21st Century Supply Chain

21 Century Supply
st
Chain
New Focus Required
12/07/21 -5- 1
Supply Chain
Significance
SC aroused prominence by the turn of 21st
century.
It is rightly pointed that the competition is

between supply chains and not companies.
(Christopher and Towill 2001)
The SCM is a complex subject

 topics from various disciplines of study.
12/07/21 -G- 2
Supply Chain
Definition
 Supply Chain is the

 net work of facilities and activities
 often owned by different entities that
 performs the functions of
 product development,
 procurement of raw materials from vendors,
 manufacturing,
 distribution,
 retailing and
 after-sale service of products
 delivers to ultimate customers.
12/07/21 -G- 3
The Perils of Efficiency
Focus of last decade (‘90)
 Companies focused on
 building and re-building supply chains to
 deliver goods and services to

consumers
 as quickly and inexpensively as possible
12/07/21 -1- 4
Focus of last decade – some of the efforts (‘90)
 Quick Response initiative (American

apparel companies)
 Efficient Consumer Response (grocery
companies in Europe and US)
 Efficient Foodservice Response (U.S. food
service industry)
 Host other individual initiatives in various
sectors
12/07/21 -1- 5
Deficiency
 High speed , low-cost supply chains are
 unable to respond to unexpected changes in demand

or supply
 performance steadily deteriorated
 consumer satisfaction with product availability fell

sharply during the same period
12/07/21 -1- 6
Reason
 centralized manufacturing and distribution facilities to

generate scale economies,
 Deliver only container loads of products to customers to
 minimize transportation time,
 freight costs, and
 the number of deliveries
 When demand for a particular brand, pack size, or

assortment rises without warning
 the required merchandise was often already in factory
stockyards, packed and ready to ship,
 but it couldn't be moved until each container was full.
12/07/21 -1- 7
Consequence
 When manufacturers eventually deliver additional

merchandise, it results in excess inventory
 because most distributors don't need a container load
to satisfy the increased demand.
 To get rid of the stockpile, Companies sell at discounted

prices
 reduce companies' profits
 erode brand equity and
 anger loyal customers who bought
 the items at full price in the recent past
12/07/21 -1- 8
The Triple-A Supply Chain
The New Approach
 To provide companies with sustainable

competitive advantage
 supply chains need to be
 agile,
 adaptable, and
 aligned
12/07/21 -1- 9
AGILITY
Objective
 Respond to short-term changes in demand

or supply quickly;
 handle external disruptions smoothly
12/07/21 -1- 10
AGILITY
Methods
 Promote flow of information with suppliers and
customers.
 Develop collaborative relationships with
suppliers.
 Design for postponement.
 Build inventory buffers by manufacturing a
stockpile of inexpensive but key components.
 Have a dependable logistics system or partner.
 Draw up contingency plans and develop crisis
management groups.
12/07/21 -1- 11
AGILITY
not new or radical Three Principles
 closing the communication loop,
 sticking to a rhythm, and
 leveraging your assets
• Each one alone could improve the

responsiveness of any company’s supply chain.
But together, they create a powerful force
because they reinforce one another
12/07/21 -4- 12
AGILITY
Significance
Frequent sudden shocks to supply chains

• threat from natural Disasters (Taiwan earthquakes),
• Terrorism (sept 9/11),
• wars,
• epidemics (recent bird flue), and
• computer viruses
 has intensified in recent years
 because supply lines now traverse the globe
12/07/21 -1- 13
AGILITY
Contingency Plan
 most supply chains are incapable of

coping with emergencies
 the importance of drawing up contingency

plans for times of crisis.
12/07/21 -1- 14
ADAPTABILITY
Objective
 Adjust Supply Chain’s design to meet

structural shifts in markets;
 modify supply network to

 strategies,
 products, and
 technologies
12/07/21 -1- 15
ADAPTABILITY
Methods
 Monitor economies all over the world to spot

new supply bases and markets.
 Use intermediaries to develop fresh suppliers
and logistics infrastructure.
 Evaluate needs of ultimate consumers-not just
immediate customers.
 Create flexible product designs
 Determine where companies’ products stand in
terms of technology cycle and product life cycles
12/07/21 -1- 16
ALIGNMENT
Objective
Create incentives for better performance.
12/07/21 -1- 17
ALIGNMENT
Methods
 Exchange information and knowledge

freely with vendors and customers
 Lay down roles, tasks, and responsibilities

for suppliers and customers
 Equitably share risks, costs, and gains of

improvement initiatives (INCENTIVES)
12/07/21 -1- 18
ALIGNMENT
A STEP-BY STEP APPROACH - 1
 Companies face incentive problems in

their supply chains because of
 Hidden actions by partner firms
 Hidden information-data or knowledge that only

some of the firms in the Supply Chain possess
 Badly designed incentives
12/07/21 -3- 19
ALIGNMENT
 They can tackle incentive problems by
 Acknowledging that such problems exist
 Diagnosing the cause-hidden actions, hidden

information, or badly designed incentives
 Creating or redesigning incentives that will induce

partners to behave in ways that maximize the
supply chain’s profits
12/07/21 -3- 20
ALIGNMENT
 They can redesign incentives by
 Changing contracts to reward partners for acting

in the supply chain’s best interests
 Gathering or sharing information that was

previously hidden
 Using intermediaries or personal relationships to

develop trust with supply chain partners
12/07/21 -3- 21
ALIGNMENT
 They can prevent incentive problems by
 Conducting incentives audits when they adopt new

technologies, enter new markets, or launch supply chain
improvement programs
 Educating managers about processes and incentives at

other companies in the supply chain
 Making discussions less personal by getting executives

to examine problems at other companies or in other
industries
12/07/21 -3- 22
ALIGNMENT
Building Deep Supplier Relationship - 0
 This requires “Building Deep Supplier

Relationship
 six steps in a hierarchical order,
 although these steps are complementary
12/07/21 -5- 23
ALIGNMENT
Building Deep Supplier Relationship - step 1
 Understand how your suppliers work
 Learn about suppliers business
 Go to and see how the suppliers work
 Respect suppliers’ capabilities
 Commit to co prosperity.
12/07/21 -5- 24
ALIGNMENT
 Turn supplier rivalry into opportunity
 Source each component from 2 or 3 vendors
 Create compatible production philosophies and

systems
 Set up joint ventures with existing suppliers to

transfer knowledge and maintain control
12/07/21 -5- 25
ALIGNMENT
 Supervise your suppliers
 Send monthly report cards to core suppliers
 Provide immediate and constant feedback
 Get senior managers involved in solving

problems
12/07/21 -5- 26
ALIGNMENT
 Develop suppliers’ technical capabilities
 Build suppliers’ problem-solving skills
 Develop a common lexicon
 Hone core suppliers’ innovation capabilities
12/07/21 -5- 27
ALIGNMENT
 Share information intensively but

selectively
 Set specific times, places, and agendas for meetings
 Use rigid formats for sharing information
 Insist on accurate data collection
 Share information in a structured fashion
12/07/21 -5- 28
ALIGNMENT
 Conduct joint improvement activities
 Exchange best practices with suppliers
 Initiate Kaizen projects at suppliers’ facilities
 Set up supplier study group
12/07/21 -5- 29
ALIGNMENT
Partnering for Success
 Partnerships are costly to implement
 they require extra communication,

 coordination, and
 risk-sharing.
 They are justified only if they stand to yield
substantially better results than the firms could
achieve without partnering
12/07/21 -6- 30
ALIGNMENT
Partnering for Success – partnership model
 partnership model developed by Ohio State

University’s Global Supply Chain Forum
 Managers develop the ingredients of partnership model by
 stating the drivers behind their desire to partner and
 examining the conditions that would facilitate cooperation
 helping them decide on a partnership type and
 Identifying the needed managerial components.
 Later, if the partners are not happy with the relationship, they
determine whether drivers or facilitators are at an appropriate
level.
12/07/21 -6- 31
Partnership model developed by Ohio
State University’s Global Supply Chain
Forum
Drivers Facilitators
Compelling reasons
Decision Supportive
to environmental
to partner create/adjust factors that enhance
partnershi partnership growth
p
Components
Joint activities and
process that build
Drivers set and sustain the
expectations of partnership
outcome
Outcomes
Extent to which
performance
meets
expectations
12/07/21 -6- 32
ALIGNMENT
Partnering for Success – partnership model - drives
 partnership drivers fall into four

categories
 asset and cost efficiencies,
 customer service enhancements,
 marketing advantages, and
 profit growth or stability
 drives are defined in specific metrics,
their goals for each metric and
corresponding target
12/07/21 -6- 33
ALIGNMENT
Partnering for Success – partnership model -
rating
 drives are defined in specific metrics,
their goals for each metric and
corresponding target
 For example
 In asset and cost efficiencies,
 For metrics improving utilization and cutting
product costs
 Goal is to increase and decrease respectively
 Target is from 80% to 90% and by 7% lower per
year respectively
12/07/21 -6- 34
ALIGNMENT
Partnering for Success – partnership model -
rating
 These are rated for its importance, For
example
 say a scale of 1 to 5,
 perhaps with a score of 6 for exceptionally

important.
 The cumulative value is found
 A score out of maximum of 24
12/07/21 -6- 35
ALIGNMENT
Partnering for Success – partnership model - facilitators
 partnership facilitators such as

 compatibility of corporate cultures,
 compatibility of management philosophy & techniques,
 a strong sense of mutuality, and
 symmetry between the two parties are in place to

support the venture
 Similar rating as that of drivers,
12/07/21 -6- 36
ALIGNMENT
Partnering for Success – partnership model - facilitators
12/07/21 -6- 37
ALIGNMENT
Partnering for Success – partnership model - components
 Once the type of the partnership is envisaged , then the focus is
on the
 management components
 such as the joint activities and processes that are under the
direct control of management, required to launch and sustain the
partnership
 capabilities for planning,

 joint operating controls,
 communication and
 risk/reward sharing.
 Each of which have further sub items.
12/07/21 -6- 38
ALIGNMENT
Partnering for Success – partnership model – rating - outcome
 Current levels are rated
 as low, medium or high and
 are compared with desired level required

for the partnership envisaged.
12/07/21 -6- 39
ALIGNMENT
Partnering for Success – partnership model – outcome
 If differences persist in the Outcomes,
 the drives are reexamined and
 the associated action plans are revised.
12/07/21 -6- 40
21 Century Supply Chain
st
New Focus – Choosing the right partner - Conclusion
 Choosing the right partners of SC is an

the important decision to be taken for a
successful Supply Chain
 They are determined considering the

adaptability of the environment in which
SC is operating.
12/07/21 -G- 41
st
New Focus – Creating the right partnership - Conclusion
 Creating a right partnership or alignment

is the next important and deliberate
exercise to be taken.
 This should incorporate right level of

incentives and relationship.
12/07/21 -G- 42
st
New Focus – Enhancing the agility - Conclusion
 Then only one can think of making SC

agile
 It depends on the product and decides

positioning of OPP
12/07/21 -G- 43
21st Century Supply Chain
New Focus – partnering for success - Conclusion
 Right Partner, well defined close relationship and alert

(agile) SC are new focus of 21st Century SC
 The partnership model developed by Ohio State
University’s Global Supply Chain Forum provides a
framework for looking into.
 The four step-by-step approach devised for aligning
incentives, i.e. the risks, cost and rewards across the
network can also be brought into
 The six steps suggested for Building Deep Supplier
Relationship aids fostering partnership
12/07/21 -G- 44
21st Century Supply Chain
New Focus - Conclusion
Right Partner, well defined close

relationship and alert (agile) to
unexpected changes at short
notice are the new focus of 21st
Century SC
12/07/21 -G- 45

21st Century Supply Chain

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21 Century Supply

It is rightly pointed that the competition is

The SCM is a complex subject

 Supply Chain is the

 deliver goods and services to

 as quickly and inexpensively as possible

 Quick Response initiative (American

 High speed , low-cost supply chains are

 unable to respond to unexpected changes in demand

 performance steadily deteriorated

 consumer satisfaction with product availability fell

 centralized manufacturing and distribution facilities to

 When demand for a particular brand, pack size, or

 When manufacturers eventually deliver additional

 To get rid of the stockpile, Companies sell at discounted

 To provide companies with sustainable

 Respond to short-term changes in demand

 handle external disruptions smoothly

 closing the communication loop,

 sticking to a rhythm, and

 leveraging your assets

• Each one alone could improve the

Frequent sudden shocks to supply chains

 most supply chains are incapable of

 the importance of drawing up contingency

 Adjust Supply Chain’s design to meet

 modify supply network to

 Monitor economies all over the world to spot

Create incentives for better performance.

 Exchange information and knowledge

 Lay down roles, tasks, and responsibilities

 Equitably share risks, costs, and gains of

 Companies face incentive problems in

 Hidden information-data or knowledge that only

 Badly designed incentives

 They can tackle incentive problems by

 Acknowledging that such problems exist

 Diagnosing the cause-hidden actions, hidden

 Creating or redesigning incentives that will induce

 They can redesign incentives by

 Changing contracts to reward partners for acting

 Gathering or sharing information that was

 Using intermediaries or personal relationships to

 They can prevent incentive problems by

 Conducting incentives audits when they adopt new

 Educating managers about processes and incentives at

 Making discussions less personal by getting executives

 This requires “Building Deep Supplier

 six steps in a hierarchical order,

 although these steps are complementary

 Understand how your suppliers work

 Learn about suppliers business

 Go to and see how the suppliers work

 Respect suppliers’ capabilities

 Turn supplier rivalry into opportunity

 Source each component from 2 or 3 vendors

 Create compatible production philosophies and

 Set up joint ventures with existing suppliers to

 Supervise your suppliers

 Send monthly report cards to core suppliers

 Provide immediate and constant feedback

 Get senior managers involved in solving

 Develop suppliers’ technical capabilities

 Build suppliers’ problem-solving skills