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OMSAN LOJİSTİK. Top Management Program in Logistics & Supply Chain Management (TMPLSM). Global Logistics and International Operations 2. Strategic Management of Global Networks. Who is winning? … In what?. Source: Finlistics.

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slide2

Top Management Program in Logistics

& Supply Chain Management (TMPLSM)

Global Logistics and International Operations

2. Strategic Management of Global Networks

financial scm connection
Supply Chain Management has the potential to improve the three key drivers of Financial performance:

Growth – Annual Growth in Revenue

Profitability – percentage of Profits after deducting from revenue total operating expenses

Capital Utilization – euros of revenue generated relative to euros invested in assets like inventory, accounts receivable, warehouse, manufacturing and others.

Financial – SCM Connection
segmentation
Segmentation…

Family of Suppliers

Family of Customers

Suppliers

Integration

Policies

Customers

Service

Policies

6

and this is the way we could see the global logistics function and its processes
… and this is the way we could see the Global logistics function and its processes …

Logistics (bridge)

Consumption Point

(Factory, Store, User, Consumer)

Fulfilling your service promise, while optimizing system’s resources

Sourcing Point

(Supplier, Factory, Store, User)

Logistics

slide9
In reality, logistics is a system which receives input (resources) and after some activities (processes) generates output…

Resource Cost

Transaction Cost

Output Cost

Logistics

System

Logistics

Resources

Logistics

Output

What the logistics output should be?

slide10
… and logistics processes are the components of the bridge that holds the stream of materials, information and funds…
strategies for logistics planning
Strategies for Logistics Planning

4 Elements

5 Processes

1 Strategy

slide12

Customer Service

Warehousing &

DC Operations

Inventory

Planning

Transportation

& Distribution

Sourcing

Each logistics process has a specific role to assure the support of service levels and the optimization of resources.

Define logistics service policy

Capture demand

Fulfill orders with local inventory to meet response time requirements

Define inventory levels to fulfill demand

Optimize O-D lanes to meet response time requirements

Select optimal sourcing mix to meet inventory requirements

slide13
Cost of Logistics Resources + Cost of Holding Logistics Assets

People & Assets

Logistics Expenses

Views by

Resource, Activity (Output), Process

Logistics financial measurements are the most common and intuitive type of KPIs. Accounting practices however may restrain the possibility to compute logistics cost accurately.

Logistics Decision Objective = Max (Corporate EVA)

Logistics Decision = Min (Operating Cost + Capital Cost + Lost Sales)

better products value for the consumer
Better Products... Value for the Consumer?

3. How do we satisfy orders?

Collaboration with partners

Center around

Consumers

Bundling Goods and Services

1. What is our attitude towards consumers?

2. How do we differentiate what we sell?

value disciplines
Value Disciplines

Planning

Finance

Operations

Effectiveness

Customer

Satisfaction

Product

& Process

Innovation

Info Systems

Technology

slide17

Operations

Effectiveness

Customer

Satisfaction

Product

& Process

Innovation

Balanced Scorecard

Financial

Performance

Operations

Effectiveness

Customer

Satisfaction

Product

& Process

Innovation

slide18

Financial Perspective

“If we succeed, how will we look to our shareholders?”

Customer Perspective

“To achieve my vision,how must I look to my customers?”

Internal Perspective

“To satisfy my customer, at which processes must I excel?”

Organization Learning

“To achieve my vision, how must my organization learn and improve?”

The Balanced Scorecard Provides a Framework to Translate the Vision and Strategy Into Operational Terms

The Strategy

  • Measurement is the language that gives clarity to vague concepts
  • Measurement is used to communicate, not to control
  • Strategy can be described as a series of cause and effect relationships
building the balanced scorecard bsc
Four perspectives (why four?)

PerspectiveGeneric Measure

Return on Investment and economic value added

Financial

Satisfaction, Retention, Market, and Account Share

Customer

Internal

Quality, Response Time, Cost, New Product Introductions

Learning and Growth

Employee Satisfaction and Information Systems Availability

Building the balanced scorecard (BSC)

19

slide20

Balanced Scorecard

Financial

Performance

Current

Operations

Effectiveness

Customer

Satisfaction

Internal

External

Future

Alignment

Deployment

Measurement

Product

& Process

Innovation

the balanced scorecard provides a framework to translate a strategy into operational terms

Financial

“To succeed financially, how should we appear to our shareholders?”

Initiatives

Objectives

Targets

Measures

Internal Business Process

Customer

“To achieve our vision, how should we appear to our customers?”

“To satisfy our shareholders and customers, what business processes must we excel at?”

Initiatives

Initiatives

Objectives

Objectives

Targets

Targets

Measures

Measures

Learning and Growth

“To achieve our vision, how will we sustain our ability to change and improve?”

Initiatives

Objectives

Targets

Measures

The balanced scorecard provides a framework to translate a strategy into operational terms

Vision

and

Strategy

21

is this a good balanced scorecard
Is This a Good Balanced Scorecard?

Financial

Customer

  • Operating Income Growth
  • Same Store Sales Growth
  • Inventory Turns
  • Expense / Sales Growth Ratio
  • Frequency of Purchase
  • Units Per Transaction
  • Transaction Size
  • Customer Feedback

Internal

Learning & Growth

  • Category Market Share
  • Category Margin
  • Sales per square foot
  • Quality / Returns
  • Out of Stock
  • Employee Climate Survey
  • Turnover
  • Strategic Skill Coverage
  • System vs. Plan
slide23
A Balanced Scorecard Is More Than a List of Measures….A Good Balanced Scorecard Tells the Story of Your Strategy
lean thinking
Five Principles:

Providing Value (How Customers perceive Value)

Creating Value Stream (for each Operation)

Generating Flow (Value Making Processes, eliminate “Silos”)

Employing Pull (follow through the entire Process)

Creating Perfection (Quality should be embedded in every activity)

Lean Thinking

James Womack and Daniel Jones: Lean Thinking

lean thinking linked to marketing
Five Principles:

Providing Value (How Customers perceive Value) Price

Creating Value System (for each Operation) Place

Generating Flow ( … eliminate “Silos”) Promotion

Employing Pull (follow through the entire Process) Planning

Creating Perfection (Quality … embedded …) Product

Lean Thinking … linked to Marketing

James Womack and Daniel Jones: Lean Thinking

lean thinking linked to metrics
Accounting measurements conceived at the turn of the 19th century are no longer relevant for the 21th century (e.g., manufacturing absorption!).

Two results metrics that will encourage lean behavior when taken together are Inventory Turns and Fill Rate…

Balanced Score Keeping should be the target … that involves a System view of the entire Organization

Lean Thinking … linked to Metrics
lean thinking linked to manufacturing
Reduction of Unnecessary Waste

Overproduction

Delays (waiting time)

Transportation

Processes

Inventories

Motions

Defective Products

Defective Design

Lean Thinking … linked to Manufacturing
classification of issues in operations

I. MANAGINGTHE INSIDE

II. MANAGING THE LINKAGES

III. MANAGINGTHE NETWORK

Classification of Issues in Operations
slide30

Why does business need a operational model to evaluate performance?

  • Why not use just financial measurement?
  • An example:
    • Quote by Larry Brady, President of FMC (early 1990’s):
    • “As a highly diversified company, … the return-on-capital-employed (ROCE) measure was especially important to us.
    • At year-end, we rewarded division managers who delivered predictable financial performance. We had run the company tightly for the past 20 years and had been successful.
    • But it was becoming less clear where future growth would come from and where the company should look for breakthroughs into new areas.
    • We had become a high return-on-investment company but had less potential for further growth. It was also not at all clear from our financial reports what progress we were making in implementing long-term initiatives.”
the corporate challenge implementing business strategy
The Corporate Challenge:Implementing Business Strategy

“Less than 10% of strategies effectively formulated are effectively executed”

Fortune

four barriers to strategic implementation

The Vision Barrier

Only 5% of the work force Understands the strategy

The People Barrier

The Management Barrier

Only 25% of managers have incentives linked to strategy

85% of executive teams spend less than one hour per month discussing strategy

60% of organization don’t link budgets to strategy

The Resource Barrier

Four Barriers to Strategic Implementation

9 of 10 companies fail to execute strategy

Today’s management systems were designed to meet the needs of stable industrial organizations that were changing incrementally.

You can’t manage strategy with a system designed for tactics

clear operational objectives try to
Clear Operational Objectives try to:
  • Translate vision into execution (deployment)
  • Current & futures perspective
  • Financial & non-financial factors
  • Include non-quantitative factors
      • but quantify them whenever possible
slide34

Suppliers

Consumers

Managing the Linkages and the Network

Crafting Your Supply Chain Strategy

Two Strategic Questions:

1. Who Controls the Supply Chain?

2. Who Should Manage Which Part?

total factor productivity1

Base Profit

Profit Increase

Price

Volume

Productivity

New Profit

Total Factor Productivity
slide39

X

=

slide40

P

V

$

tfp starting point
Factor Productivity

The amount of output relative to the amount of a specific input (e.g. units per labor hour)

Example: last year - 10 units of output per labor hour this year – 12 units of output per labor hour labor productivity increased by 20% (from 10 to 12)

Total Factor Productivity (TFP)

A combined measurement of the amount of output (of a product) relative to the sum of all resource inputs (the factors)

A means of measuring the overall performance of an operation

TFP Starting Point
productivity measurement issues
Productivity Measurement Issues
  • How to combine inputs that are measured in different units?
      • Labor hours
      • Material weights
      • Energy BTUs
  • How to treat output ‘units’ that change over time
      • Standard product & options
      • Quality improvements
      • New products, line mix
tfp basic approach
Monetarize all variables

assumes quality differentials are reflected in prices & costs

Adjust for inflation

Use $$$ as a surrogate (Implicit measure)

TFP Basic Approach

Note: Requires units & price data for all inputs and outputs … or calculable approximations

what service level

SCENARIO 2

Part Ordered Received

A 1,000 1,000

B 2,000 2,000

C 4,000 0

D 2,000 2,000

E 1,000 1,000

Total 10,000 6,000

Line Fill Rate 60%

Order Fill Rate80%

SCENARIO 1

Part Ordered Received

A 1,000 990

B 2,000 1,990

C 4,000 3,990

D 2,000 1,990

E 1,000 990

Total 10,000 9,950

Line Fill Rate 99.5%

Order Fill Rate0.0%

What Service Level?
optimal inventory planning

Q.R.

OTHER

Q.R.

OTHER

47%

33%

13%

4%

5%

10%

11%

9%

4%

52%

1%

11%

53%

47%

35%

65%

Why not make-to-order non-Q.R.“C” items?

Optimal Inventory Planning

Radical Stocking Alternatives

SALES

ITEMS

STRATA

TOTAL

TOTAL

A

80%

17%

B

15%

20%

C

5%

63%

TOTAL

100%

100%

distribution of item types by order
Distribution of Item types by order

35%

35%

30%

25%

25%

20%

15%

15%

10%

10%

5%

5%

5%

5%

0%

A Only

B Only

C Only

A&B

A&C

B&C

A,B,&C

inventory profile analysis ipa
Inventory Profile Analysis (IPA)

An aggregation technique that comparesActual toDesired(or Target Inventory) at the SKU level.

Coverage(%)= Actual Inventory compared to Target ( 0 to 100%)

Excess(%)= Any Quantity Above Target ( no upper limit )

Example

Targetis 10 apples and 10 orangesActual= 5 apples and 15 oranges

Coverage= 75% (5 apples + 10 oranges = 15/20 x 100)

Excess = 25% (5 oranges = 5/20 x 100)

IPA = 75 - 25 %

Assume Annual Demand is 120 apples and 120 oranges and the Inventory Turns Target is 12. Inventory Turns = ??

IPA = 75 - 25 %, i.e. we risk serious stockouts and wasting a fourth of the resources!

profit drivers
Maximize revenueMaximize margin

Minimize cost

Minimize investment =>Maximize velocity

Profit Drivers

(Relatively) easy individually …

difficult in simultaneous combination

strategic profit positions

O

P

S

E

F

F

I

C

I

E

N

C

Y

H

I

G

H

L

O

W

Strategic Profit Positions

Cost Quality Flexibility Service

Scale - scope – learning

Matched competency

49

Doing the right things the right way …

strategic profit positions1

MARKET EFFICIENCY

HIGH

LOW

Strategic Profit Positions

O

P

S

E

F

F

I

C

I

E

N

C

Y

H

I

G

H

L

O

W

Fragmented competition

Rational customers

Plentiful supply

Full information

50

strategic profit positions2
Strategic Profit Positions

MARKET EFFICIENCY

HIGH

LOW

Leader

Dominator

O

P

S

E

F

F

I

C

I

E

N

C

Y

H

I

G

H

L

O

W

Loser

Opportunist

51

profit based strategy
Goodoperations/marketing strategies serveefficientmarkets efficiently

Great operations/marketing strategies attackinefficientmarkets efficiently

Profit Based Strategy
slide53

Polaroid Europe

Case Presentation

slide55

General Criteria For Choice of Country

  • Current Capabilities
  • Scope of Improvement within Subsidiary Size
  • Current Costs (Labor, Inventory, Facility)
  • Distance from Enschede
  • Customer Requirements
  • Quality of Transportation Service
  • Ability to Manage Customs Delays
  • Local Management Support
  • Ease of Implementation
  • Value as Demonstrated Project

55

slide57

IDSC Capabilities

  • Information Systems
  • Communication Systems
  • Material Handling Systems
  • * Pallets Quantities
  • * Case Quantities
  • Packaging
  • Carrier Capabilities
  • Presence in Many Countries
  • Customs Management
  • Information Systems
  • Communication Systems

57

evaluation for a european logistics strategy
Evaluation for a European logistics strategy
  • Flexibility is a winning criterion
    • Decentralized Distribution centers might be wiser
  • Congestion and environmental regulations
    • 45 people per square mile versus 11 in the US
  • Trucking remains the fastest mode
    • 85% of all intra-Europe freight travels less than 100 miles (64% of total ton-miles in Europe are by truck versus 30% in the US).
  • Outsourcing is key but be careful selecting
    • “No 3PL can handle ALL industries”
  • Customer Service requirements are NOT homogenous
why manufacture abroad

Most Tangible

Most Intangible

Why Manufacture Abroad?
  • Reduce Direct and Indirect Costs
  • Lower Capital Costs
  • Reduce Taxes
  • Reduce Logistics Costs
  • Get Inside Tariff Barriers
  • Provide Better Customer Service
  • Spread Foreign Exchange Risks
  • Build Alternative Supply Sources
  • Preempt Potential Competitors
  • Learn from Local Suppliers
  • Learn from Foreign Customers
  • Learn from Competitors
  • Learn from Foreign Research Centers
  • Attract Talent Globally
forces for going or staying offshore
Forces for Going or Staying Offshore

* The Savings can cost a lot

* Savings may not last

* You may get trapped

* Hollow the Company

* Lose important

friends at home

* Operational Flexibility

* Manage Political Risk

* Information arbitrage

* Global Coordination

* Access to Financial Markets

and Tax Minimization

why manufacturing firms invest abroad
Why Manufacturing Firms Invest Abroad?
  • Reduce Production, Labor, or Material Costs
  • Take advantage of skilled labor - increase productivity
  • Source locally
  • Hedge (speculate) againstExchange Rates
  • Benefit from resultingOperating Flexibility
  • Increase Sales/Markets
  • Take advantage of Local Government offers
  • Getting around Trade Barriers

All of which essentially implies:Profitability and Future Growth

slide64

BMW USA

Case Presentation

bmw spartanburg plant
BMW Spartanburg Plant
  • Plant designed to produce 300 cars a day with future expansion to 400 vehicles per day.
  • Focused on Manufacturing Flexibility: using a single assembly line, plant capable of producing different models.
  • Worldmarket Demand for Roadsters 150,000 to 160,000 units per year of which they expected to capture 20%.
  • Production cost 20% less cost than a German alternative.
options
Options

1. Gear up for higher Production of both the Z3 and the 3 Series Additional Investment of $200 million.

2. Send the 318 back to Germany’s Regensburg plant.

3. Resist market pressure and concentrate on Quality.

characteristics of different entry modes
Characteristics Of Different Entry Modes
  • DISSEMINATION RISK
    • Low
    • Low
    • Medium
    • High
  • RESOURCE
  • COMMITMENT
    • Low
    • Low
    • Medium
    • High

ENTRY MODE

Exporting

Licensing

Joint Venture

Wholly Owned

Subsidiary

  • CONTROL
    • High
    • Low
    • Medium
    • High
slide69

COUNTRY ENVIRONMENT

ECONOMIC

POLITICAL FACTORS

CULTURAL

COMPETITIVE SITUATION

INDUSTRY

CHARACTERISTICS

ENTRY MODE DECISION

COMPANY CHARACTERISTICS

PRODUCT

TECHNOLGOY

RESOURCES

GLOBALIZATION

slide73

Strategic Role of Joint Ventures

Advantages

* Resource Mobilizer

* Political Insurance

* Cultural Guide

* Competitive Tool

Major Drawbacks

* Conflicting Priorities

* Interaction Costs

Managing the Relationship

* Carefully assess complementarity

* Know your partner

* Achieve goal and strategy congruency

* Identify conflict points

* Make clear rules

* Make transactions transparent

* Communicate clear and often

* Control creatively

* Share equitably

* Be Flexible

73

slide74

Strategic Role of Joint Ventures

  • * Economic Analysis
  • * Political Analysis
    • - Risk Analysis
    • - Exposure
    • - Effective Counter-measures
  • * Complexities Unique to International Business
    • - Exchange Rates
    • - Tax Systems
    • - Labor Regulations
    • - Banking Practices
  • * Interpersonal Skills
    • - Relationships with Local Communities
    • - Minor Bureaucrats
    • - Several Cultures
  • * Relationship with the “Home Office”
    • - Time Frame
    • - Values

74

slide75

Factors Affecting the Investment Decision

Uncertainty

  • Demand
  • Input Prices
  • Exchange Rates
  • Competition
  • Government Regulations
  • Capital Controls

Strategic

  • Logistics / Location
  • Trade / Tariffs
  • Multi-Domestic Industry
  • Technology Transfer
  • Sourcing / Customer / Supply proximity

75

slide76

Foreign Exchange Impact

There are three main ways thatforeign exchange

fluctuationsaffect a company’s financial performance:

Transaction Exposure:by changing the expected results of transactions denominated in non-domestic currencies.

Translation Exposure:by changing the domestic currency value of net assets held in foreign currency.

Operating Exposure:by changing the domestic currency value of future cash flows to be earned in foreign currencies or by changing a firm’s future competitive position.

76

slide77

Currency Risk Management Strategies

MICRO-LEVEL STRATEGIES

Proportion of Use

Payment in US Dollars 85%

(Risk Avoidance)

Buying Foreign Currency Forward 20%

(Risk Avoidance)

Buying Foreign Currency Futures 35%

(or Options) (Risk Minimization)

Risk Sharing Contract Agreement 55%

(Risk Minimization)

Payment in Supplier Currency 5%

MACRO-LEVEL STRATEGIES

Proportion of Use

Supplier Selection through 20%

Exchange Rate Forecasts

Flexible Sourcing Contracts on 10%

Volume/Timing Purchases

Develop a Portfolio of Global N/A

Suppliers / Supplier Switching

77

slide78

VW Mexico

Case Presentation

slide79

Volkswagen de MEXICO

  • Car production at 1600/day.
    • 900 Golfs/Jettas (Export)
    • 150 Golf Cabriolets (Domestic only)
    • 150 Old-Style Beetles (Domestic only)
    • 400 Light Trucks
  • 75% of production is now in exporting.
    • Canada, South America, US, Germany, Spain
  • Engines
    • 3000/day, 1400 exported to Germany and Spain (SEAT).

79

slide80

Domestic Competition

  • The Mexico 5 Car Companies.
  • Competitors also moving production to Mexico.
    • Low costs
    • Free trade
  • VWM only one without
  • US plants.

80

slide81

Mexico Exports

  • An ideal export platform
      • Land-link proximity and ports on 2 oceans
      • Inexpensive, reliable transportation infrastructure
      • Cheap labor with improving technology/labor productivity
      • German and other international parts suppliers producing in Mexico
      • Remaining trade barriers (US to Mexico, but not Mexico to US and Canada)

81

slide82

Reducing the Foreign Exchange Exposure

  • Marketing Strategy
    • Diversify exports markets.
    • Prepare for domestic market turnaround.
    • Develop less price sensitive product line.
  • Financial Strategy
    • Diversify debt portfolio among countries VWM sells into.
  • Production Strategy
    • Maintain flexible production factor sourcing.

82

slide83

Product Design

Establishes the “upper bound” on supply chain efficiency

Logistics

Purch.

Mfg.

Distrib.

Service

Suppliers

Customers

Information Technology

Enables and institutionalizes supply chain processes

Supply Chain Boundaries

Complementary / synergistic combinations

slide84

"We know what we are and what we\'re not. We are a really superb product integrator. We\'re a tremendously good sales-and-logisitcs company. We\'re not the developer of innovative technology."

product architecture
Product Architecture
  • Shared Platforms
  • Modularity
  • Common Components
  • Ease of Assembly
  • Postponement

Critical for mass customization and

Supply Chain Efficiency.

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