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SUPPLY CHAIN MANAGEMENT:. An Organizational Competency INTRODUCTION TO THE COURSE http://awhitebread.ba.ttu.edu [email protected] ALAN L. WHITEBREAD. IB 3353. Learning and doing in a business environment – always prepared! 4 TESTS EXERCISES / HOMEWORK

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Supply chain management l.jpg

SUPPLY CHAIN MANAGEMENT:

An Organizational CompetencyINTRODUCTION TO THE COURSEhttp:[email protected] L. WHITEBREAD


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IB 3353

  • Learning and doing in a business environment – always prepared!

  • 4 TESTS

  • EXERCISES / HOMEWORK

  • No make-up tests! No extra credit!


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COURSE STRUCTURE

  • Business environment

  • Read ahead to prepare for class everyday

  • Attend class AND take good notes

  • Analyze, create, learn, understand, and apply [versus memorize]

  • Form opinions based on facts and analysis

  • Participate

    • Some in-class activities

    • Your comments and questions


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KEY LEARNING OUTCOMES

  • Understand the four major basic parts of supply chain management.

    • understanding markets and supply chains,

    • supplier management and supplier relationships,

    • the role of the focal firm, its strategy and systems, and

    • marketing channels of distribution and channel relationships .

  • There are many concepts and theories that are relatively easy to understand at a high level but are very complex and difficult to implement.

  • New product development [NPD] is critical to the continuing success of the firm and the role SCM has in the NPD cycle.


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YOUR CAREER SUCCESS DEPENDS ON being

  • INDIVIDUAL & TEAM SUCCESS

  • ON TIME

  • UNDER BUDGET

  • ABOVE PLAN

  • NO EXCUSES

  • EVERY TIME!


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LEARNING OUTCOMES AND YOUR CAREER SUCCESS

  • Begin to understand the many forces that cause changes to marketing programs around the world.

    • Culture

    • Business practices and legal systems

    • Governmental issues and procedures


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SUPPLY CHAIN MANAGEMENTSECTION 1Understanding the Market – Supply Chain Relationship1 – UNDERSTANDING AND CREATING VALUEALAN L. WHITEBREAD


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KEY LEARNING OUTCOMES

  • Understand the four major basic parts of supply chain management.

    • understanding markets and supply chains,

    • supplier management and supplier relationships,

    • the role of the focal firm, its strategy and systems, and

    • marketing channels of distribution and channel relationships .

  • There are many concepts and theories that are relatively easy to understand at a high level but are very complex and difficult to implement.

  • New product development [NPD] is critical to the continuing success of the firm and the role SCM has in the NPD cycle.


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WHAT IS SCM TODAY?

It is the seamless end-to-end management of a complex set of decisions requiring the exchange and flow of information, products, services, and money.

Simply put,


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BUSINESS ENVIRONMENT

Regulatory compliance and corporate governance

Ethical, government

Risk Management

Customer, planning, quality, research, supplier, systems

Human Resource Development

Staffing and compensation

Education and skill development: change, education, professional development, team

Information Technology

Knowledge Management, MRP/ERP, JIT

Sourcing

Inventory & Logistics

Customer Relationships

Supplier Relationships

Payments

Order fulfillment

Procurement


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FIRMS USING SUPPLY CHAIN MANAGEMENT

The Aromatics (Thailand) Public Co. Ltd.

plus every other company, governmental agency, and organization.


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SUPPLY CHAIN MANAGEMENT

Mining companies – Manufacturers – Suppliers – Assemblers – Services

Resellers of all kinds or final purchasers

Final purchasers of Resellers

MARKETS

Consumers:

Customers

Prospects

Suspects

FOCAL FIRM

NEW PRODUCT DEVELOPMENT


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SUPPLY CHAINS ARE INTERDEPENDENT

SUPPLIERS’

SUPPLIERS

MARKET

Consumers:

Customers

Prospects

Suspects

CUSTOMERS

If you change one thing in a supply chain, you know that one or more other things will be affected. So you must make decisions for the good of the entire supply chain, not for a specific area.

For instance, the system losses in all other areas may greatly exceed the benefit to the one area. This causes the supply chain to lose efficiency.


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MAJOR BENEFITS OF SCM

  • is due to the timely flow of information, products and services, and money.

  • is driven by the focal firm’s specifications, and requirements for their suppliers.

  • is a result from the close working relationships between your suppliers, your customers, and the focal firm.

  • results from the improved customer and supplier responsiveness and faster NPD.


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MAJOR BENEFITS OF SCM

  • are driven throughout the system with critical systems like Total Quality Management [TQM].

  • is required to minimize delays, inventory levels, and total cost structures.

  • as you build closer and more effective relationships.

  • From here on, the term products will mean products, and/or services, or any combination of products and services.


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SUPPLY CHAIN SUCCESS:Some hard questions

  • Who are we?

  • How do or should we …

    • Fit competitively?

    • Understand customer behavior at all levels?

    • Understand customer needs and wants?

    • Understand which competencies, technologies, and processes are required?

    • Understand the role of power in the supply chain?

    • Gain a detailed understanding of costs from a simple operation through to total system cost?


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FILLING THE GAPS

When?

Where?

How many?

In what mix?

Delivered how?

When is it made?

Where?

How many?

How is it scheduled?

How is it delivered?


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DEMAND PULLS ALL PRODUCT!

B2C

B2B

Suppliers

Manufacturers

Warehouses or Distribution Centers

B2C is business-to-consumer.

B2B is business-to-business.

Resellers

B2B or B2C Consumers

Planning and forecasting accuracy are critical as any delay in the system has a ripple effect! That ripple effect costs members time, money, and damaged relationships.


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EMPOWERED CUSTOMERS

  • Customers have quick access to extensive product and pricing information.

  • Consumers are increasingly demanding

  • Consumers are demanding more and better services.


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CREATING CUSTOMER VALUE

Benefits

These are some of the tools available to you to create and increase customer value. A great SCM system will strive to add value throughout the supply chain with everything it does.

Innovation

Quality

Delivery

Cost

Flexibility


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  • Benefits are the reason we buy everything!

  • Benefits

    • May be

    • Must be

    • Must always

  • Delivering meaningful benefits and exceeding customer expectations are the keys to customer satisfaction in every step of the supply chain.


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QUALITY TO THE END-USER

  • David Garvin identifies the following factors that comprise quality.

    • of the products

    • of the products

      -

    • of the products

    • Conformance to standards and specifications

    • Durability of the products

    • Serviceability of the products

      -

    • Aesthetics of the products

      -

    • Perceived quality of the products


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ADDITIONAL ASPECTS OF QUALITY

  • Service level

  • Product Flexibility

  • Delivery


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QUALITY: MANUFACTURING

  • Productivity

    • Improve current processes

    • Develop innovative processes

  • Strategic locations

    • If you had a product that would be sold frequently to most adults in the U.S., how would you get enough inventory in the right places to service customer needs?

    • How do the differences between a sophisticated and an unsophisticated product affect service levels of the locations?

  • Supply chain management in place


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QUALITY: DESIGN AND SPECIFICATIONS

  • Design to meet

  • Design to meet

  • Design for

  • Exceed standards organizations specifications


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QUALITY: PROCESSES

  • Works right the first time and every time!

    • A batch lot sampling approach to quality [percent defective]

    • At a customer specified level

    • Standards might include

      • Mil-Std-105E; ANSI/ASQC Z1.4-1993 and 2003; ISO 2859-1 [1999]

    • It is frequently found in

      • food, pharmaceutical, medical device, communications, apparel, software, and many more industries.


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QUALITY: PROCESSES

  • are used when a process variable is counted rather than measured. Here’s how its done.

    • Calculate the mean [average] for the variable.

    • Calculate the standard deviation [σ ]for the variable.

    • The control chart limits for an acceptable product = Mean ±σ


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QUALITY: PROCESSES

  • A statistical approach to quality

  • It is frequently found in

    • communications, financial services, healthcare, many manufacturing firms, and others.

  • Supplier rating / categorization

    • Suppliers are rated / categorized and each supplier level has its minimum requirements

    • Ship-to-stock is generally the highest level of supplier. They will ship products in your packaging directly into your inventory for shipment to your customers.


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    QUALITY: SERVICE

    • Exceeding service expectations is the key to value realization. Value realization is the customer perception of your worth versus your cost.

      • You purchased something for its perceived benefits.

      • It performed better than expected.

      • It was a better value than you initially thought.

      • What are you likely to do?

    • Service must be seamless for the customer!


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    QUALITY: COST

    • Continuous improvement drives process efficiency!

    • The International Metric is Landed cost [LC]

      LC = Standard Cost + Transportation1 +

      Insurance + Duties + Other Fees

      1 Inland location to outbound port + port fees + transportation to inbound port + port fees


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    QUALITY: FLEXIBILITY

    • The outstanding firm has these characteristics.

      • Change is embraced and indigenous to all processes.

        • Any process can always be improved.

      • It can easily handle shorter lead times, special requests, unexpected events, and varying quality specifications.

      • It employs sophisticated information systems and highly developed processes are in place.

      • The thrust of the organization is to


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    QUALITY: DELIVERY

    • Correct products shipped

    • Correct quantities [exact amounts, no partial orders unless requested by the customer]

    • Correct

    • Correct order

      • An automotive supplier may be required to provide parts for the truck in the order they need to go to the assembly line.


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    QUALITY: INNOVATION

    • Suppliers can provide excellent advice. Get them involved early and you may get a nice surprise.

  • Joint teams with hand-picked members from each entity address

    • Design

    • Process improvement

    • Cost reduction

    • Major opportunities or problems


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    CUSTOMER SATISFACTION …

    • is based on the perceived benefits, the performance of the product and/or service, and the quality of the organization[s] that support it relative to customer expectations; and

    • It depends on understanding customer needs and wants then providing solutions with meaningful benefits, and

    • It must become deeply ingrained into the corporate culture.


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    CUSTOMER SATISFACTION AND EXPECTATIONS

    • Customer expectations must be managed so benefits always exceed them! Overcommitting only leads to disappointment and customer dissatisfaction.

    • Customer expectations are the bases for customers measuring their satisfaction.

    • Increased customer satisfaction leads to increased brand loyalty.


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    THE VALUE OF CUSTOMER SATISFACTION

    • SCENARIO 1

      • Benefits greatly exceed expectations = Very satisfied customer

        • Customer is loyalty and recommending

    • SCENARIO 2

      • Benefits exceed expectations = Satisfied customer

        • Customer is less loyal, provides a weak if any recommendation


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    THE VALUE OF CUSTOMER SATISFACTION

    • SCENARIO 3

      • Benefits meet expectations = customer is indifferent

        • Customer is neutral, not recommending you

    • SCENARIO 4

      • Benefits are below expectations = Dissatisfied customer

        • Customer is not loyal, not recommending you

    • SCENARIO 5

      • Benefits are far below expectations = Very dissatisfied

        • Customer will not purchase from you again. Customer shares their bad experience others.


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    CUSTOMER SATISFACTION

    • Metrics – ways to measure customer satisfaction

      • Percent on-time delivery

      • Percent of order complete

      • Percent defective products

      • Speed of response

    • Product / service gaps

      • What products / services are we missing?


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    CUSTOMER-CENTRIC STRATEGY

    • All supply chain activities are a result of a customer buying or wanting to buy a product and/or service.

    • A customer-centric strategy asks

      • What are the real needs of our

        • customers?

        • customer’s customers?

        • ultimate end-use customers?

      • What

        • information must be shared, and

        • capabilities developed, through the supply chain to meet these needs?

      • How can we improve the overall supply chain’s customer fulfillment capabilities?


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    CUSTOMER-CENTRIC STRATEGY

    • A firm likely has different customer segments with different service expectations within a target market segment.

    • In addition to customer segments, very large accounts are likely to have specific individual service requirements.


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    MARKET SEGMENTATION AND CUSTOMER-CENTRIC STRATEGY

    • Market segmentation is the identification of unique groups or sets of customers and prospects who possess similar characteristics or needs.

    • Market segmentation is the basis for

      • understanding the needs of market segments,

      • developing market segment profiles,

      • determining an effective marketing mix, and


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    CUSTOMER ANALYSIS

    • To complete a thorough customer analysis, you need to be able to answer these questions.

      • What do each of our tiers of customers need to succeed?


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    CUSTOMER SEGMENTATION

    • Your customer analysis by tiers from the previous slide may provide some interesting insights.

    • You may also need to analyze customer types within tier

      • For example, if a tier is B2B distributors it would be best to understand their needs by type of business they are in like electrical, MRO, medical, etc. They are likely to have some important differences.


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    CUSTOMER SEGMENTATION

    • Types of customers within tiers

      • “20% of your customers provide 80% of your sales” – but you have the ability to manage the mix.

        • “A” customers are the largest and should receive the best service.

        • “B” customers are the next largest and should receive sufficient service to grow.

        • “C” customers are the smallest and should be serviced with a minimum of resources [transactional accounts]. Possible candidates for direct marketing activities.

        • Just make sure your customers are never told they are a “B” or a “C” customer!


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    CUSTOMER SEGMENTATION

    • As you do your customer segmentation make sure you also define expected service levels.

      • Examples of things to consider could include

        • Communications: frequency, levels, …

        • Role of teams

        • Information systems

        • Processes

      • ?


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    EVALUATING CUSTOMERS

    • What are the best measures for evaluating customers for our firm?

      • Net sales, profits, growth prospects, …,?

    • What tools can we use to measure this?

      • Ties specific costs directly to the customers that create them.

      • Used to identify the profitability of a business relationship.

    • Customer Relationship Management [CRM]

      • Used to create customer profiles that capture buying habits and determine customer profitability.

      • Many firms have a lot of work to do to incorporate relationships and tie this to an efficient direct marketing campaign.

    • These must be balanced with customer opportunity for growth in revenue and profit!


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    CUSTOMER SERVICE GAPS

    • Our customers continually evaluate us and we must exceed their expectations in all areas to not suffer from a customer service gap.

    • Customer service gaps can exist in

      • Speed of response

      • Quality of response

      • Not delivering as promised

      • Poor or untimely information flow

      • ?


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    MARKETING DEGREE:Emphasis in Supply Chain Management

    • MKT 3353 Supply Chain Management

    • MKT 4358 International Marketing

    • MKT 4370 Logistics Management

    • MKT 4371 Logistics Analytical Methods

    • IB 4361 International Commerce

      See my website for the brochure or your advisor for degree plan information.

      http://awhitebread.ba.ttu.edu


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    SUPPLY CHAIN MANAGEMENTOnline/Distance Learning CourseSECTION 1Understanding the Market – Supply Chain Relationship2 – THE SUPPLY CHAIN: AN OVERVIEWALAN L. WHITEBREAD


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    THE FIRM’S ENVIRONMENTS

    • Competitive

    • Cultural

    • Economic

    • Legal

    • Political

    • Corporate culture

    • Functional and cross-functional relationships

    • Reward systems

    • Strategic priorities

    • Comparative advantages

    • Core competencies

    • Overall competitiveness [key success factors]


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    SUPPLY CHAIN MANAGEMENT

    FIRM’S

    ENVIRONMENT

    MARKET POSITION

    STRUCTURE &

    OPERATIONS

    [SCM]

    THE PROCESS IS SOUND.

    THAT IS WHY WE USE CONTINGENCY THEORY.


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    CONTINGENCY THEORY

    • Contingency theory sets the framework to evaluate alternatives using scenario planning.

    • Every good executive and manager is continually aligning the firm’s resources to take advantage of opportunities in the marketplace.

    • The central question a supply chain manager must continually answer is …


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    TREE DIAGRAM

    What will they do?

    ?

    What will they buy?

    ?

    Underdeveloped Nations:

    Poorly educated

    Lack of water

    Lack of food

    Very poor infrastructure

    Rapid increase in population

    Normal increase in population


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    SUPPLY CHAIN MANAGEMENT

    • requires

      • a common understanding by all entities [levels or tiers] of supply chain objectives;

      • an understanding of all individual entity roles;

      • the ability to work together across entities, functions, and levels of responsibility;

      • the flexibility to adapt in a timely manner to various or unpredictable situations, and,

      • the desire to create and deliver products and services that provide excellent customer value.


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    SUPPLY CHAIN MANAGEMENT

    CUSTOMERS

    MARKETS

    Consumers:

    Customers

    Prospects

    Suspects


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    SUPPLY CHAIN MANAGEMENT

    Entities and their Roles

    PLUS – Information Requirements – Flows and Processes – Repelling Competitive Thrusts – Building Relationships

    SUPPLIER’S

    SUPPLIERS

    SUPPLIERS

    FOCAL FIRM

    CUSTOMERS

    CUSTOMER’S CUSTOMERS


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    THE SUPPLY CHAIN AT WORK: A product flow view

    CONSUMERS

    FORD, GM

    CHRYSLER

    FOCAL FIRM

    VEHICLES

    UPSTREAM

    SUPPLIER

    2ND TIER

    FASTENERS

    DIRECT

    SUPPLIER

    1ST TIER

    Manage all other tiers.

    RADIATORS

    STEEL

    COMPANY

    3RD TIER

    STEEL

    DEALERS

    RENTAL

    AGENCIES

    BUSINESSES

    CONSUMERS

    FLEETS

    SPECIAL

    VEHICLES


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    SCM:

    • INFORMATION

      • Market research

      • Supplier research

      • Process or system research

      • Technology research


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    SCM: PULL AND PUSH INFORMATION

    FOCAL FIRM

    CUSTOMERS

    SUPPLIERS

    Suppliers accessing Wal-Mart’s store data.

    FOCAL

    FIRM

    RESELLERS

    CUSTOMERS

    SUPPLIERS

    Toyota suppliers advising deliveries will be short due to the earthquake.


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    SCM: FLOWS AND PROCESSES

    • FLOWS AND PROCESSES

      • FLOWS

      • PROCESS INTEGRATION

        • Suppliers

          • Upstream

        • Focal firm

          • Internal Integration

        • Customers

          • Downstream

        • Complete

          • End-to-End Integration


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    SCM: FLOWS AND PROCESSES

    • MAJOR PROCESSES [SYSTEMS]

      • Suppliers

        • Supplier relationship management

      • Focal firm

        • Demand management

        • Manufacturing flow

        • Order fulfillment

        • Product development and commercialization

      • Customers

        • Customer service


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    SUPPLY CHAINS VS. VALUE CHAINS:AN HISTORICAL PERSPECTIVE

    SUPPLY CHAIN

    The connected set of all

    value-added business

    entities and flows that

    perform or support the

    logistics function

    required for production.

    Focus on upstream

    supplier and producer

    processes, efficiency,

    and waste reduction.

    LOGISTICS

    All discrete and

    Interrelated activities

    [regardless of ownership]

    that seek to enhance

    firm performance

    VALUE CREATION

    in every single event,

    process, and/or system

    from raw materials

    through

    customer satisfaction.

    Focus on downstream

    value creation for the

    customer


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    SUPPLY [VALUE] CHAIN SUPPORT ACTIVITIES

    • Infrastructure

    • Human resources

    • Materials Management

      • Purchasing or procurement function

    • Technology development


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    SUPPLY [VALUE] CHAIN:DIRECT ACTIVITIES

    • Inbound logistics

    • Operations

    • Outbound logistics

    • Marketing and Sales

    • Customer Services


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    SUPPLY [VALUE] CHAIN GOAL

    • To combine the support and direct activities to create the greatest value as perceived by the target market[s] segment[s].


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    EXTERNAL SUPPLY [VALUE] CHAINS

    • CUSTOMERS

    • SUPPLIERS

    • MARKETS

    • STAKEHOLDERS


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    SUPPLY CHAIN PRINCIPLES:

    • MAXIMIZE VALUE AT EVERY OPPORTUNITY FOR ALL YOUR STAKEHOLDERS [PUBLICS].


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    A SUPPLY CHAIN

    • REPELLING COMPETITIVE THRUSTS

      • Market [segment] share

      • Large customers


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    SUPPLY CHAIN PRINCIPLES:

    • Builds relationships

      • Suppliers

      • Focal firm stakeholders

        • Customers

        • Employees

        • Shareholders

        • Suppliers

        • Special interest groups


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    SUPPLY CHAIN MANAGEMENTOnline/Distance Learning CourseSECTION 1Understanding the Market – Supply Chain Relationship3 – INFORMATION [research for the supply chain]ALAN L. WHITEBREAD


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    WHAT ARE THE COMMON GOALS OF SUPPLY CHAIN MANAGERS?

    • In rank order

      • Increase sales

      • Get more value from current investments

      • Reduce the amount of direct labor and material

      • Migrate to a higher percentage of variable cost through outsourcing


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    SCM MANAGEMENT PROCESSES

    • Customer relationship management [CRM]

    • Customer service

    • Demand forecasting

    • Inventory control

    • Order fulfillment

    • Manufacturing flow and scheduling

    • New product development & commercialization

    • Procurement

    • Returns – Rework – Replace - Disposal

    • Supplier interfaces


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    THE RESEARCH PROCESS

    Develop the

    research

    plan

    Collect data

    Present the

    findings

    Analyze the

    data


    Information l.jpg

    INFORMATION

    • What information do we need about our external environment?

      • Competitive

        • Actions, new developments, new products, new entrants, …

      • Legal

        • New laws, regulations, and procedures

      • Cultural

        • How do we appear to be native to this culture?

      • Economic

        • How well do we understand the impacts of economic trends and cycles on our business[es]?

      • Political


    Information75 l.jpg

    INFORMATION

    • What information do we need about consumers [markets]?

      • Strategy analysis

      • Market research

        • What are their needs?

      • New / existing business analysis

      • Market segmentation / share

      • How do markets view our competitors and their offerings?

      • ?


    Information76 l.jpg

    INFORMATION

    • What information do we need about suppliers?

      • Capabilities

        • Facilities, output, technological prowess, … ?

      • Financial status and prospects [10K and 10Q]

      • Management team and style

      • How well do they comply with security needs?

      • How well do they meet standards and compliance needs?

      • What are there systems, processes, process flows, …

      • ?


    Information77 l.jpg

    INFORMATION

    • What information do we need about our organization?

      • Competitively speaking, how do we fare technologically?

      • Are processes and procedures as efficient as they can be?

        • Inventory management and live inventory

      • Do we have an above average supplier management program?

      • Do we have exceptional

        • market segmentation?

        • customer classifications?

      • Have we implemented best practices throughout the organization?

      • How do we expand and streamline global operations?

      • ?


    Information78 l.jpg

    INFORMATION

    • What information do we need about our organization?

      • Are we prepared to handle emerging key issues?

        • The rapidly rising cost of transportation

        • The falling or rising value of the dollar

        • Technology challenges

        • The challenge of energy efficiency?

        • The challenge of becoming ecology friendly?

        • ?


    Information79 l.jpg

    INFORMATION

    • What information do we need about our

      • How do they want to purchase?

      • What are they really good at?

      • How good is our reseller selection process?

      • What do they need to become better?

      • ?


    Information80 l.jpg

    INFORMATION

    • What information do we need about our

      • How do they use our products?

      • What are their attitudes about …?

      • What do they like most about us?

      • Where do they perceive product and/or service gaps?

      • ?


    Slide81 l.jpg

    SUPPLY CHAIN MANAGEMENTSECTION 1Understanding the Market – Supply Chain Relationship4 – MARKET DEFINITION, SEGMENTATION, AND TARGET MARKETINGALAN L. WHITEBREAD


    Market segmentation l.jpg

    MARKET SEGMENTATION

    • This is a multi-step process that must be done in a sequence of six steps.

    • It groups people or entities by their most important attributes.

    • It should determine unique [preferably] or nearly unique segments where each segment will have its own behavior pattern.


    Market segmentation a six step process l.jpg

    MARKET SEGMENTATION- A SIX-STEP PROCESS -


    Market segmentation bases market segment and target market l.jpg

    MARKET SEGMENTATION: BASESMARKET SEGMENT AND TARGET MARKET

    1+ CHILDREN

    HISPANIC

    TARGET

    AGES 25-34

    HOUSEHOLD INCOME

    OVER $50,000

    In this example, the key attributes are Hispanic, ages 25-34, with household income over $50,000 per year having one or more children. The target market segment is the intersection of all four attributes. It is the small colored area named TARGET.

    [Oxford - MacDonald - video]


    Market segmentation develop attractiveness measures l.jpg

    MARKET SEGMENTATION- DEVELOP ATTRACTIVENESS MEASURES -

    • WHY IS MARKET SEGMENTATION WORTH DOING?

      • It provides for very targeted communications.

      • It helps you provide products that fulfill needs and wants.

      • It allows you to respond to changing markets and conditions.

      • It makes your marketing more efficient.

    • BUT, IF THE MARKET SEGMENTATION IS WRONG, LITTLE SEEMS TO WORK WELL AFTERWARD!


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    MARKET SEGMENTATION

    • Multiple market segments

      When a firm uses the market segment approach it usually has between three and eight market segments.

      Market segments that are not nearly unique result in lack of brand loyalty and consumers being less brand loyal [cannibalization]. Venn diagram explanation.

      • From 2009 to 2011 P&G is reducing the number of detergent segments in the U.S. from 13 to 6.

        Remember - the number of market segments is a function of your market segmentation, not some arbitrary range. The more segments you have the more complex and expensive the marketing effort is likely to be.


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    CONSUMER MARKET SEGMENTATION METHODS – DEMOGRAPHIC [1]

    “Lubbock’s leading radio station”


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    CONSUMER MARKET SEGMENTATION METHODS – DEMOGRAPHIC [2]


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    CONSUMER MARKET SEGMENTATION METHODS – DEMOGRAPHIC [3]


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    CONSUMER MARKET SEGMENTATION METHODS – PSYCHOGRAPHIC [1]


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    CONSUMER MARKET SEGMENTATION METHODS – PSYCHOGRAPHIC [2]

    ATTITUDES, INTERESTS, & OPINIONS [AIO] for instance:

    Spends 1+ hours per day on the Internet, heavy e-mail user

    Buys on the Internet, goes to stores only as required

    Professional, income above $75,000 per year

    Belongs to multiple frequent traveler programs

    The market profile should provide almost everyone that reads it a very similar picture of the people in this target market segment!


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    CONSUMER MARKET SEGMENTATION METHODS - BEHAVIORAL


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    U.S. CONSUMER COMMUNICATIONS MARKET SEGMENT PROFILES

    • Older [define age range [45+]], low communicator [define [<1 hour per day on the phone]], low income [define range or maximum [$15,000-30,000 per year]

    • Middle-aged, higher income, empty nester [no children at home], who talks a lot on the phone

    • Technology interested [extensive user of several communications modes], well educated, high discretionary income

      You must define every term so there is a clear understanding of the profile!


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    B2C EXPECTED BUYER BEHAVIOR

    • Exercise:

      • Describe the expected buyer behavior profile of the market for any current product.

      • Use key items like demographics, psychographics, purchasing patterns, quantity, the marketing mix, classification of your product, and other relevant items to generally describe how consumers would purchase this item.

        • ON YOUR OWN: Develop a buyer behavior profile for college students purchasing pens for class use.


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    MARKET SEGMENTATION:FILLING THE GAPS

    CHANNELS OF DISTRIBUTION

    1

    3

    PRODUCTS

    SERVICES

    APPLICATIONS

    4

    4

    2

    TWO LARGEST TARGET MARKET SEGMENTS

    MARKETS / SEGMENTS

    In this example, you have to decide which target market segments are good for your firm. #1 needs a channel of distribution you are either not in or have a very weak position. That is very hard to do. #2 and #4 are nice size. A large firm will attack #2, but #1, #3, and #4 may be too small to be of interest. #3 is the hardest of all because it has channel and product mix issues.


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    B2C TARGET MARKET SEGMENT CRITERIA: Kotler’s 5 tests

    • MEASURABLE

      • Can I quantify the size of the market [segment]?

  • ACCESSIBLE

    • Can I access the market [segment] with my current channels of distribution?

  • SUBSTANTIAL

    • Is the market [segment] large enough to be worthwhile?

  • DIFFERENTIABLE

    • Can our products be clearly differentiated?

  • ACTIONABLE

    • Does my company have the necessary staying power?

  • YOU ALWAYS NEED TO IDENTIFY A UNIQUE OR NEARLY UNIQUE RESPONSE / BEHAVIOR PATTERN FOR EVERY SEGMENT!


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    LEVELS OF MARKET SEGMENTATION

    UNDIFFERENTIATED [MASS] MARKETING

    The firm decides to ignore market segment differences.

    One marketing mix

    Same product to all segments

    SaltSugarEarly Ford

    DIFFERENTIATED [SEGMENTED] MARKETING

    The firm decides to target several [large] market [s] segment[s]

    Each market or segment has a marketing mix

    Different products for each market segment

    Proctor & Gamble detergents Current auto manufacturers


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    LEVELS OF MARKET SEGMENTATION

    CONCENTRATED [NICHE] MARKETING

    The firm decides to pursue a larger market share of selected [smaller]

    market segments, sub-segments, or niches

    Different products to the [sub-]segments

    Different marketing mix for each segment or sub-segment

    SUV’sstandard to family to luxury

    MICROMARKETING

    Specialized products for individuals and locations

    LOCAL MARKETING INDIVIDUAL MARKETING

    [Brands, promotions] [1:1 marketing]

    Local chain grocery stores Amazon, Dell


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    #2 – DIFFERENTIATED MARKETING

    • A different marketing mix for each large segment.

      • Marriott International [circa 2000]

        • Marriott Suites…………...Permanent vacationers

        • Fairfield Inn……………..……...Economy Lodging

        • Residence Inn………….……….....Extended Stay

        • Courtyard By Marriott………..Business Travelers

          TRANSITIONED TO CONCENTRATED [NICHE] MARKETING [beginning in 2008 -13 brands]


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    MARKET TARGETING:CHOOSING A MARKET-COVERAGE STRATEGY

    • Some questions about key factors to consider when deciding on a market-coverage strategy include the following.

      • What are the available company resources?

      • How much market variability exists?

      • What is the product’s life cycle stage?

      • How much product variability exists?

      • What is the typical behavior of the competition and their actions/strategies?


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    CHARACTERISTICS OF BUSINESS VERSUS CONSUMER MARKETS


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    CHARACTERISTICS OF BUSINESS VERSUS CONSUMER MARKETS


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    THE ECONOMY AND NAICSEvery economy has a similar economic organizational structure.

    GROW, BUILD, OR MAKE

    SELL

    SERVICE

    GOV’T

    Agriculture

    Mining

    Utilities

    Construction

    Manufacturing

    Wholesale

    Retail

    Transportation

    Information Finance

    Real Estate Professional

    Management Administration

    Entertainment Health

    Education Accommodation

    Other

    Public Administration


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    BUSINESS CLASSIFICATIONYou can find NAICS details at www.census.gov

    • NORTH AMERICAN INDUSTRIAL CLASSFICATION SYSTEM [NAICS]

      • SUPPLY-ORIENTED SYSTEM

      • 20 SECTORS: 1,065 INDUSTRIES [in 2012]

      • Compatible with

        • NAFTA: 5 DIGITS + 6TH FOR COUNTRY CODE

        • ISIC Rev. 3 [UN]


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    READING NAICS TABLES - PAGERS

    • 51 Economic sector

      • Information

  • 511 Economic sub-sector

    • Broadcasting and Telecommunications

  • 5111 Industry group

    • Telecommunications

  • 51111 Industry group

    • Wireless Telecommunications Carriers

  • 511111 U. S. Industry specialized identification

    • Paging


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    TYPES OF MARKETS

    • HORIZONTAL MARKET

      • Numerous NAICS codes define it.

        • B2C – Inexpensive pens, pencils, pads of paper, …

        • B2B – floor sweeping compound

    • VERTICAL MARKET

      • One or a few NAICS codes define it.

      • May be very profitable [niche]

        • B2C – $1,000 fountain pen

        • B2B – CT scanner


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    BUSINESS SEGMENTATION VARIABLES

    Organizational Characteristics

    -Industry

    -Size

    -Channel

    -Operating characteristics

    Buying Approach

    -Centralization

    -Functional involvement

    -Partnering

    Product[s] or Process[es] or Technology[ies]

    -Level of technology

    -Configuration

    -Design

    Application[s]

    of Products / Services

    -What are they used for?

    -How they are used?


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    BUSINESS MARKET SEGMENTATION

    • ORGANIZATIONAL CHARACTERISTICS

      • GEOGRAPHIC

        • How can I sell my new pen to ALL 400,000 businesses in the Chicago area?

      • DEMOGRAPHIC

        • How do I get my resume to all firms with 500 or more employees?


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    BUSINESS MARKET SEGMENTATION MATRIX

    You get the same result using products within applications or applications within products.


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    B2B TARGET MARKET SEGMENT CRITERIA

    • MEASURABLE

      • The degree to which you can measure buyer characteristics

    • ACCESSIBLE

      • The ability to focus on target market segments

    • SUBSTANTIAL

      • The degree to which target market segments are large enough and potentially profitable enough to pursue


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    B2B TARGET MARKET SEGMENT CRITERIA

    • COMPATIBLE

      -The extent to which marketing and business strengths compare to current and expected competitive and technology states

    • RESPONSIVE

      -The extent to which target market segments respond to elements of the marketing mix


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    POSITIONING: ESTABLISHING CUSTOMER VALUE

    • POINTS OF PARITY [POP] AND POINTS OF DIFFERENCE [POD]

      • RELEVANCE

        • It must be relevant and important.

      • DISTINCTIVENESS

        • It must be distinctive – superior [actual or perceived] is nice.

      • BELIEVABILITY

        • It must be believable and credible.


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    STARBUCKS POP AND POD


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    POSITIONING: ESTABLISHING CUSTOMER VALUE

    • POINTS OF CONTENTION [POC]

      • Elements where there is disagreement as to how its performance or functionality compares to the next best alternative.

      • Seen in comparison or negative advertising

    • COMPETITIVE FRAME OF REFERENCE

      • Comparative advertising

      • Negative advertising


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    COMMUNICATIONS MARKET EXERCISE


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    SUPPLY CHAIN MANAGEMENTOnline/Distance Learning CourseSECTION 1Understanding the Market – Supply Chain Relationship5 – SYSTEMS THINKING AND SUPPLY CHAINSALAN L. WHITEBREAD


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    FUNCTIONAL ORGANIZATION THINKING AND GOALS

    PURCHASING

    Metrics: Standard cost [SC], PPV

    PRODUCTION

    Metrics: SC / volume / automation

    MARKETING

    Metrics: Average unit price [AUP]

    LOGISTICS

    Metrics: Inventory & transportation


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    SUPPLY CHAIN MANAGEMENT:PROCESS THINKING AND GOALS

    • aligns decisions with corporate strategy, and

    • coordinates actions across

  • SCM is the maximization of value at every opportunity from supplier’s supplier to the customer’s customer.

  • SCM requires a process thinking approach that consists of sets of value-added flows and activities in three areas.


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    SYSTEMS THINKING

    • Systems thinking is the holistic process of simultaneously considering both the immediate outcomes and the longer-term system-wide ramifications of decisions.

    • It requires:

      • Information Availability and Accuracy

      • Teamwork

      • Metrics

      • Systems Thinking


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    INFORMATION

    • Bar Codes

    • Radio Frequency Identification [RFID]

    • Data Warehousing

    • Data-Mining

    • Materials Requirements Planning [MRP] or Enterprise Resource Planning [ERP]


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    TEAMWORK

    • Hand-pick teams to accomplish specific objectives.

      • Process improvement

      • Cost improvement

    • They may be


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    METRICS

    • With a systems thinking approach we must be able to quantitatively measure changes in processes as well as the impact of any single change or set of changes on the total system.


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    SYSTEMS THINKING

    • Requires all firms and employees anywhere in the supply chain to understand their place in the larger chain.

    • All entities must participate in

      • Establishing the core goal[s]

      • Defining systems and their boundaries

      • Determining the nature of the interrelationships

      • Determining the information requirements

      • Performing trade-off analysis

      • Evaluating and implementing system constraints


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    THE FIRM AS A VALUE-ADDED SYSTEM

    • Everything the firm does must be focused on

      • increasing

      • building

      • strengthening


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    THE FIRM AS A VALUE-ADDED SYSTEM

    • Core Competency

      • The skills and processes that together seek to deliver customer value at least equal to the most direct competitor.

      • The total value that the firm promises to deliver to the customer.


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    STRATEGIC DIRECTION OF THE FIRM[“THE CORE COMPETENCE OF THE CORPORATION” ARTICLE]

    • CORE COMPETENCY

      • The foundations [ ] upon which you build your business over a very long time. You need to compare your core competencies with those of your competitors.

    • THREE CORE COMPETENCY TESTS


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    KEY SUCCESS FACTORS

    • NOT CORE COMPETENCIES

    • YOU MUST DO BETTER ALL THE TIME TO

    • Take a few moments now and apply the core competency tests to the following and see why they usually fail one or more of the tests.

      • Customer services

      • Design


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    SWOT ANALYSIS

    Your firm and your major competitors

    IP

    Low cost structure

    Market position

    STRENGTHS

    BUILD

    Take advantage of the firm’s strengths

    OPPORTUNITIES

    EXPLOIT

    Use the firm’s strengths to offset competitive threats

    NPD

    New markets, channels

    Acquisitions

    LEVERAGE

    CONSTRAINTS

    VULNERABILITIES

    Breadth of offering

    Lack of management talent

    Weak finances

    WEAKNESSES

    CORRECT

    Offset the firm’s weaknesses

    THREATS

    AVOID

    Counter threats

    Rapidly changing market

    New entrants

    Government regulations

    PROBLEMS


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    SWOT:EXAMPLE QUESTIONS

    • STRENGTH

      • What do we do better than others?

    • WEAKNESS

      • Where has performance declined?

    • OPPORTUNITY

      • What new trends [short-term and long-term] are emerging?

    • THREAT

      • Is a major technology change underway or expected in the industry?


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    COMPETITIVE ADVANTAGE OF THE FIRM:PORTER’S THREE GENERIC STRATEGIES

    Customer Perceived Uniqueness

    Low Cost Position

    Focus on perceived value.

    Examples = ?

    OVERALL COST

    LEADERSHIP

    STRATEGY

    Hard to maintain

    long term.

    Examples = ?

    Understanding and focus.

    No direct battles with major competitors.

    Examples = ?


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    STRATEGY AND SYSTEMS


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    STRATEGY AND SYSTEMS


    Strategy and systems133 l.jpg

    STRATEGY AND SYSTEMS


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    STRATEGY AND SYSTEMS


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    PROCESS ENGINEERING

    • is the design of business processes using a methodology to optimize each specific process.

      PROCESS REENGINEERING

    • is the of business processes using


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    DECISION MAKING AND UNCERTAINTY

    • Economic Value Analysis

      • Requires you to have outcome steps and a probability estimate for each outcome step.

      • The Expected Value [EV] is the sum of the probability of an outcome [Pn] times the value [Vn] of that outcome.


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    EXPECTED VALUE EXAMPLE

    You are deciding between two alternatives with the following payoffs, states of nature, and probabilities. Which alternative should you choose?


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    DECISION TREE EXAMPLE

    SUBSIDIARY PIECE PART PURCHASE OPTIONS

    100%

    Net cost

    10.00 / 100% = 10.00

    Buy from U.S.

    [10.00 landed cost]

    96%

    Net cost

    9.80 / .96 = 10.21

    Buy from qualified local supplier

    [9.80 delivered cost]

    Subsidiary purchases

    90%

    Net cost

    9.60 / .9 = 10.67

    Manufacture the product

    [9.60 cost]


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    PROCESS MAPS

    • A process is any activity that transforms an input set into an output set.

    • A process map is a visual representation that shows all steps in the correct sequence that is required to transform an input set into an output set.

    • A process map should show


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    PROCESS MAP PROBLEM

    Procurement

    Input

    [materials]

    Process

    [manufacture]

    Output

    [finished goods]

    Output

    [customer receives finished goods]

    Movement

    [to customer]

    Delay

    [warehouse inventory]

    Movement

    [to warehouse]

    Process mapping has its own set of diagram symbols.


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    SUPPLY CHAIN MAPS

    • Help to identify major linkages and bottleneck areas with customers and key suppliers.

    • Tools like a pipeline map may identify unnecessary complexity or steps, thereby leading to improvements in efficiency of the supply chain.


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    PIPELINE MAP EXAMPLE

    Receive customer specifications

    Discuss final specs with customer

    Make modifications to improve productivity

    Customer approves sample parts

    Engineering approves mold

    Machine customer tooling

    Test mold

    Design customer tooling

    Add cooling lines

    Make sample parts

    Production sample run

    Production approves mold

    Production begins

    Review customer specifications


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