

Industrial Park

Local Suppliers

DAD

Seq/JIT

Seq/JIT

Seq/JIT

Seq/JIT

DAD

Logistic Operator

Logistic Operator

Seq/JIT

Seq/JIT

Almussafes Ford Plant


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Products & services flow; Information & knowledge flow; and Financial flow

Goods, services,

revenue

Information &

Knowledge

Relationships and flows

Part

s (O.C.)

/Empties

Sequence

Carriers

Sequence Sub

Supplier

Assemblies

Traditional

Routes &

Supplier

Material

s

info.

Time

Windows &

Materials

Info

Parts

Sub

Logistic

Assembly

$

Operator

Info.

Planning

J.I.T. Sub

Info

Assemblies

$

Planning &

Parts

Sequence

(O.C.)

/Empties

Delivery

Planning &

Info

Order

Note

Sequence Info.

Delivery

$

Note

Time

Parts

Constraints

$

Windows &

Sub Assemblies

(O.C.)

M

a

terial

s

(JIT & Seq)

D.A.D. Sub Assemblies

info.

Delivery Note

OEM

$

D.A.D.

Planning Info.

(Original

Planning & Sequence Info

J.I.T.

Supplier

Sub Assembly Info.

Equipment

Constraints

Supplier

Manufacturer)

Constraints

Sub Assembly Info.

$

Order

Goods

$

Goods

Info

Dealer


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The V-CHAIN Virtual Enterprise Reference Model, the TO-BE Model, has been conceived as the framework needed to obtain an integrated problem solving approach

Suppliers

VE BUSINESS REFERENCE MODEL: OVERVIEW

Logistics Operator

Carriers

(Operator for

Planning and Sequencing)

Assembler

Other actors


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Our Research on Relationship Management and Supply Chain Integration in China

  • Research Questions:

  • How do SCI influence supply chain performance and the financial performance of the firm?

  • How do trust and relationship commitment influence supply chain integration (supplier integrations (SI, CI and II)?


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Research Methods

  • Surveys of manufacturers in 12 industries and 5 cities :

    • Chongqing, Tianjin, Guangzhou, Shanghai, and Hong Kong.

    • Respondents are people who are most knowledgeable on SCM, customer and supplier relationships

    • Top three industries:

      • Metal, Mechanical & Engineering. Textile and Apparel, Electronics & Electrical

  • Response rate:

  • 617 usable questionnaires from 4,569 contacted companies (13.5%) or 1356 questionnaires (45.5 %)sent out.


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Internal Integration (II)

  • Data integration among internal functions

  • Enterprise application integration among internal functions

  • Integrative inventory management

  • Real-time searching of the level of inventory

  • Real-time searching of logistics-related operating data

  • The utilization of periodic interdepartmental meetings among internal functions

  • The use of cross functional teams in process improvement

  • The use of cross functional teams in new product development

  • Real-time integration and connection among all internal functions from raw material management through production, shipping, and sales


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Customer Integration (CI)

  • The level of linkage with major customer through information network

  • The level of computerization for our major customer ordering

  • The level of sharing of market information from our major customer

  • The level of communication with our major customer

  • The establishment of quick ordering system with our major customer

  • Follow-up with our major customer for feedback

  • The frequency of periodical contacts with our major customer

  • Our major customer shares Point of Sales (POS) information with us

  • Our major customer shares demand forecast with us

  • We share our available inventory with our major customer

  • We share our production plan with our major customer


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Supplier Integration (SI)

  • The level of information exchange with our major supplier through information network

  • The establishment of quick ordering system with our major supplier

  • The level of strategic partnership with our major supplier

  • Stable procurement through network with our major supplier

  • The participation level of our major supplier in the process of procurement and production

  • The participation level of our major supplier in the design stage

  • Our major supplier shares their Production Schedule with us

  • Our major supplier shares their production capacity with us

  • Our major supplier shares available inventory with us

  • We share our production plan with our major supplier

  • We share our demand forecast with our major supplier

  • We share our inventory level with our major supplier

  • We help our major supplier to improve their process to better meet our needs


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What are some of the patterns of supply chain integrations?


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What influences Integration?

  • Trust

  • Has been shown to significantly influence supply chain cooperation because:

  • trust is a useful lubricant in maintaining cooperation, avoiding conflicts and opportunistic behaviors

  • trust can significantly contribute to the long-term stability of a supply chain relationship

  • Trust increases the transaction specific investment


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What are some of the major types of trust?

  • Competence Trust

    • Refers to the technical and managerial expertise that the trustee is capable of performing and will perform their roles as expected

  • Contractual Trust

    • Refers to an expectation that a trustee can be relied upon to maintain the ethical standard and carry out a verbal or written promise


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What are some of the major types of trust?

  • Calculative Trust

    • Refers to a trustor’s expectation that the trustee’s costs of cheating or engaging in opportunistic behavior are greater than the benefits of such actions

  • Affective Trust

    • Refers to the mutual expectations of open commitment to one another, and the commitment is regarded as a willingness to do more than is formally expected


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What is Relationship Commitment?

  • Relationship commitment can be defined as the willingness of a party to invest resources into a relationship

  • It indicates the propensity for relational continuity and the establishment of long-term relationship


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What are the major types of relationship commitment?

  • Affective Commitment:

  • can be defined as one party’s identification with and emotional attachment to the goals and values of another party, and willingness to secure the relationship

  • Affective commitment is based on a generalized sense of liking, loyalty and belongingness towards the exchange partner and an enduring desire to continue a relationship for enjoyment


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What are the major types of relationship commitment?

  • Calculative Commitment:

    • can be viewed as one party’s identification with the benefits and costs of the relational exchange, and willingness of maintaining the relationship for satisfying his needs


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Relationship Between Trust, Relationship Commitment and Process Integration?

+

Business Sense & Judgment

Calculative Trust

+

Calculative Commitment

?

Ability & Expertness

+

Competence Trust

+

-

Supply Chain Integration

Predictability

+

Contractual Trust

+

Confidence

+

+

+

Benevolence

Affective Trust

Affective Commitment

Integrity

+


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Conclusions

  • Supply chain integrations (II, CI and SCI) significantly influence supply chain performance and the financial performance of the manufacturer.

  • Customer integration and internal integration seem to have great impact on performance than supplier integration.

  • To enhance integrations with customers and suppliers, manufacturers need to build trusts and enhance relationship commitments with them.

  • Affective relationship commitment is much more effective than calculative relationship commitment in enhancing SCIs

  • The use of expert power is much more effective than the use of reward or coercive power

  • Without trust and relationship commitment, technology is of no use


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Q & A

THANK YOU

Li & Fung Institute of Supply Chain Management/Logistics

http://lf-scml.baf.cuhk.edu.hk/index/


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