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Creating World-Class Supply Chains Matthias Holweg Ph.D. Judge Business School University of Cambridge Email: [email protected] World Bank - Knowledge Economy Forum VI Cambridge, April 17 2007 Outline Supply chain mangement Why is it important?

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creating world class supply chains

Creating World-Class Supply Chains

Matthias Holweg Ph.D.

Judge Business School

University of Cambridge

Email: [email protected]

World Bank - Knowledge Economy Forum VI

Cambridge, April 17 2007

outline
Outline

Supply chain mangement

  • Why is it important?
  • Features of high-performing supply chains
  • The role of technology

The automotive industry

  • Global trends
  • The case of Slovakia

Conclusions

  • Policy recommendations
outline3
Outline

Supply chain mangement

  • Why is it important?
  • Features of high-performing supply chains
  • The role of technology

The automotive industry

  • Global trends
  • The case of Slovakia

Conclusions

  • Policy recommendations
why do we talk about it
Why do we talk about it?
  • Traditional thinking: competition is driven by the 4P’s
    • Today: supply chain capabilities determine competitiveness!
    • Wal-Mart versus K-Mart
    • Compaq/HPversus Dell
  • A final product is not the sole achievement of the OEM
    • Customer experience is determined by supply chain: quality, cost, delivery
    • Significant proportion of value sourced from suppliers!
  • Supply chains are connected systems:
    • Competitiveness of one tier is a function of the supply and distribution functions, i.e. surrounding tiers.
  • “Value Chains compete, not individual companies!”
  • (Christopher 1992)
islands of excellence or optimal supply chain
“Islands of Excellence” or Optimal Supply Chain?

100

Max

Average

Assembly

Plant

6%

Raw Materials

and components

21%

Distribution

73%

Min

50

Days of Inventory

0

Customer

Dispatch

Distribution

On-site Parts

Raw Material

Assembly WIP

Assembly WIP

Finished Parts

In-house Parts

Bought-in Parts

Inbound Transit

Outbound Transit

Pre-Assembly WIP

Source: Holweg and Pil, “The Second Century”, MIT Press 2004

features of high performing supply chains
Features of High-performing Supply Chains
  • Long-term collaborative relationships
      • Trust and commitment, respect of the right of mutual existence
  • Single or dual sourcing
      • Component volume is adjusted according to performance
      • Constant positive pressure by dual sourcing
  • Improvement
      • Collaboration with suppliers on operational improvement; example: Toyota’s Supplier Support Center (TSSC) in Kentucky
      • Annual cost reductions are realised in collaboration, not isolation
  • Operations and logistics
      • Level production schedules to avoid spikes in the supply chain
      • Milk-round delivery systems that can handle mixed-load, small-lot deliveries
      • Disciplined system of JIT delivery windows at the plant; suppliers deliver only what is needed, even if this compromises load efficiency in transport
the role of technology
The Role of Technology
  • The ‘Holy Grail’ in curing supply chain ills?
  • Example: ‘Bullwhip problem’
      • Demand visibility is key: RFID / AutoID, EDI, EDIFACT, EPOS, CPFR
      • …yet they only work if the planning systems use this information!
  • Example: transaction costs in automotive
      • COVISINT (est. 2000) and the B2B/e-commerce revolution
      • Predicted savings of $1,000 per vehicle in transaction costs!
  • The Role of Technology
      • Technology alone is not a sufficient, it can assistproblem solving
      • If the underlying processes are not capable, technology will fail
      • It is a means to an end, not an end in itself!
outline8
Outline

Supply chain mangement

  • Why is it important?
  • Features of high-performing supply chains
  • The role of technology

The automotive industry

  • Global trends
  • The case of Slovakia

Conclusions

  • Policy recommendations
auto industry major trends
Auto Industry: Major Trends
  • Overall global growth by 1.85% CAGR since 1975
  • Substitution of production with adjacent low-cost regions
  • Major growth of production in China (2000-05: x5.2), and India (2000-05: x1.7), - 4% in Western Europe
  • Auto industry is regionalising, not globalising!
  • What does this mean for the dynamics of competition?
  • Competing in a global, distributed industry:
    • Future competition on cost is a futile battle..
    • Rely on quality? Brand? Design? Proximity to customer?
continuous window of opportunity

Market

Demand

New

Entrant

Continuous Window of Opportunity

Established

Player

Product

Features

Time

Any labour cost advantage is temporary!

Source: adapted from Christensen (1997)

the auto industry in emerging countries
The Auto Industry in Emerging Countries
  • Automotive industry very attractive
      • Job multiplier of 5-7 for every assembly job
      • Technology transfer
  • Many subsidies, but questions of long-term viability!
  • The case of Slovakia’s auto industry
      • VW Bratislava, PSA Trnava, Kia Zilina, growing cluster CZ, PL, HU
      • 5m inhabitants, c.900k production, domestic sales of <80k units
  • Challenges
      • Logistics: lead-time to customer, reliability of supply
      • Labour shortage, migration and rising compensation
  • Migration further east is inevitable
      • Domestic demand in Russia, growing labour cost differential
outline13
Outline

Supply chain mangement

  • Why is it important?
  • Features of high-performing supply chains
  • The role of technology

The automotive industry

  • Global trends
  • The case of Slovakia

Conclusions

  • Policy recommendations
conclusion supply chain enemies
Conclusion: Supply Chain ‘Enemies’
  • Common logic behind all SCM initiatives!
  • Inventory & delays
      • Time worsens ‘swing’ of amplification
      • Decision delays require stock
      • Safety stock decisions send false signals
  • Unreliability or uncertainty
      • Any kind of uncertainty needs to be covered with inventory
      • Unreliable processes cause unreliable delivery
  • Hand-offs or decision points
      • Every hand-off or tier in the system bears danger of distortion!

‘Inventory is a substitute for information’

policy recommendations
Policy Recommendations
  • Infrastructure is a always a concern..
  • …but uncertainty is a sure killer of any location decision!
      • Customs clearance
      • Currency
      • Regulation (labour, traffic, taxation)
      • Crime & bribes
  • Supply chains are connected systems:
      • Labour cost differential is only a short-term advantage
      • Strong need to attract suppliers, not just manufacturers!
      • Need to build local competencies, rather than “screw-driver factories”
      • Domestic demand is not essential if logistics systems work
slide16

Centre for Competitiveness and Innovation,Judge Business School, Univ. of Cambridge http://www-innovation.jbs.cam.ac.ukInternational Motor Vehicle ProgramMassachusetts Institute of Technologyhttp://imvp.mit.edu Email: [email protected]

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