Beruflich Dokumente
Kultur Dokumente
Course Design
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Advisory Council
Chairman
Dr Parag Diwan
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Members
Dr Kamal Bansal Dr Anirban Sengupta Dr Ashish Bhardwaj
Dean Dean CIO
Author
R P Mohanty
All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any other means,
without permission in writing from MPower Applied Learning Enterprise.
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Contents
Block-I
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Unit 2 Characteristics of a Lean Supply Chain...................................................................... 13
Unit 3 Lean Implementation in the Supply Chain................................................................. 27
Unit 4 Lean Thinking for the Supply Chain........................................................................... 37
Unit 5 Case Study .................................................................................................................... 49
Block-II
Block-III
Block-IV
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Block-V
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Unit 21 Globalisation and Cultural Impact on Lean Supply Chain Management............... 247
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Glossary ............................................................................................................................................ 293
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UNIT 1: Lean Basics
1
Notes
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BLOCK-I
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Lean Supply Chain Management
Detailed Contents
2
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UNIT 1: LEAN BASICS
___________________ UNIT 3: LEAN IMPLEMENTATION IN THE
SUPPLY CHAIN
z Introduction
___________________ z Introduction
z Concept of Lean
___________________ z Lean Principles
z Origin of Lean
___________________ z Common Mistakes when Implementing Lean
z Lean: A Toyota Approach
Principles
___________________
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z Lean as a Supply Chain Strategy
z Streamlining Processes
___________________
UNIT 2: CHARACTERISTICS OF A LEAN SUPPLY
___________________ UNIT 4: LEAN THINKING FOR THE SUPPLY
CHAIN
CHAIN
z Introduction
___________________
z Introduction
z Elimination of Waste
___________________
z Concepts of Value and Waste
z Smooth Operational Flow
___________________ z Components of the Lean Supply Chain
z High Level of Efficiency
z Benefits of Lean Systems
z Quality Assurance
z Path Forward to a Lean Supply Chain
Unit 1
3
Notes
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Activity
Lean Basics
___________________
Identify the organizations who
recently applied lean concept
in ___________________
their processes with the
help of newspapers and
___________________
internet.
Objectives
___________________
After completion of this unit, the students will be aware of the following
topics: ___________________
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\ Concept of Lean ___________________
\ Origin of Lean
___________________
\ Toyota Approach to Lean
___________________
\ Lean as a Supply Chain Strategy
___________________
Introduction ___________________
Concept of Lean
In the literature, lean has been referred to as a process, project,
program, principle, approach, methodology and philosophy.
Depending on the lean application, it is all of these. Lean can be
applied to individual processes, individual departments or entire
organizations as a project for short-term efficiency improvements.
Lean can be strengthened to long-term programs where projects
are undertaken to permanently install lean for continuous process
improvement. Lean is also a set of principles, approaches, and
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The core idea is to maximize customer value while minimizing
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waste. Simply, lean means creating more value for customers with
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___________________ fewer resources.
___________________ A lean organization understands customer value and focuses its
___________________ key processes to continuously increase it. The ultimate goal is to
provide perfect value to the customer through a perfect value
___________________
creation process that has zero waste.
___________________
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To accomplish this, lean thinking changes the focus of
___________________
management from optimizing separate technologies, assets, and
___________________ vertical departments to optimizing the flow of products and
___________________ services through entire value streams that flow horizontally across
technologies, assets, and departments to customers.
___________________
Eliminating waste along entire value streams, instead of at
___________________
isolated points, creates processes that need less human effort, less
space, less capital, and less time to make products and services at
far less costs and with much fewer defects, compared with
traditional business systems. Companies are able to respond to
changing customer desires with high variety, high quality, low
cost, and with very fast throughput times. In addition, information
management becomes much simpler and more accurate.
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Lean for Production and Services
A popular misconception is that lean is suited only for
manufacturing. Not true. Lean applies in every business and every
process. It is not a tactic or a cost reduction program, but a way of
thinking and acting for an entire organization.
Businesses in all industries and services, including healthcare and
governments, are using lean principles as the way they think and
do. Many organizations choose not to use the word lean, but to
label what they do as their own system, such as the Toyota
Production System or the Danaher Business System. Why? To
drive home the point that lean is not a program or short term cost
reduction program, but the way the company operates. The word
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Activity
embarked on lean transformations think about three fundamental ___________________
Create a digital essay on
business issues that should guide the transformation of the entire origin of lean concept.
___________________
organization:
___________________
z Purpose: What customer problems will the enterprise solve to
___________________
achieve its own purpose of prospering?
___________________
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z Process: How will the organization assess each major value
___________________
stream to make sure each step is valuable, capable, available,
adequate, flexible, and that all the steps are linked by flow, ___________________
pull, and levelling? ___________________
z People: How can the organization insure that every important ___________________
process has someone responsible for continually evaluating
___________________
that value stream in terms of business purpose and lean
process? How can everyone touching the value stream be
actively engaged in operating it correctly and continually
improving it?
For example, "Just as a carpenter needs a vision of what to build in
order to get the full benefit of a hammer, Lean Thinkers need a
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vision before picking up our lean tools," said Womack. “Thinking
deeply about purpose, process, people is the key to doing this.”
Origin of Lean
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Activity
___________________
time for their use in production, and customers receive finished
Prepare a presentation on the
Toyota approach to lean with products just in time for their suitable use. Hence, there is no
___________________
images and text using insignificant movement of materials, use of labour or equipment,
secondary sources of
___________________
information. or idle inventory in a JIT system. All resources reach just in time
___________________ for their consumption.
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shop floors dealing with common shop floor production issues.
___________________
These typical manufacturing issues dealt with inventory,
___________________
production, human resources, and quality. Ultimately, as those JIT
___________________ principles took hold in manufacturing plants, JIT principles
___________________ expanded to include longer-term considerations like facility design.
For example, it is difficult to adopt JIT quality principles without
___________________
considering the use of facility principles like the use of automation
in facilities to improve quality. Continuing to expand outside the
organization, JIT principles were added to include suppliers.
Further, it is difficult to adopt unitary production and scheduling
JIT principles without considering the external suppliers that
must deliver materials in a way to support unitary production.
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Check Your Progress
Fill in the blanks:
1. The body of JIT principles basically evolved from
manufacturers' shop floors dealing with common shop
floor ………………….. issues.
2. ……………….. deliver their supplies just-in-time for
their use in production.
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With no spare or safety stock in the system, there is no room for ___________________
error. Scheduling of activities and resource has to be exact, ___________________
communication with suppliers must be precise, suppliers have to
___________________
be reliable and able to perform to exacting timetables, materials
have to arrive on time and meet the specification, machines have ___________________
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make mistakes, there is no allowance for scrap or rework and ___________________
finally the finished product has to be delivered on time to
___________________
customers. This is often implemented by circulating cards or
Kanban between a workstation and the downstream buffer. The ___________________
workstation must have a card before it can start an operation. It ___________________
can pick raw materials out of its upstream (or input) buffer,
___________________
perform the operation, attach the card to the finished part, and put
it into the downstream (or output) buffer. The card is circulated
back to the upstream to signal the next upstream workstation to
do next cycle. The number of cards circulating determines the total
buffer size. Kanban control ensures that parts are made only in
response to a demand.
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This ‘just-in-time’ approach generally precludes large batch
production; instead items are made in ‘batches’ of one. This means
that operators have to be flexible, the system has to be flexible and
‘Single Minute Exchange of Dies’ (SMED) becomes the norm. A
lean approach reduces the number of supervisors and quality
inspectors. The operators are trained to know the production
standards required and are authorized to take corrective action, in
short they become their own inspectors/supervisors. The principles
of TPM (Total Productive Maintenance) and Five Ss (Sort, Set in
place, Shine, Standardize and Sustain) are followed and as a result
the equipment becomes more reliable and the operator develops
‘ownership’ towards the equipment.
Another important aspect of the Toyota approach was to expand
the work done at each stage of production. For example, a team of
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8 and within the limits of the specified standards (for example, the
Notes team can change the order of assembly at their workstation but
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___________________
would not have the authority to add extra nuts, etc.). Quality
standards are assured the application of Zero Quality Control or
___________________
Quality at Source before the actual production and Poka Yoke
___________________ (mistake proofing) during a production process.
___________________ A visitor to a lean manufacturer will be struck by the lack of
___________________ materials; there is no warehouse, no stocks of materials between
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workstations, and no stocks of finished goods. At first glance this
___________________
suggests that lean is an inventory system. However, lean is not
___________________
just an inventory system, lean also means the elimination of
___________________ ‘muda’. Muda, is a Japanese word, which means waste, with waste
___________________ being defined as any human activity that absorbs resource but
creates no value. Thus, the philosophy of lean is the elimination of
___________________
non-value adding activities. The rough rule is the elimination of
any activity that does not add value to the final product, and the
taking of action so that the non-value activity never again occurs.
Before anything can be eliminated, it first has to be identified. The
Toyota approach to identifying areas of waste is to classify waste
into seven ‘mudas’.
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The seven ‘mudas’ are:
z Excess production,
z Waiting,
z Movement or transportation,
z Unnecessary motion,
z Non-essential process,
z Inventory,
z Defects.
The approach is to identify waste, find the cause, eliminate the
cause, make improvements and standardize (until further
improvements are found).
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A lean supply chain design requires that supply chains minimize Activity
___________________
the cost of operations at all levels. Lean requires that the supply Interview a supply chain
officer and ask him what is his
chain uses the least amount of resources to efficiently complete its ___________________
understanding about the
concept of lean as a supply
job. The primary resources in a supply chain are inventory, ___________________
chain strategy.
warehouses, trucks, people, and working capital. A lean supply
___________________
chain will be designed to have minimal inventories in the system,
minimal amount of warehousing space required to store these ___________________
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inventories, and optimized shipments to reduce the cost of moving ___________________
inventory. A lean supply chain will also be designed to establish ___________________
long-term, stable supply contracts with the lowest negotiated cost,
___________________
but typically without any substantial ability to change ordered
quantities, delivery destinations, and required need dates after the ___________________
order has been placed. Lean design will most likely not engage ___________________
secondary suppliers, because a second tier of suppliers is expensive
to maintain. All of these factors will reduce the costs of the supply
chain operations, making it extremely cost-efficient, but will also
constrain the supply chain’s ability to adapt to any changes in
demand, supply, or other resources, due to the built-in rigidity of
the design.
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Therein, lies the rub: Low inventories make the supply chain
vulnerable to not being able to fulfil orders if the demand suddenly
spikes or if there are changes in demand that were not foreseen.
Inability to change orders with the suppliers also constrains the
supply chain’s ability to react to any changes in demand and may
saddle the supply chain with unwanted inventory. Having no
secondary suppliers also limits the ability of the supply chain to
reacting to spikes in demand and/or exposes it to supply failures
from the primary suppliers. The focus on being lean prevents this
supply chain from building redundancy by design, which reduces
supply chain’s ability to manage variability.
On the other hand, the only reason for supply chains to exist is to
manage variability. Therefore, a lean focus on supply chain design
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actually goes against the very basic nature of the supply chains.
However, if the lean focus is seen simply as the most efficient way
to execute business operations (which include a fair amount of
agility to respond to natural volatility in demand), then it can be
used to design effective supply chains.
In addition, most firms have a large assortment of material to be
managed: Raw materials, WIP, finished goods, and retail
Lean Supply Chain Management
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stable demand profile, others will be more volatile to manage. This
___________________
means that the enterprise supply chain that must be designed to
___________________ cater to all these types of products must be lean (to best manage
___________________ the products with a stable demand) and agile (to manage others
with volatile demand) simultaneously. After all, you could not run
___________________
a business with a lean supply chain with the lowest cost, but that
___________________ cannot respond to any changes in demand or supply. Since all
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___________________ demand and supply has inherent variability, such a rigidly
designed supply chain will quickly build up unwanted and obsolete
___________________
inventories as it is incapable of reacting to changes in demand and
___________________
supply. Of course, too much emphasis on creating agility may be
___________________ expensive and may also not provide the best design.
___________________ Finally, the cost focus serves as a much better generic business
strategy as suggested by Michael Porter because it can be used
effectively to drive any corporate function, such as accounting,
human resources, merchandising, production planning,
engineering and so on. There is nothing specific about the cost
focus that would make it work any extra magic for supply chain
than what it can do for any other corporate function, and hence its
inability to drive supply chain strategy.
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Summarizing, supply chains must manage variability and an
exclusive focus on lean prevents supply chains to be designed
effectively for managing natural variability and hence from doing
their most important job.
As most firms have several products to manage and these products
have widely varying demand and lead-time patterns, the
enterprise supply chain must be designed to work for all these
products without undue focus on a single characteristic.
There is nothing special about the cost focus that helps driving
supply chain strategy any more than it can do for any other
corporate function. To that extent it remains an effective business
strategy, but not a supply chain strategy.
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Summary 11
Notes
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Lean can be strengthen to long-term programs where projects are
___________________
undertaken to permanently install lean for continuous process
improvement. The ultimate goal is to provide perfect value to the ___________________
customer through a perfect value creation process that has zero ___________________
waste. Companies are able to respond to changing customer
___________________
desires with high variety, high quality, low cost, and with very fast
throughput times. ___________________
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___________________
Lean applies in every business and every process. It is not a tactic
or a cost reduction program, but a way of thinking and acting for ___________________
an entire organization. All resources reach just in time for their ___________________
consumption. Lean design will most likely not engage secondary
___________________
suppliers, because a second tier of suppliers is expensive to
maintain. All of these factors will reduce the costs of the supply ___________________
Keywords
Lean: Lean is a production practice that considers the expenditure
of resources for any goal other than the creation of value for the
end customer to be wasteful, and thus a target for elimination.
Supply Chain: A supply chain is a system of organizations,
people, technology, activities, information and resources involved
in moving a product or service from supplier to customer.
Lean Supply: Lean has evolved from just-in-time manufacturing
to lean manufacturing and to a lean enterprise.
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1. What are the issues that should guide the transformation of
___________________
the entire organization?
___________________
2. What is the origin of the concept of lean?
___________________
3. Explain the lean concept in detail.
___________________
4. Discuss the Toyota approach to lean concept.
___________________
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5. Why does a lean supply chain is designed?
___________________
___________________
Further Readings
___________________
___________________ Books
___________________ Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
Management Essentials: A Framework for Materials Managers,
CRC Press.
Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
Management into the Supply Chain, Butterworth-Heinemann.
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Web Readings
http://www.lean.org/whatslean/
http://www.supplychainmusings.com/2010/10/lean-as-supply-chain-
strategy.html
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UNIT 2: Characteristics of a Lean Supply Chain
Unit 2
13
Notes
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Characteristics of a Lean Supply
___________________
___________________
Chain ___________________
___________________
Objectives ___________________
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After completion of this unit, the students will be aware of the following
___________________
topics:
___________________
\ Elimination of Waste
\ Smooth Operational Flow ___________________
\ High Level of Efficiency ___________________
\ Quality Assurance
___________________
Introduction
The characteristics and tenets of a lean supply chain are derived
from the principles of Toyota Production Systems (TPS) and the
methodology of Lean Sigma. Womack, Jones and Roos (1990)
proposed five Lean principles based on TPS, viz. value, value
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stream, flow, pull and perfection. However, the application of Lean
principles has moved with time and experience of organizations in
both manufacturing and service sectors.
Until recently, supply chains were understood primarily in terms
of planning the demand forecasts, upstream collaboration with
suppliers and planning and scheduling the resources. Emphasis
perhaps, is shifted to provide what the customers want at a
best-in-class cost. Cost reduction is often the key driver for lean,
but it is also about speed of delivery and quality of products and
services. The competition for gaining and retaining customers and
market share is between supply chains rather than other functions
of companies. A supply chain, therefore, has to be lean with four
inter-related key characteristics or objectives:
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1. Elimination of waste,
2. Smooth operation flow,
3. High level of efficiency, and
4. Quality assurance.
Lean Supply Chain Management
14 Elimination of Waste
Notes
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Activity The lean methodology as laid out by Womack, Jones and Roos
Visit___________________
any retail showroom of (1990) is sharply focused on the identification and elimination of
your choice and study their
___________________
inventory policy and prepare a ‘mudas’ or waste and their first two principles (i.e. value and value
report on the same.
___________________ stream) are centred around the elimination of waste. Their motto
has been, ‘banish waste and create wealth in your organization’. It
___________________
starts with value stream mapping to identify value and then
___________________ identify waste with process mapping of valued processes and then
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___________________ systematically eliminate them. This emphasis on waste
elimination has probably made lean synonymous to absence of
___________________
waste. Waste reduction is often a good place to start in the overall
___________________
effort to create a lean supply chain because it can often be done
___________________ with little or no capital investment.
___________________ One popular area of waste in processes is excess inventory. Many
organizations started to measure their ‘leanness’ only in terms of
inventory performance. Inventory reduction attempts to reduce
inventory through such practices as Enterprise Resource Planning
(ERP), JIT and modern approaches to supply chain management
have led to lower inventory levels, but there is still plenty of room
for improvement. In fact, most all manufacturers carry at least 25
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per cent more inventory than they have to.
This approach although is a good indicator of inventory policy of a
company, but it does not necessarily reflect the business
performance of the company. For example, the inventory policy of a
Fast-moving Consumer Goods (FMCGs) company is different from
that of a pharmaceutical company. Inventory is only one of the
seven ‘mudas’.
Cycle time or lead-time reduction is another target area of waste
reduction. Cycle time is the time required to complete a given
process. The cycle time required to process a customer order might
start with the customer phone call and end with the order being
shipped. The overall process is made up of many sub-processes
such as order entry, assembly, inspection, packaging and shipping.
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There are a few formal and publicized methodologies for cycle time
Notes
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reduction including QRM (Quick Response Manufacturing; Suri,
1998) and SMED (Single Minute Exchange of Dies; Shingo, 1985). ___________________
QRM is underpinned by two key principles. Firstly, plan to operate ___________________
at 80 per cent or even 70 per cent capacity of critical resources.
___________________
Secondly, measure the reduction of lead times and make this the
main performance measure. These principles are supported by ___________________
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oriented cells and continuous training. The SMED method involves ___________________
the reduction of production changeover by extensive work study of
___________________
the changeover process and identifying the ‘in process’ and ‘out of
process’ activities and then systematically improving the planning, ___________________
tooling and operations of the changeover process. ___________________
Shingo believes in looking for simple solutions rather than relying ___________________
on technology. With due respect to the success of the SMED
method, it is fair to point out that the basic principles are
fundamentally the application of classical industrial engineering or
work-study.
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Source:http://fachmannhunter.com/doc/supply-chain/Lean_and_agile_supply.pdf
16 (1) overlap activities within their phase of the work, (2) reduce
Notes activity durations through cycle time studies, and (3) reduce work
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Activity
in process through the development of multi-skilled workers. Cycle
Visit___________________
any electronics
manufacturing concern and time reduction is also an important area of Lean Sigma projects.
___________________
enquire if Kanban system is
being implemented or not and
what___________________
other techniques they Check Your Progress
use to keep their inventory
flow___________________
smooth.
Fill in the blanks:
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___________________
target area of waste reduction.
___________________
Smooth Operational Flow
___________________
The well-publicised JIT approach is a key driver of Lean Supply
Chain and, as we have indicated earlier, it requires materials and
products flow ‘like water’ from the supplier through the production
process onto the customer. The capacity bottlenecks are
eliminated, the process times of workstations are balanced, and
there is little buffer inventories between operations. Smooth
operation flow requires the applications of appropriate approaches.
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Three of the most frequently applied approaches are:
Cellular Manufacturing
In cellular manufacturing concept, traditional batch production
area is transformed into flow line layouts so that ideally a single
piece flows through the line at any time. In practice an optimum
batch size is calculated starting with the most critical work centres
and the largest inventory carrying costs. Action is taken for
improvement at the work centres and methods that have greatest
impact on the throughput, customer satisfaction, operating cost
and inventory carrying charges. Good management consists of
avoiding a wide variety of products. Cellular manufacturing
concept is most appropriate when demand is predictable and
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orderly flow of goods, materials and information throughout the ___________________
entire operation.
___________________
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regarding part number and quantity. It is a means of pulling parts
___________________
and products through the manufacturing or logistics sequence as
needed. It is, therefore, sometimes referred to as the ‘pull system’. ___________________
The variants of the Kanban system utilize other markers such as ___________________
light, electronic signals, voice command or even hand signals.
___________________
Following the Japanese examples, Kanban is accepted as a way of
maximising continuous flow and efficiency by reducing both cost ___________________
and inventory.
The key components of a Kanban system are:
z Kanban cards,
z Standard containers or bins,
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z Workstations, usually a machine or a worktable, and
z Input and output areas.
The input and output areas exist side by side for each workstation
on the shop floor. The Kanban cards are attached to standard
containers. These cards are used to withdraw additional parts from
the preceding workstation to replace the ones that are used. When
a full container reaches the last downstream workstation, the card
is switched to an empty container. This empty container and the
card are then sent to the first workstation signalling that more
parts are needed for its operation.
A Kanban system may use either a single card or a two cards
(move and production) system. The dual card system works well in
a high up-time process for simpler products with well-trained
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___________________
Theory of Constraints (TOC)
___________________
The Theory of Constraints is a management philosophy developed
___________________ by Goldratt (1992). It enables the managers of a system to achieve
___________________ more of the goal that system is designed to produce. The concept or
the objective is not new. However, in service operations where it is
___________________
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often difficult to quantify the capacity constraint TOC could be
___________________
very useful. For companies that employ skilled workers and for
___________________ many service organizations the constraint is often the time of one
___________________ or a few key employees. The key steps in this process are:
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Activity
The more popular concepts of lean operations tend to be the
Visit___________________
any organization, which
concepts of muda, flow and pull system. A preliminary analysis of you think has lean supply
all these methods, as we have described earlier, however, ___________________
chain management, and see
what tools they are using for
highlights the fact that all assume sufficient machine availability of ___________________
ensuring a high level of
exists as a prerequisite. In our experience for many companies efficiency in a lean supply
___________________
chain.
attempting a lean transformation this assumption is not true.
Machine availability depends on maximizing the machine up time ___________________
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by eliminating the root causes of down time. The ratio of up time ___________________
and planned operation time is the efficiency of the operation. ___________________
Therefore, in order to make lean concepts work it is vital that the
___________________
pre-condition of running the operations at a high level of efficiency
should be met. The old approach of measuring labour efficiency ___________________
(e.g. the ratio of standard hours and hours worked) has now shifted ___________________
to the efficiency of the control or bottleneck workstation.
There are many methodologies and tools of ensuring a high level of
efficiency in a lean supply chain. We are going to describe one
such methodology (viz. TPM) and two such tools [e.g., Overall
Equipment Effectiveness (OEE) and Five Ss].
Total Preventative Maintenance (TPM) is a proven Japanese
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approach to maximizing Overall Equipment Effectiveness (OEE)
and utilization, and relies on attention to detail in all aspects of
manufacturing. TPM includes the operators looking after their own
maintenance and thus encourages the empowerment. The use of
the word ‘maintenance’ in the title is misleading. TPM includes
more than maintenance, it addresses all aspects of manufacturing.
The two primary goals of TPM are to develop optimum conditions
for the factory through a self-help people/machine system culture
and to improve the overall quality of the workplace. It involves
every employee in the factory. Implementation requires several
years, and success relies on sustained management commitment.
TPM is promoted throughout the world by the Japan Institute of
Plant Maintenance (JIPM).
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3. An effective planned maintenance system by expert engineers.
Notes
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4. A training system for increasing the skill and knowledge level
___________________
of all permanent employees.
___________________
5. A system of maintenance prevention where engineers work
___________________ closely with suppliers to specify and design equipment, which
___________________ requires less maintenance.
___________________ TPM requires the manufacturing team to improve asset utilization
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___________________ and manufacturing costs by the systematic study and the
elimination of the major obstacles to efficiency. In TPM these are
___________________
called the ‘six big losses’ and are attributed to
___________________
z Breakdown,
___________________
z Set-up and adjustment,
___________________
z Minor stoppages,
z Reduced speed,
z Quality defects, and
z Start-up and shutdown.
The process of autonomous maintenance is to encourage operators
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to care for their equipment by performing daily checks, cleaning,
lubrication, adjustments, size changes, simple repairs and the
early detection of abnormalities. It is a step-by-step approach to
bring the equipment at least to its original condition. Some
managers may hold the belief that in TPM ‘you do not need
experienced craftsmen or engineers and all maintenance is done by
operators’. This is not true.
The implementation of a maintenance policy with appropriate
infrastructure is fundamental to planned maintenance. Planned
maintenance is the foundation stone of TPM. However, if the skill
and education levels of operators are high then a good proportion
of planned maintenance activities should be executed by operators
after proper training. Cleaning, lubrication and minor adjustments
together with an ability to recognize when a machine is not
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Whilst great progress can be made in reducing breakdowns with ___________________
autonomous maintenance and planned maintenance, ‘zero ___________________
breakdowns’ can only be achieved by the specification of parts and
___________________
equipment which are designed to give full functionality and not to
fail. All engineers and designers of the user company should work ___________________
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of maintenance prevention. ___________________
Although there is a special emphasis of input by different ___________________
employees to different aspects of TPM (e.g. ‘six big losses’ for
___________________
middle management, ‘autonomous maintenance’ for operators,
‘planned maintenance’ for middle management, ‘maintenance ___________________
Source:http://fachmannhunter.com/doc/supply-chain/Lean_and_agile_supply.pdf
22
Check Your Progress
Notes
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Activity Fill in the blanks:
Fix ___________________
an appointment with an
executive from quality 1. ……………….. maintenance is the foundation stone of
___________________
department of a shoe TPM.
manufacturing concern and
ask ___________________
him what measure they
2. TPM requires the manufacturing team to improve
use for quality assurance.
___________________ …………….. utilization.
___________________
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___________________ Quality Assurance
___________________ Womack Jones and Roos (1990) propose perfection as the fifth
___________________ Lean principle and according to this a lean manufacturer sets
his/her targets for perfection in an incremental (Kaizen) path. The
___________________
idea of TQM is to systematically and continuously remove the root
___________________
causes of poor quality from the production processes so that the
organization as a whole and its products are moving towards
perfection. This relentless pursuit of the perfect is key attitude of
an organization that is ‘going for lean’.
The incremental path to TQM progressively moves from earlier
stages of quality control and quality assurance. Quality assurance
focuses on the prevention of failures or defects in a process by
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analysing the root causes and sustaining the improved process by
documenting the standard operating procedure and continuous
training. TQM is quality assurance of all processes across the
organization involving everyone from the top manager to a trainee.
Therefore, the central driver towards perfection is quality
assurance. This drive for quality assurance has now been extended
beyond TQM to Six Sigma with additional rigour in training
deployment (e.g. Black Belts and Green Belts), the methodology of
DMAIC (e.g. Define, Measure, Analyse, Improve and Control), and
measurement (both variances and savings). The principles of Six
Sigma are embedded in the path towards perfection in a lean
supply chain and Six Sigma has now moved to Lean Sigma and Fit
Sigma. Basu and Wright (2003) explain that the predictable Six
Sigma precisions combined with the speed and agility of Lean
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___________________
Check Your Progress
___________________
Fill in the blanks:
___________________
1. The idea of TQM is to systematically and continuously
___________________
remove the root causes of poor quality from the ………..
processes. ___________________
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2. The incremental path to TQM progressively moves from ___________________
earlier stages of quality ……………… and quality ___________________
……………………
___________________
___________________
Summary
___________________
Waste reduction is often a good place to start in the overall effort
to create a lean supply chain because it can often be done with
little or no capital investment. Inventory reduction attempts to
reduce inventory through such practices as enterprise resource
planning (ERP), JIT and modern approaches to supply chain
management have led to lower inventory levels, but there is still
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plenty of room for improvement. In practice an optimum batch
size is calculated starting with the most critical work centres and
the largest inventory carrying costs. The single card system is also
known as ‘Withdrawal Kanban’ and the dual card system is
sometimes called ‘Production Kanban’.
The implementation of a maintenance policy with appropriate
infrastructure is fundamental to planned maintenance. Planned
maintenance is the foundation stone of TPM.
Keywords
Kanban: Kanban is a scheduling system for lean and just-in-time
(JIT) production.
Lean Supply Chain Management
24
Quality Assurance: Quality assurance refers to the systematic
Notes
activities implemented in a quality system so that quality
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___________________ requirements for a product or service will be fulfilled.
___________________ Inventory: The raw materials, work-in-process goods and
___________________ completely finished goods that are considered to be the portion of a
business's assets that are ready or will be ready for sale.
___________________
___________________
Just-in-Time (JIT): Just-in-time is a production strategy that
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strives to improve a business return-on-investment by reducing in-
___________________
process inventory and associated carrying costs.
___________________
Enterprise Resource Planning (ERP): Enterprise resource
___________________ planning systems integrate internal and external management of
___________________ information across an entire organization — embracing
finance/accounting, manufacturing, sales and service, customer
___________________
relationship management, etc.
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
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Web Readings 25
Notes
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http://fachmannhunter.com/doc/supply-chain/Lean_and_agile_
supply.pdf ___________________
http://en.wikipedia.org/wiki/Kanban ___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
___________________
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UNIT 3: Lean Implementation in the Supply Chain
Unit 3
27
Notes
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Lean Implementation in the
___________________
___________________
___________________
Objectives ___________________
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After completion of this unit, the students will be aware of the following
___________________
topics:
___________________
\ Lean Principles
\ Common Mistakes When Implementing Lean Principles ___________________
\ Streamlining Processes ___________________
___________________
Introduction
Applying lean principles is a business philosophy and management
strategy that requires commitment from all levels of business. The
landscape of distribution centres and manufacturing environments
are changing and companies are looking for opportunities to
optimize people, processes and technology. Today’s business
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climate calls for companies to deploy lean principles to all aspects
of their operations. This frees up employees to focus on more
value-added work and to drive similar improvements throughout
the entire value stream.
So why do some businesses thrive in a Lean culture, while others
struggle with Lean implementation?
Applying Lean principles is not a short-term tactic or a
cost-reduction program, but instead a business philosophy and a
management strategy that develops into a work culture that
pursues the elimination of wastes in all phases of the business
processes. It takes commitment from all levels of the organization
to develop a true lean culture.
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Lean Principles
Lean principles at Toyota evolved out of their Toyota Production
System (TPS). There are many different principles, but we will
group them into four main groups:
z Seek the elimination of waste,
Lean Supply Chain Management
28
z Seek improved quality,
Notes
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Activity z Seek increased product flow, and
Find___________________
out the types of waste
found in a garment z Seek reduced cost.
___________________
manufacturing company and
prepare a slideshow on the Let us explain each of the above in more detail.
___________________
same.
___________________ Seek the Elimination of Waste
___________________ By removing wasted resources from any manufacturing or service
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___________________ system, the system's productivity can be enhanced. On increasing
productivity while reducing the resource inputs into the system,
___________________
the reduced costs, which are passed along to the customer in terms
___________________ of reduced prices, results in an increase in market share that will
___________________ improve profitability in the long-term. This has been a driving
___________________
strategy of all country's manufacturers that have embraced lean
principles.
Toyota classifies waste into following seven major categories:
1. Waste from Inventory: Idle stock (i.e. buffer stock or any
inventory that is not being used), which results in extra
storage and handling labour as well as equipment needed to
maintain it.
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2. Waste from Motion: Any unneeded movement of resources
caused by factors such as misplaced or lost tools or an
inefficient workstation layout.
3. Waste from Overproduction: Making additional inventory
for back-up purposes that may never be consumed.
4. Waste of Processing: Any scrap or wasted labour caused by
unnecessary processing or procedures, rework, or repairs from
damage incurred during the production process.
5. Waste from Production Defects: Any product returns
because of poor quality or engineering.
6. Waste of Transportation: Any time wasted by moving
resources around a poorly designed plant floor layout.
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z We waste motion by moving them to inventory. We waste ___________________
processing of a product that may never be consumed. ___________________
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on it, insurance, heating and security.
___________________
z We also incur unnecessary costs, like the cost of capital in the
___________________
labour and materials in the product. All of that waste is
incurred when a unit of product is overproduced. ___________________
___________________
Seek Improved Quality
___________________
Under this lean principle, the goal is to remove sources of defects,
errors and contributors to variation in the production processes.
Consider a situation where defective component parts are
delivered to a manufacturing facility. This poor quality disrupts
production schedules and reduces yield (e.g., extra production runs
because of shortages due to defective items), slows the speed of
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product flow in the system (e.g., defective components do not
always fit in modules that they were engineered to fit), adds to
overall processing time (e.g., time wasted on scrap work due to
poor quality), and wastes space (e.g., increased idle stock and
buffer inventory of parts given that greater scrap will be required
to make up for poor quality). Alternatively, if the quality of
component parts are ensured to be perfect, then lesser will be
needed (e.g., no need for buffer stock), product flow will increase
(e.g., no wasted labour time dealing with defective components),
and production space can be reduced (e.g., no need for buffer
inventory areas).
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___________________ to be responsive and able to quickly change processes and products
___________________
as changes appear from operations and market demand.
Considering the JIT ideas of having the supplier deliver items just
___________________
in time for their use in production, manufacturing producing the
___________________ product just in time for shipping to the customer, and order pulling
___________________ the product through the system just-in-time for its use are
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supported by the notion of increasing the product flow in an
___________________
operation.
___________________
31
Notes
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___________________
___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
___________________
32
Notes Check Your Progress
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Activity
Fill in the blanks:
Visit___________________
an organization, which
implemented lean principles to 1. Lean operations need to be …………. to market changes.
its ___________________
supply chain process
recently and identify what
___________________
mistakes it has done during
2. By removing wasted resources from any manufacturing
the process. or service system, the system's ……………….. can be
___________________
enhanced.
___________________
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___________________
Common Mistakes when Implementing Lean
___________________
Principles
___________________
Pull processing, perfect first-time quality, waste minimization,
___________________ continuous improvement, flexibility, building and maintaining
___________________ long-term relationships with suppliers, automation, load levelling,
production flow and visual control are all components of Lean.
Although these concepts are logical and somewhat intuitive in
nature, a comprehensive understanding of Lean is necessary to
avoid common mistakes made during Lean implementations. Some
of the common pitfalls are:
z Trying to implement Lean with a weak or incomplete strategy
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or with insufficient resources to gain significant traction.
Training, target setting, and communication tools all need to
be carefully planned for proper implementation of lean. Lean
embraces change and resources are necessary to drive the
process improvements. These improvements generate
incentive to implement other ideas, which fuels the continuous
improvement engine.
z Implementing Lean concepts beyond the Lean maturity level
of the organization. This is a common mistake made by Lean
implementers that have good theoretical knowledge, but lack
practical experience. Jumping too quickly to an across-the-
board JIT operation before completing a comprehensive
assessment of the supply chain is a common error of this type.
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Activity
variables. ___________________
Interview a Supply Chain
Executive and ask him about
Check Your Progress how___________________
lean concept can be
applied to a warehouse and
Fill in the blanks: ___________________
prepare a short report on it.
___________________
1. Lean embraces change and resources are necessary to
drive the process …………………… ___________________
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2. Lean doesn’t offer cookie cutter …………………. ___________________
___________________
Streamlining Processes ___________________
Procurement
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Many businesses have complex purchasing operations. Large
companies often have corporate purchasing groups as well as local
purchasing. This can lead to vendors being given multiple
contracts leading to variations in prices depending on location.
Companies that practice lean supply chain management reduce
their procurement function so that each vendor has one point of
contact, one contract and offers one price for all locations.
Businesses are looking to new technologies to assist them in
improving procurement processes. These include internet based
purchasing that allows requisitioners to purchase items from
vendor’s catalogues containing company-wide contract prices.
Changes in payment options to vendors can also streamline
processes. Companies that use a two-way match, which is payment
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Manufacturing
Lean supply chain management gained popularity in the
manufacturing area, as this is where significant improvement can
Lean Supply Chain Management
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___________________
Companies who have adopted lean supply chain practices have
examined each of their routings, bill of materials and equipment to
___________________
identify where improvements can be achieved.
___________________
___________________
Warehousing
Warehouse processes should be examined to find areas of
___________________
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eliminating waste of resources and non-value added steps. One
___________________
area the companies should always be working on is the reduction
___________________ of unnecessary inventory. The accumulation of inventory requires
___________________ resources to store and maintain it. By reducing unnecessary
inventory, a company can minimize warehousing space and
___________________
handling, in turn reducing overall costs.
___________________
Transportation
Businesses who want to implement lean processes often look to
their transportation procedures to see where they can be
streamlined. In many instances companies find that their efforts to
improve customer satisfaction leads to poor shipping decisions.
Orders are shipped without combining additional orders to
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minimize costs or expensive shipping options are selected because
of a customer request. Businesses often find that they are using a
number of shippers unnecessarily when they could be reducing
their shipping options and reduce overall costs.
Lean supply chain management requires businesses to examine
every process in their supply chain and identify areas that are
using unnecessary resources, which can be measured in dollars,
time or raw materials. This will improve the company’s
competitiveness as well as improve the company’s overall
profitability.
Summary 35
Notes
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Lean operations need to be reactive to market changes. They need
___________________
to be responsive and able to quickly change processes and products
as changes appear from operations and market demand. With lean, ___________________
movement of the product through a system is increased. That by ___________________
itself reduces the time materials and components remain as idle
___________________
stock. Reducing costs is a key component to business success.
___________________
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Many businesses have complex purchasing operations. Large
___________________
companies often have corporate purchasing groups as well as local
purchasing. Lean supply chain management requires businesses to ___________________
examine every process in their supply chain and identify areas ___________________
that are using unnecessary resources, which can be measured in
___________________
dollars, time or raw materials.
___________________
Keywords
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Motion: Change in the relative position of the parts of anything;
action of a machine with respect to the relative movement of its
parts.
Overproduction: It refers to production in excess of need or
demand.
Defect: The lack of something necessary or desirable for
completion or perfection.
Quality: Quality in business, engineering and manufacturing has
a pragmatic interpretation as the non-inferiority or superiority of
something.
Flow: The action or fact of moving along in a steady, continuous
stream.
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4. Which areas of supply chain should be considered to create a
Notes
leaner supply chain?
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___________________
5. In which area of supply chain, maximum improvement can be
___________________ achieved? Discuss.
___________________
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___________________
Wincel, J. P., (2004), Lean Supply Chain Management: A
___________________ Handbook for Strategic Procurement, Productivity Press.
___________________
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
___________________ Management Essentials: A Framework for Materials Managers,
___________________
CRC Press.
Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
Management into the Supply Chain, Butterworth-Heinemann.
Web Readings
http://www.scdigest.com/assets/Experts/Seegrid_11-05-05.php
http://yourleanforum.blogspot.in/2006/10/5-lean-principles.html
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http://logistics.about.com/od/supplychainintroduction/a/Lean_SCM.
htm
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UNIT 4: Lean Thinking for the Supply Chain
Unit 4
37
Notes
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Activity
___________________
Objectives ___________________
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After completion of this unit, the students will be aware of the following
___________________
topics:
___________________
\ Concepts of Value and Waste
\ Components of the Lean Supply Chain ___________________
\ Benefits of Lean Systems ___________________
\ Path Forward to a Lean Supply Chain
___________________
Introduction
Although lean thinking is typically applied to manufacturing lean
techniques and focus are applicable anywhere there are processes
to improve, including the entire supply chain. A lean supply chain
is one that produces just what and how much is needed, when it is
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needed, and where it is needed.
The underlying theme in lean thinking is to produce more or do
more with fewer resources while giving the end customer exactly
what he or she wants. This means focusing on each product and its
value stream. To do this, organizations must be ready to ask and
understand which activities truly create value and which ones are
wasteful. The most important thing to remember is that lean is not
simply about eliminating waste—it is about eliminating waste and
enhancing value.
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___________________ Consider the non-manufacturing example of a flight to the
___________________ Bahamas. The value-adding part of that process is the actual flight
itself. The non-value-added parts of that process are driving to the
___________________
airport, parking at the airport, walking to the terminal and then to
___________________ check-in, waiting in line at check-in, walking to the security check,
___________________ and so on. Many times the non-value-added time far exceeds the
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value-added time in this type of process. Where should our
___________________
improvement efforts be focused — on the non-value-added steps or
___________________
on making the plane fly faster?
___________________
Understanding the difference between value and waste and
___________________ value-added and non-value-added processes is critical to
___________________ understanding lean. Sometimes it is not easy to discern the
difference when looking at an entire supply chain. The best way is
to look at the components of the supply chain and apply lean
thinking to each one and determine how to link the processes to
reduce waste.
Creating Value
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Lean principles focus on creating value by:
z Specifying value from the perspective of the end customer
z Determining a value system by:
Identifying all of the steps required to create value
Mapping the value stream
Challenging every step by asking why five times
z Lining up value, creating steps so they occur in rapid sequence
z Creating flow with capable, available, and adequate processes
z Pulling materials, parts, products, and information from
customers
z Continuously improving to reduce and eliminate waste
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the map for improvement opportunities using the concepts of lean, ___________________
and create a future-state map. This will portray a vision of the
___________________
future for the process or supply chain you are creating. This
future-state map helps you to visualize the roadmap to get from ___________________
the current state to the future state. ___________________
Mapping the value stream for the supply chain is a similar process. ___________________
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However, the current-state map includes product flow,
___________________
transportation links, defects and delivery time and steps, and
information flow. After creating the current-state map for the ___________________
“Waste” Reduction
The “Waste” reduction process begins with the question “What can
we do to improve?” Some answers may include:
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z Reduce the time spent waiting for parts, orders, other people,
Notes
or information.
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Activity
___________________
Browse through internet and
study the components of
In manufacturing environments, these waste reductions create the
___________________
supply chain of an benefits of reduced manufacturing cycle time, reduced labour
organization of your choice.
___________________ expenditures, improved product quality, space savings, reduced
inventory, and quicker response to the customer. When waste is
___________________
reduced or eliminated across the supply chain, overall cycle time is
___________________
improved, labour and staff costs are reduced, product quality and
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___________________ delivery are improved, inventories are reduced, and customer
___________________ lead-times are shortened. The net effect is the entire supply chain
is more efficient and responsive to customer needs.
___________________
Lean Suppliers
Lean suppliers are able to respond to changes. Their prices are
generally lower due to the efficiencies of lean processes, and their
quality has improved to the point that incoming inspection at the
next link is not needed. Lean suppliers deliver on time and their
culture is one of continuous improvement.
To develop lean suppliers, organizations should include suppliers
in their value stream. They should encourage suppliers to make
the lean transformation and involve them in lean activities. This
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will help them fix problems and share savings. In turn, they can
help their suppliers and set continually declining price targets and
increasing quality goals.
Lean Procurement
Some lean procurement processes are e-procurement and
automated procurement. E-procurement conducts transactions,
UNIT 4: Lean Thinking for the Supply Chain
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the human element from multiple procurement functions and ___________________
integrates with financials.
___________________
The key to lean procurement is visibility. Suppliers must be able to
___________________
“see” into their customers’ operations and customers must be able
to “see” into their suppliers’ operations. Organizations should map ___________________
the current value stream, and together create a future value ___________________
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stream in the procurement process. They should create a flow of ___________________
information while establishing a pull of information and products.
___________________
42
z Excess inventories which require additional space and reduce
Notes
warehousing efficiency;
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___________________
z Excess motion and handling;
___________________
z Inefficiencies and unnecessary processing steps;
___________________
z Transportation steps and distances;
___________________
z Waiting for parts, materials and information; and
___________________
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z Information processes.
___________________
Each step in the warehousing process should be examined
___________________
critically to see where unnecessary, repetitive, and non-value-
___________________
added activities might be so that they may be eliminated.
___________________
Lean Transportation
___________________
Lean concepts in transportation include:
z Core carrier programs,
z Improved transportation administrative processes and
automated functions,
z Optimized mode selection and pooling orders,
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z Combined multi-stop truckloads,
z Cross-docking,
z Right sizing equipment,
z Import/export transportation processes, and
z Inbound transportation and backhauls.
The keys to accomplishing the concepts above include mapping the
value stream, creating flow, reducing waste in processes,
eliminating non-value-added activities and using pull processes.
Lean Customers
Lean customers understand their business needs and therefore can
specify meaningful requirements. They value speed and flexibility
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Check Your Progress Notes
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Activity
True or False: ___________________
Prepare a collage of various
benefits of lean systems
1. Lean suppliers deliver on time and their culture is one ___________________
explained above.
of continuous improvement.
___________________
2. Lean customers do not understand their business needs ___________________
and therefore cannot specify meaningful requirements.
___________________
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Benefits of Lean Systems ___________________
___________________
There are many benefits of lean systems, which are explained as
___________________
below:
___________________
Speed and Responsiveness to Customers
___________________
Lean systems allow a supply chain to not only to be more efficient,
but also faster. As the culture of lean takes over the entire supply
chain, all links increase their velocity. A culture of rapid response
and faster decisions becomes the expectation and the norm. This
does not mean that decisions are made without careful thought. It
simply means that a “bias for action” becomes the new corporate
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culture and anything less will not be tolerated. Slow response or no
response becomes the exception, rather than the rule.
Reduced Inventories
In the lean paradigm, inventory is considered waste. Many would
argue this point, but manufacturing can take place efficiently with
little or no raw material, work-in-process (WIP), or finished goods
inventory.
Many companies today produce directly into trailers and maintain
no other finished goods inventory. All quality inspections and
checks are performed within the process, rather than after
production is complete. In this true make-to-order scenario, all
goods are shipped directly to the next link in the supply chain
when the trailer is full, and overproduction is not possible and
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___________________
degree. As a result, WIP must always exist in front of a bottleneck
or the bottleneck operation will be starved and will stop.
___________________
Raw material inventory is a different matter. Although the leanest
___________________
organizations have arranged just in time deliveries to support
___________________ manufacturing, this approach requires the absolute highest degree
___________________ of competency and coordination within the supply chain.
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___________________
Reduced Costs
___________________
Traditional mass production tries to minimize unit costs by
___________________ increasing total production over the life cycle of the product. High
___________________ development costs are the result of this model. To recover the
enormous development and initial capital costs sunk into the
___________________
product before it was produced; mass producers forecast and run
long production cycles for each SKU. Consumer preferences and
variety suffer in this scenario. Costs still need to be minimized, but
not at the expense of what more sophisticated consumers now
demand.
45
Check Your Progress Notes
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Activity
Fill in the blanks: ___________________
Conduct a survey of ten retail
outlets and prepare a report
1. A strong supply chain enables the ……………… ___________________
on how important is it to apply
companies to align themselves with each other. lean systems in supply chains.
___________________
2. The elimination of ……………… is one goal of a lean ___________________
supply chain.
___________________
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Path Forward to a Lean Supply Chain ___________________
___________________
Lean is a cooperative process for survival and for success. Supply
___________________
chains that want to grow and continue to improve must adopt lean.
Lean concepts require an attitude of continuous improvement with ___________________
a bias for action. The concepts of lean apply to all elements of the ___________________
supply chain, including support departments such as product
development, quality, human resources, marketing, finance,
purchasing, and distribution. The challenge is to bring all of these
areas out of their traditional silos and make them work together to
reduce waste and create flow. Duplication and a lack of
appropriate and timely communication run rampant in these
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traditional organizations. A lean supply chain is proactive and
plans for the unexpected by positioning all resources for
effectiveness. Downturns in demand can be addressed without
layoffs or significant productivity losses.
Leaning “other” areas presents a larger challenge than it does in
manufacturing. Supervisors and factory workers embrace change
that results in making their lives less complicated and more
successful. In the hierarchy of support areas, it is more challenging
for the people to understand how lean can benefit them. The
answer is simple: What benefits the organization as a whole
benefits the supply chain?
Because the internet provides us with unprecedented opportunities
for sharing information and conducting transactions across the
supply chain, companies should have a sense of urgency about
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___________________
1. Lean concepts require ……………….. of continuous
___________________ improvement with a bias for action.
___________________ 2. Supervisors and factory workers embrace change that
___________________ results in making their lives less …………………. and
more ……………………
___________________
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___________________
Summary
___________________
Value-adding activities transform materials and information into
___________________
something a customer wants. Non-value-adding activities consume
___________________ resources and do not directly contribute to the end result desired
___________________ by the customer. Understanding the difference between value and
waste and value-added and non-value-added processes is critical to
understanding lean. Sometimes it is not easy to discern the
difference when looking at an entire supply chain. The best way is
to look at the components of the supply chain and apply lean
thinking to each one and determine how to link the processes to
reduce waste.
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When waste is reduced or eliminated across the supply chain,
overall cycle time is improved, labour and staff costs are reduced,
product quality and delivery are improved, inventories are
reduced, and customer lead-times are shortened. Lean systems
allow a supply chain to not only to be more efficient, but also
faster. Many companies today produce directly into trailers and
maintain no other finished goods inventory.
Keywords
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Map: A map is a visual representation of an area – a symbolic
Notes
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depiction highlighting relationships between elements of that
space such as objects, regions, and themes. ___________________
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___________________
Questions for Discussion
___________________
1. Why is it important to understand the difference between ___________________
value and waste and value-added and non-value-added
___________________
processes?
___________________
2. What actions can a supplier perform to improve waste
reduction process?
3. What are the components of a lean supply chain process?
Explain with diagram.
4. Explain the benefits of lean systems.
5. “Lean is a cooperative process for survival and for success”.
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Comment.
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
Management Essentials: A Framework for Materials Managers,
CRC Press.
Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
Management into the Supply Chain, Butterworth-Heinemann.
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Web Readings
http://www.tompkinsinc.com/article/2004/lean-thinking-supply-
chain/
http://www.kaizen-training.com/tools-techniques/defining-value-
and-the-7-wastes
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UNIT 5: Case Study
Unit 5
49
Notes
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Case Study
___________________
___________________
___________________
Objectives
___________________
After analysing this case, the student will have an appreciation of the
concept of topics studied in this Block. ___________________
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___________________
Case Study: Cycle Time Reduction
___________________
Cycle time reduction Platinum catalyst is used for production of
an Active Pharmaceutical Ingredient (API) in an Eastern ___________________
European Pharmaceutical Company (henceforth referred as ___________________
‘company’). Used catalyst is sent back to supplier who recovers
platinum and uses it for production of fresh catalysts. During that ___________________
acceptable.
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always had proper information about shipment status during the
___________________
transport. The biggest influence on overall cycle time was the
___________________ regeneration of catalyst. This was clearly the supplier’s
responsibility and the company could not directly influence that
___________________
process. The regeneration time specified in contract between the
___________________ company and each supplier was 10 weeks for one mayor supplier
___________________ and 11 weeks for another for year 2004.
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___________________ After brainstorming, the team identified only two possible
solutions:
___________________
1. To ask each approved supplier to prepare offer for year 2005
___________________
with maximum regeneration time of 8 weeks.
___________________
2. To find and develop new supplier for catalyst who can fulfil
___________________ our request.
S
Both the improvements cycle times were reduced by 30% and the ___________________
inventory of the catalyst reduced from 7.728 to 4.500 kilograms.
___________________
The overall annual savings related to avoidance of cost of capital
needed for buying of new quantity of catalyst was US $408,615 ___________________
per annum.
___________________
Question:
___________________
PE
Discuss the activities related to the reduction of regeneration
___________________
cycle time in a group of three students.
___________________
Source:http://fachmannhunter.com/doc/supply-chain/Lean_and_agile_supply.pdf
___________________
___________________
___________________
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UNIT 6: Lean Approaches and Methodology
53
Notes
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___________________
___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
___________________
BLOCK-II
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Lean Supply Chain Management
Detailed Contents
54
Notes
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UNIT 6: LEAN APPROACHES AND
___________________ UNIT 8: SUPPLY CHAIN: FLOWS AND PROBLEMS
METHODOLOGY
z Introduction
z ___________________
Introduction
z Supply Chain Facility FLow
z Process Mapping and Value Stream Mapping
___________________
z Supply Chain Problems
z 5 Ss
___________________
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z Stable Production Scheduling z Introduction
___________________
z Quality at the Source z Improved Demand Management
___________________
z Continuous Improvement (CI) z Waste and Cost Reduction
___________________
z Six Sigma z Process Standardization
___________________
z Total Productive Maintenance (TPM) z Industry Standards Adoption
___________________
z Green Manufacturing and Service z Cultural Change Agent
z Visual Management
UNIT 10: CASE STUDY
z Supplier Relationship Management
Unit 6
55
Notes
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Activity
___________________
Objectives ___________________
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After completion of this unit, the students will be aware of the following
___________________
topics:
___________________
\ Process Mapping and Value Stream Mapping
\ 5 Ss ___________________
\ Single Minute Exchange of Dies (SMED) ___________________
\ Stable Production Scheduling
___________________
\ Quality at Source
\ Continuous Improvement (CI)
\ Six Sigma
\ Total Productive Maintenance (TPM)
\ Green Manufacturing and Service
\ Automation
\ Visual Management
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\ Supplier Relationship Management
\ Final Comments on Lean
Introduction
To apply lean principles a number of conceptual and quantitative
approaches or methodologies have been developed. Those described
here, are more commonly reported in the literature. Some lean
approaches and methodologies are limited to manufacturing, while
others are equally applicable to service operations.
56
A value stream map (VSM) is identical to a process map in that it
Notes
shows the activities and tasks, which make up a process. However,
S
Activity
___________________
Create an interactive white in the VSM the value-added and non-value-added activities and
board activity that gets the
___________________ tasks are highlighted. In addition, cost and timing information on
other students on the topic of
5 Ss. the value added and non-value-added activities and tasks are
___________________
usually included for comparative analysis in waste removal.
___________________
An important measure in value stream mapping is takt time. Takt
___________________
time is the ratio of the available manufacturing or service time to
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___________________ the required production Volume necessary to meet customer
___________________ demand. We can use a VSM to measure the impact of value-added
and non-value-added tasks and activities on total lead-time of a
___________________
process, and compare it to takt time. In situations where the value
___________________ stream is faster than the takt time, it may mean waste in the form
___________________ of overproduction is occurring. When the value stream is slower
than the takt time, it may mean the firm cannot meet customer
demand.
The most fundamental lean principle is waste elimination from
processes. VSM is ideal for identifying wasteful value-added and
non-value-added activities and tasks. VSM is a primary tool for
finding and eliminating waste in manufacturing and service
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processes.
5 Ss
When workstations or employee tools are disorganized, employees
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can waste time looking for things they need to produce their
products or provide needed services to customers. The 5 Ss are
helpful guidelines on workspace organization.
They are:
z Sort: Identify unnecessary workspace items (e.g., tools,
equipment, materials, etc.) and remove them.
UNIT 6: Lean Approaches and Methodology
57
z Set in order: Arrange workspace items for quick
Notes
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identification and use. Activity
___________________
Make a mini-documentary on
z Shine: Keep the workspace clean and equipment well the topic Single Minute
maintained (e.g., tools oiled and sharpened). ___________________
Exchange of Dies.
___________________
z Standardize: Formalize procedures to avoid wasted
indecision times. Practice procedures for efficient application, ___________________
for consistency in service implementation, and to ensure that ___________________
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all the steps are performed.
___________________
z Sustain: Use training, communication, and other
___________________
organizational methods to continuously perform all 5 Ss.
___________________
Check Your Progress ___________________
Fill in the blanks: ___________________
1. Arrange workspace items for quick ………………….. and
…………..
2. Formalize procedures to avoid wasted …………………..
times.
S
___________________
(fewer numbers of employees because the employees are cross
trained to do a greater number of tasks). By placing large tools and
___________________
equipment on moveable platforms that move from one station
___________________ location along the assembly line to another (note darkened arrows),
___________________ distance of movement and time can be saved during setups and
changeovers in the U-cell and C-cell shapes. For example, in
___________________
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Figure 6.1 an employee X in the C-cell might be needed to perform
___________________ two tasks for each product. This employee would perform the first
___________________ task and then shift to a second position on the assembly line as the
___________________
product moves along. If a different product enters the line that
does not require the two tasks, the employee would simply stay in
___________________
the position needed. This provides greater flexibility without
___________________ having extra time and resources tied up in both locations.
Likewise, in the case of the U-cell, because of the reduced distance
resulting from the shape of the cell, tools can be moved quickly and
easily from one position on an assembly line to another,
minimizing waste of time and effort.
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Contd…
UNIT 6: Lean Approaches and Methodology
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Activity
2. The key element of GT cells consists of grouping similar ___________________
Give examples of those
products or companies, which
parts into ………………….. ___________________
have been successful in using
Stable Production Scheduling.
___________________
Stable Production Scheduling
___________________
The notion of stable production scheduling/level production ___________________
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scheduling is one where daily production is defined a week or a
___________________
month in advance. That is, the same amount of manufactured
units is produced or service units are delivered each day. Also, if ___________________
demand changes, then only very small increased changes in daily ___________________
production or delivery are allowed. This approach to scheduling
___________________
serves many purposes of waste elimination. Firstly, it will
___________________
eliminate the need for wasteful overtime. It will also help reduce
costs of hiring more employees during high demand periods or of
terminating or laying off employees during low demand periods.
Secondly, it makes the small but frequent unit production goal of
lean management possible. By having a stable production
schedule, small and frequent unit production becomes much easier
to implement and plan for in most demand environments.
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How do we achieve a stable production schedule with lean? Stable
production can be achieved by having uniform plant loading which
is accomplished by setting a specified plant production output rate
for a fixed period. As lean seeks to use an ordering pull-system
(i.e., pulling orders through the system by known customer
demand), these known orders can be grouped and produced-to-
order in fixed periods in focused factories. For products that do not
operate in a make-to-order environment (i.e., make-to-inventory),
improved forecasting and better utilization of salesforce product
demand estimates are essential to better match inventory to
demand levels.
S
Activity Quality at the source refers to employees maintaining quality and
___________________
Create a digital essay with doing their work right the first time. The employees performing
images and text on the topic
___________________
of quality at source. the production or service tasks are closer to the product or service
___________________ and therefore are in a better position to ensure quality. Under this
principle employees are asked to inspect the work that they do and
___________________
that others along the line have done in order to identify defects.
___________________ Moreover, employees are asked to inspect and analyse the work as
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___________________ it passes through their workspace for quality assurance in meeting
product specifications.
___________________
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Activity
non-linear function that describes the potential enhancement ___________________
Create a collage or poster
impact of CI is presented in Figure 6.3. displaying your findings and
___________________
point of view on the topic of
Continuous Improvement.
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
___________________
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CI is embodied in other programs as well. In Japan, the CI
Notes
approach is called Kaizen, which similarly focuses on small,
S
Activity
With___________________
the help of internet, find gradual, and frequent improvements over a long period with a
four such organizations, which
minimum investment of financial resources. Like CI, everyone in
are ___________________
using Six Sigma.
an organization taking on Kaizen is expected to contribute to
___________________
improve every aspect of business operations. Most Kaizen
___________________ programs need operating practices like JIT to stimulate ideas for
___________________ improvement. Total involvement by all members in the
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organization with top management mastering the efforts must be
___________________
clearly promoted in any Kaizen program. A clear and consistent
___________________
program of support with reward systems helps Kaizen become a
___________________ habit. In addition, training is used to remind and support the
___________________ identification and application of new ideas to solve problems and
improve operations.
___________________
Six Sigma
Six Sigma is a quality improvement approach that seeks to remove
causes of defects in manufacturing and service processes. The term
‘Six Sigma’ originates from the statistical measure that permits at
most 3.4 defects per million opportunities. In other words, virtually
no defects are allowed in products under this principle. A defect in
Six Sigma is defined as any error that is passed on to the customer
in a way that the customer views the error as product non-
conformance. We can measure output quality by Defects Per Unit
(DPU):
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DPMO = DPU × 1,000,000/Opportunities for error. ___________________
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(i.e., 500 × 100) opportunities for error in the setup of the 500
computers. The resulting DPMO is 0.16 (0.008 × 1,000,000/50,000), ___________________
which is fairly high and should call for corrective actions to seek ___________________
approaches to lower the resulting value.
___________________
In service applications of Six Sigma the formula is changed to
___________________
Errors Per Million Opportunities (EPMO) or:
___________________
EPMO = DPU × 1,000,000/Opportunities for error.
Six Sigma is a program that organizations must embrace fully in
order to maximize its benefits. Key concepts to implement Six
Sigma are stated hereunder:
z Ensure appropriate metrics are properly traced in the
manufacturing or service processes that are focused on
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business results.
z Eliminating defects will result in less costs and more profit.
z Emphasize DPMO or EPMO as a standard metric that can be
applied to all functional areas in the organization.
z Eliminating defects is an organization-wide activity. Six Sigma
will work just as well in accounting as it will in
manufacturing.
z Establish a Six Sigma champion to sponsor and coordinate
team activities, help to overcome employee resistance to
change, seek funding and resources, and develop
implementation strategies.
z Develop in-house experts that can help to train others in Six
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___________________ z Develop a specific and detailed plan to aid Six Sigma
___________________ implementation.
___________________ There are many different tools that can supplement the Six Sigma
statistical approach. Some of these Six Sigma and lean related
___________________
tools are given in Table 6.1.
___________________
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Table 6.1: Six Sigma Tools
___________________
Six sigma tools Description
___________________
Cause-and-Effect A visual aid diagram that permits a user to hypothesize
___________________ Diagrams relationships between potential causes of a problem —
This diagram lists potential causes in terms of human,
___________________ technology, policy, and process resources. The diagram is
then used to trace the problem back to possible causes and
___________________ allows the user to better picture sources of potential
causes that could affect the problem. Sometimes referred
to as a fishbone diagram.
Check sheets A standardized listing of items to check —This tool helps
to ensure all the items on the list are checked (e.g., an
airline pilot checking necessary electrical switches before
take-off), promotes efficiency in inspection efforts and
helps in service jobs to perform all tasks required in the
delivery of a service product.
Pareto Charts A visual aid chart used to breakdown types of problems
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into several categories by frequency of occurrence — It is
based on the logic that the largest proportion of
manufacturing and service problems are usually small in
number, but occur frequently. The idea is to rank these
problems, usually based upon frequency of occurrence, and
then devote the most resources to solving the highest
ranked problem first, second highest ranked problem next,
and so forth.
Control Charts Statistically based charts that compute acceptable ranges
of performance with a mean value as a target for product
specifications — These visual aids are ideal for monitoring
how close production processes meet desired product
specifications. These charts have upper and lower control
limits based upon statistics, usually plus or minus three
sigma. Examples include a runs chart used for measuring
quality between production runs, Range chart, also called
an R-chart, used to measure range values between a
desired target specification and actual performance,
C-chart used to measure defects by counting and plotting
them by number of occurrences, and a P-chart used to
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(FMEA) service at each stage in the process of production. The
analysis helps to identify and assess the probability that a ___________________
product will fail (occurrence), the damage in a product
failure (severity), and the probability that failure will be ___________________
detected by the firm (detection). FMEA analysis also
includes suggested means by which to eliminate the ___________________
failure condition through redesign of the process.
___________________
Design of DOE is a statistical approach used for determining the
Experiments cause-and-effect relationships between process variables ___________________
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(DOE) and output variables.
___________________
One of the most recognized Six Sigma implementation planning
approaches is that of General Electric’s Define, Measure, Analyse, ___________________
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Activity Total Productive Maintenance is a Lean concept based on three
___________________
Prepare a whitepaper on the simple ideas:
topic Total Productive
___________________
Maintenance. z Preventive maintenance schedules must be developed and
___________________ adhered to.
___________________ z Extensive maintenance history exists in a database, and
___________________ equipment failures may be predicted within reasonable
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___________________
timeframes.
67
TPM is a Japanese idea that can be traced back to 1951 when
Notes
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preventive maintenance was introduced into Japan from the USA.
Nippondenso, part of Toyota, was the first company in Japan to ___________________
introduce plant wide preventive maintenance in 1960. In ___________________
preventive maintenance operators produced goods using machines
___________________
and the maintenance group was dedicated to the work of
maintaining those machines. However with the high level of ___________________
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many more maintenance personnel were now required. So the ___________________
management decided that the routine maintenance of equipment
___________________
would now be carried out by the operators themselves The
maintenance group then focussed only on 'maintenance' works for ___________________
upgrades. ___________________
z
equipment.
z Involve all departments that plan, design, use, or maintain
equipment in implementing TPM.
z Actively involve all employees.
z Promote TPM through motivational management.
Lean Supply Chain Management
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Activity
___________________
Survey 10 organizations of
paper industry and find out 1. Establishing a preventive maintenance schedule and a
how___________________
many of them are using predictive maintenance system are the basic necessities
green manufacturing and
___________________
prepare a presentation based of …………. manufacturing.
on your study.
___________________ 2. Only ……………… and …………………… maintenance
___________________ functions are given to the maintenance department.
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___________________
Green Manufacturing and Service
___________________
___________________
In line with the origins of JIT and lean from the 1950’s in Japan,
the idea of green manufacturing or green service focus to
___________________
converting what was waste into something of value. This lean
___________________ approach seeks to turn waste into a productive resource. At each
stage of the process of manufacturing a tangible product or
delivering a service, there are possibilities for waste. Some of that
waste (e.g., discarded napkins at a restaurant or discarded scrap
metal in a manufacturing facility) could be used again in a
different form or application. Today, wasted or soiled paper goods
are commonly recycled and used as housing insulation, printing
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paper, or other paper goods applications. Some of the common
“green” options are:
z Recycling: Glass, paper, and plastics are commonly recycled
in business operations and made into new products that serve
as inputs for both manufacturing and service operations.
z Repairing: High cost products (e.g., manufacturing
equipment, like robots and trucks) can be repaired for an
extended useful life.
z Refurbishing: Products that are returned by customers to
retailers can be cleaned up, sometimes requiring installation of
minor par, and resold.
z Remanufacturing: Products that are returned by customers
to retailers can be reengineered with newer features and
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z Conservation of resources: Hotels and restaurants in areas
Notes
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where water is limited often have programs to invite Activity
customers to use less water or fewer linen washings (to reduce ___________________
Search over internet and find
out when was the first robot
laundry water and pollution). ___________________
used in automation of
production process.
___________________
Check Your Progress
___________________
Fill in the blanks:
___________________
PE
1. At each stage of the process of manufacturing a
…………….. product or delivering a service, there are ___________________
possibilities for waste. ___________________
___________________
Automation
Some of Six Sigma statistical tools (e.g., check sheet) embody
fail-safe procedures (in Japanese called poka-yoke), which seek to
ensure manufacturing and service product quality. This is an
approach for mistake-proofing processes using automated devices
or methods to avoid simple human error. Eliminating boring tasks
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for employees by allowing a robot to perform them not only can
improve product quality consistency, which is a quality attribute,
but frees the employees to perform more challenging tasks better
suited for taking advantage of their abilities and helps to improve
their jobs, which research demonstrates enhances employee
motivation and productivity.
There is a balancing factor that must be considered in a lean
enterprise regarding automation. The investment in automation
has to meet an acceptable Return on Investment (ROI). The ROI
may be qualitatively based upon achieving better quality or
quantitatively based upon a reduction in the cost of operations.
Service automation, like an X-ray machine in a hospital, has to be
justified in order to warrant the investment. Information system
technology to track and maintain production scheduling can be
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Activity
Visit___________________
a manufacturing concern
of your preference and find
1. There is a balancing factor that must be considered in a
out ___________________
which kind of visual lean enterprise regarding ……………………….
management is being used
___________________
there. 2. Information system technology to track and maintain
___________________ production scheduling can be very …………………….
___________________
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___________________ Visual Management
___________________ Visual management involves the actions of designing and running
___________________
facilities to maximize the use of visual observation in the
production process. On a macro-level, it might mean removing
___________________
walls so managers have a broad view of the work environment.
___________________ This allows one manager to see more of the operations from any
one place in the facility, thus facilitating visually managing
employees and improving the manager’s productivity.
On a micro-level, this might mean installing systems to enhance
employee control of tasks. Visual controls (i.e., electronic or
mechanical control gauges devices) can be positioned in
workstations or other locations where they can swiftly
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communicate if a production or service problem is present. For
example, production assembly line work stations can have
multi-colour lights (i.e., red means stop the line a serious problem
has been found, yellow means a possible problem with the line,
green means no problems) for employees to quickly and visually
communicate possible problems to managers, rather than wasting
time going and finding them to report difficulties.
There are other technologies used in visual management. The
Andon board, for example, is a large electronic sign board that
provides real-time operational performance and system status
information. These boards can communicate daily production goals
and current progress toward those goals. Andon boards can also
provide detailed assembly line work information on targets and
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Check Your Progress
Notes
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Fill in the blanks: Activity
___________________
Conduct a survey and find out
1. Visual management involves the actions of how many companies on an
___________________
average trust only on single
……………….. and ……………….. facilities. supplier.
___________________
2. Production assembly line workstations can have multi-
___________________
colour lights for employees to …………….. and
…………….. communicate possible problems to ___________________
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managers. ___________________
___________________
Supplier Relationship Management
___________________
Key to timing production scheduling is the delivery of materials ___________________
needed to produce a finished manufactured product or to deliver a
___________________
service. This needs a close relationship with suppliers, achieved in
part by giving most of a firm’s business to one or just a few
suppliers that can be trusted to perform deliveries without failure.
The idea of having only one or a few suppliers serves following two
purposes:
z The amount of business with the supplier will make the lean
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firm a main customer, which in turn can demand greater
respect and service.
z It reduces the paper work and unnecessary waste of time
dealing with large numbers of suppliers.
A lean operation seeks to establish long-lasting and trustworthy
relations with suppliers. This is a kind of relationship where the
lean firm supports and in some cases finances the supplier to
ensure continued support of the lean operation. While competitive
costing of suppliers is not ruled out of the relationship, it is
expected that suppliers will seek the lowest costs and pass those
savings on to the lean firm.
Today, most firms place orders over the Internet or use Electronic
Data Interchange (EDI) systems (i.e., hardware/software systems
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Kanban is a paper system where a card is employed to notify the
Notes
supplier that a unit or group of units is requested by the lean firm.
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Activity
___________________
Recreate a newspaper front Typically, Kanban cards are placed in a location in the plant where
page covering Final
___________________ suppliers can visit, pick up the card (used here like an order form),
comments on lean.
and return with the necessary supplies. Kanban cards have uses
___________________
other than just ordering inventory from suppliers. They are also
___________________ used to signal the production of units and movement or conveyance
___________________ of units within a plant.
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___________________
Check Your Progress
___________________
Fill in the blanks:
___________________
1. Kanban cards have uses other than just ordering
___________________ …………………. from suppliers.
___________________
2. A lean operation seeks to establish long-lasting and
……………………. relations with suppliers.
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production resources. Operating under JIT, they became too ___________________
dependent on suppliers who did not deliver components and
___________________
materials when needed. Strikes can occur that delay shipments of
needed parts, and long supply chains reach into foreign countries ___________________
where wars and natural disasters can prevent timely shipment of ___________________
goods to manufacturing or service operations when needed.
___________________
PE
Decades ago, firms built up inventories in anticipation of labour
___________________
strikes, estimated stock out inventory levels based upon demand
surges or added wasteful inventory in anticipation of poor quality ___________________
components going into operations. All of these wasteful practices ___________________
are still available if firms want to revert back to them for security
___________________
purposes. However, under lean we seek to develop trusting
relationships with suppliers that will not disappoint a lean firm ___________________
74 Summary
Notes
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Lean principles included seeking the elimination of waste,
___________________
improved quality, increased product flow, and reduced cost. Lean
___________________ methodologies included process mapping and value stream
___________________ mapping, the 5 Ss, single minute exchange of dies, stable
production scheduling, quality at the source, continuous
___________________
improvement, Six Sigma, total productive maintenance, green
___________________ manufacturing and service, automation, visual management, and
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___________________ supplier relationship management.
___________________
___________________
Lesson End Activity
___________________ Create a multiple-choice quiz on the topic of Six Sigma.
___________________
Keywords
Process Mapping: Process mapping is a graphic aid that is used
to describe the sequence of all process activities and tasks
necessary to create and deliver a desired product.
Value Stream: A value stream map (VSM) is identical to a
process map in that it shows the activities and tasks, which make
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up a process.
Die: A die is a stamp used to form or press sheet metal into parts,
like the hood of a car.
Single Minute Exchange of Dies (SMED): It refers to the desire
to reduce setup times (ideally to a minute) in changeovers during
alternations in production processes.
Quality at the Source: It refers to employees maintaining quality
and doing their work right the first time.
Continuous Improvement (CI): It is an incremental conceptual
approach for improving products and processes.
Six Sigma: It is a quality improvement approach that seeks to
remove causes of defects in manufacturing and service processes.
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4. How does stable production scheduling help to implement
Notes
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lean?
___________________
5. How does quality at the source help to implement lean?
___________________
6. How does Continuous Improvement (CI) help to implement
___________________
lean?
___________________
7. How does Total Productive Maintenance (TPM) help to
implement lean? ___________________
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8. How does green manufacturing and service help to implement ___________________
lean? ___________________
___________________
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
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Management Essentials: A Framework for Materials Managers,
CRC Press.
Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
Management into the Supply Chain, Butterworth-Heinemann.
Web Readings
http://en.wikipedia.org/wiki/Continual_improvement_process
http://en.wikipedia.org/wiki/5S_(methodology)
http://www.asq-1302.org/wp-content/uploads/2010/09/The-5Ss-of-
Workplace-Organization.pdf
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UNIT 7: Supply Chains
Unit 7
77
Notes
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Activity
Supply Chains
Make___________________
a slide show and have
your voice narration with each
___________________
slide on the topic of Supply
Chain Management.
___________________
Objectives
___________________
After completion of this unit, the students will be aware of the following
topics: ___________________
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\ Concept of Supply Chain Management ___________________
\ History and Trends of Supply Chain Management
___________________
\ Decision-making in Supply Chain Management
___________________
\ Supply Chain Information System and Technology
\ Global Supply Chains ___________________
___________________
Introduction
In any organization, there is a great deal of material that is moved
in organizations for gathering raw materials from suppliers and
delivering finished goods to the customers. It is logistics that
executes this function. Here are some of the definitions of the term
logistics.
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Logistics is the function that moves both tangible materials and
intangible materials. Tangible materials include raw materials and
intangible materials include information through the operations to
the customers. We will know the meaning of supply chain. A
supply chain consists of a series of activities involving many
organizations through which the materials move from initial
suppliers to final customers. There may be different supply chain
for each product.
The chain of activities and organizations is named differently as
per the situation. If the emphasis is on operations, then it is called
process; if the emphasis is on marketing then it is called logistics;
if the emphasis is on value-addition then it is called value-chain; if
the emphasis is on meeting customer demand then it is called
demand chain; if the emphasis is on movement of material then we
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use the most general term, i.e. supply chain. Here, in this unit, we
will introduce you with the basic concept of a supply chain.
S
Activity
___________________
minimize system under costs while satisfying service level needs.
Make a webpage that covers
history and trends in supply
___________________ Supply chain management seeks to integrate performance
chain management.
measures over multiple firms or processes, rather than taking the
___________________
perspective of a single firm or process.
___________________
Supply chain management has provided the next logical stage in
___________________
the evolution of competitiveness for the manufacturing
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___________________ organization and added, importantly, a concern for the flow of
___________________ materials to and from the organization. Supply chain management
integrated suppliers to the end consumers and emphasized the
___________________
need for collaboration to optimize the whole system.
___________________
As such, supply chain management is the process of designing,
___________________ planning and implementing change in the structure and
performance of the ‘total’ material flow in order to generate
increased value, lower costs, enhanced customer service and yield
a competitive advantage. In effect, the addition of supply chain
management to the marketing model created a truly ‘systems’
approach to the organization and its direct and indirect trading
relationships.
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Check Your Progress
Fill in the blanks:
1. Supply chain management seeks to ………………….
performance measures over multiple firms or processes.
2. Supply chain management is the process of designing,
planning and implementing change in the
………………….
an interview for the Financial Times in 1982. The term was slow to
take hold and the lexicon was slow to change. It gained currency in
the mid-1990s, when a flurry of articles and books came out on the
subject. In the late 1990s, it rose to prominence as a management
buzzword, and operations managers began to use it in their titles
with increasing regularity.
UNIT 7: Supply Chains
79
The major movements can be observed in the evolution of supply
Notes
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chain management studies: Creation, Integration and
Globalization. ___________________
___________________
Creation Era
___________________
The term ‘supply chain management’ was first coined by a U.S.
___________________
industry consultant in the early 1980s. However, the concept of a
supply chain in management was of great importance long before, ___________________
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in the early 20th century, especially with the creation of the ___________________
assembly line. The characteristics of this era of supply chain
___________________
management include the need for large-scale changes,
re-engineering, downsizing driven by cost reduction programs, and ___________________
___________________
Integration Era
This era of supply chain management studies was highlighted with
the development of Electronic Data Interchange (EDI) systems in
the 1960s and developed through the 1990s by the introduction of
Enterprise Resource Planning (ERP) systems. This era has
continued to develop into the 21st century with the expansion of
internet-based collaborative systems. This era of supply chain
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evolution is characterized by both increasing value-adding and cost
reductions through integration.
In fact, a supply chain can be classified as a Stage 1, 2 or 3
network. In stage 1 type supply chain, various systems such as
make, storage, distribution, material control, etc. are not linked
and are independent of each other. In a stage 2 supply chain, these
are integrated under one plan and are ERP-enabled. A stage 3
supply chain is one in which vertical integration with the suppliers
in upstream direction and the customers in downstream direction,
is achieved. An example of this kind of supply chain is Tesco.
Globalization Era
The third movement of supply chain management development,
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Activity
___________________
increasing their competitive advantage, value-adding, and
Create a digital essay with
images and text on the topic reducing costs through global sourcing.
___________________
of decision-making in Supply
Chain Management.
___________________ Check Your Progress
___________________ Fill in the blanks:
PE
___________________
development, the globalization era, can be characterized
by the …………….. given to global systems of supplier
___________________
relationships.
___________________
2. This era is characterized by the globalization of supply
___________________ chain management in organizations with the goal of
___________________ increasing their …………………. advantage.
Long-term
decisions
Strategic
level
Day to day
Operational level
operation
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z Location decisions are concerned with the size, number, and
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geographic location of the supply chain entities, such as plants,
inventories, or distribution centres. ___________________
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managing inventories throughout the supply chain.
___________________
z Transport decisions are made on the modes of transport to use.
___________________
Decisions made on the strategic level are interrelated. For
example, decisions on mode of transport are influenced by ___________________
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2. Modelling and simulation is frequently used for
Notes
analysing these interrelations, and the impact of
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Activity
Visit___________________
a nearby retailing making ……………….. level changes in the supply chain.
showroom and prepare one
___________________
presentation on the
information system
___________________
technology being used by
and
Supply Chain Information System and Technology
them.
___________________ The evolution of Supply Chain Information Systems (SCIS) started
___________________
with manual processing of information and from there moved on to
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stand-alone computer systems. The next step was information
___________________
systems at the firm level and inter-firm integrated systems.
___________________ Concurrently, the speed of information transfer evolves such that
___________________ integrated systems can provide measurable speed that matches
operational decision-making.
___________________
___________________
The design and architecture of these advanced information system
makes possible the generation of reports and statistics that allow
the monitoring of supply chain performance. System-wide metrics
of supply chain performance can be measured through an
integrated information system. In addition, other impacts of IT on
supply chain are as follows:
z It has enabled the move from centralized to decentralized
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management without any loss of information at any level.
z It has improved speed/timely delivery, reliability, cost saving,
security, etc.
z It has resulted in the empowerment of individuals and teams
with the work environment progressively moving from
functional organizational arrangement to a team arrangement.
z It has enabled high-level connectivity, information sharing and
integration not only within a company and/or among
companies, within a nation and/or among nations, but globally.
Supply Chain Information System (SCIS) architecture embraces
the concept of distributed object technology to enable efficient data
exchange among various data objects, which may reside in
distributed platforms over geographically remote regions, thereby
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Notes
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___________________
___________________
___________________
___________________
___________________
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___________________
___________________
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___________________
activities, and reports.
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demand the best possible way.
___________________
Information technologies for supply chains constitute application
___________________
programs used for processing transactions, management control,
___________________ decision analysis, and strategic planning. Based on the managerial
___________________ scope of application, the objectives of IT applications for the supply
chain can be classified from the point of view of functionality as
___________________
follows:
Communication
Data needs to be made available across spatially dispersed
decision-making units. This data collection starts from the point of
origin until it reaches the point of consumption, in a manner that
there is no loss or distortion in the data. The database must
support the major database structures, which are as follows:
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z Order file,
z Inventory and warehouse files,
z Accounts receivable file, and
z Distribution requirements file.
UNIT 7: Supply Chains
85
These inputs from the internal and external environment are
Notes
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collected to create reports that decision makers need, when they
need it, to make correct decisions. ___________________
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customer orders from multiple distributors are some transactions
that require efficient communication networks that support ___________________
effective data transfer. ___________________
Processing ___________________
___________________
The processing of data is required so that it may be converted into
information. SCIS obtains data and creates an information base to ___________________
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the supply chain. Recognizing the critical importance of
___________________
information in an integrated supply chain environment, many
___________________
organizations are implementing some form of an
___________________ Inter-organizational Information System (IOIS). Inter-
___________________
organizational information systems are the systems, which are
based on information technologies that cross organization
___________________
boundaries.
PE
___________________
An IOIS is an integrated data processing/data communication
___________________ system mainly utilized by two or more distinct organizations.
___________________ These organizations may be either buyer-supplier or may not be
credit clearing house have a pre-existing business relationship.
___________________
What must exist in a computer-based electronic link between the
___________________ two organizations that automatically activate some element of
work, such as order processing, order-status checking, inventory-
level review, shipment tracking information or, minimally,
transaction transfer, which would earlier have been performed
manually or through other media, such as the mail.
Among the earliest forms of IOISs were those developed by
time-sharing services and online database vendors. The potential
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impact of such systems on the way business is conducted was
recognized as early as the 1960s. Since that time, new technologies
have been integrated to produce systems of increasing capability.
Examples of such implementations include Electronic Funds
Transfer (EFT) systems, the Treasury Department’s decision
support system, a variety of buyer-supplier order processing
systems, and online professional tool support systems. Existing
implementations serve the grocery industry, the drug wholesaling
industry, the insurance industry, and the transportation industry,
with more systems coming into existence each year.
The development of an IOIS for the supply chain has three
advantages: cost reductions, productivity improvements, and
product/market strategy. The five basic levels of participation for
individual firms within inter organizational system are:
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z Multi participant exchange node, in which the member
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develops and shares a network inter-linking itself and any
number of lower-level participants with whom it has an ___________________
established business relationship; ___________________
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z Integrating network node, in which the member literally
___________________
becomes a data communications/data-processing utility that
integrates any number of lower-level participants and ___________________
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Activity Presently globalisation is built around falling transportation and
___________________
Recreate a newspaper front telecommunication costs. The fact that low transportation costs
page covering the topic of
___________________
Global Supply Chains. have been reinforced by low communication costs means that
___________________ developing countries do not have to merely send their raw
materials to the industrialized nations and get finished products in
___________________
return. It also means that developing countries can become major
___________________ procedures as well. People can offer and trade services globally.
PE
___________________ Companies can locate different parts of their manufacturing
research and development, financing, and marketing units in
___________________
different countries and still tie them all up together.
___________________
The following are the characteristics of global competition:
___________________
z Companies competing globally seek to create standardized and
___________________
yet customized marketing.
z Product life cycles are shortening for certain high-tech
products such as computers and peripherals, photography
items, and audio-visual equipment. Sometimes, the PLC lasts
less than one year. Global companies can extending
geographically.
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z More companies are utilizing outsourcing and offshore
manufacturing.
z Marketing and manufacturing activities and strategies tend to
converge and the better coordinated in firms operating
globally.
As companies service global markets, logistics networks tend to
become more expensive and complex. The lead-times thereby
increase and inventory levels rise. The world has greatly
experienced a long-term divergence in the levels of per capita
income among countries over the past two centuries. The
international policy agenda reproduces the traditional
asymmetries in the world economy and creates new ones. It is
particularly visible in trade in services and trade in hard currency,
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To successfully operate in a time-based competitive environment,
Notes
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firms have to emphasize managing logistics as a system,
shortening lead times when possible, and move towards the use of ___________________
worldwide sourcing and manufacturing facilities that are focused ___________________
to produce limited product lines for geographically specific areas.
___________________
The most important step in designing and implementing global
logistics strategic is to learn what the service needs of customers ___________________
are, dispersed throughout the world, and how to meet these needs. ___________________
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This is a prerequisite to developing effective operations in the ___________________
global marketplace.
___________________
To be successful, more and more companies are trying to become
___________________
increasingly customer, rather than internally focused. The main
key is to do so in a way that balances customer requirements with ___________________
90
The important processes that make global strategies effective are:
Notes
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z Strategic fit.
___________________
z Risk management viewed from the perspective of operating
___________________
knowledge of the global environment and minimization of
___________________ foreign exchange risks. It also includes understanding the
___________________ inherent risks in context of difference in language and culture.
___________________ z Knowledge and technology management.
PE
___________________ z Development of organizational capability in terms of ability
___________________ operating flexibility to respond to changes, dealing with
differences in financial accounting systems, decision support
___________________
tools that incorporate global variables.
___________________
z Channel management/outsourcing decisions, which means
___________________
developing the capability and infrastructure to manage these
activities on a global basis, and the different cultures,
languages and business environments.
z Information management needs reflect the ability of the
system to standardize and manage data to integrate supply
chain operations on a global basis.
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A number of factors and relationship in this regards shown in
Figure 7.3.
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___________________
Check Your Progress
___________________
Fill in the blanks:
___________________
1. Presently globalisation is built around falling
___________________
……………… and …………………….. costs.
___________________
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2. The logistics system serves as the global ………………….
upon which the other systems operate. ___________________
___________________
Summary ___________________
Keywords
Inter-organizational Information System (IOIS): These are
the systems, which are based on information technologies that
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Decision-making: Decision-making can be regarded as the
Notes
mental processes resulting in the selection of a course of action
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___________________ among several alternative scenarios.
___________________ Information System (IS): Information systems is the study of
___________________ complementary networks of hardware and software that people
and organizations use to collect, filter, process, create, and
___________________
distribute data.
___________________
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___________________
Questions for Discussion
___________________
1. Discuss the concept of Global Supply Chains.
___________________
2. Explain integration era of supply chain management.
___________________
3. What are the five basic levels of participation for individual
___________________
firms within inter-organizational system?
4. What are the characteristics of global competition?
5. Describe the objectives of SCIS.
Further Readings
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Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
Management Essentials: A Framework for Materials Managers,
CRC Press.
Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
Management into the Supply Chain, Butterworth-Heinemann.
Web Readings
http://www.epiqtech.com/supply_chain-Global-Management.htm
http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html
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UNIT 8: Supply Chain: Flows and Problems
Unit 8
93
Notes
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Activity
___________________
Objectives ___________________
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After completion of this unit, the students will be aware of the following
___________________
topics:
___________________
\ Supply Chain Facility Flow
\ Supply Chain Problems ___________________
___________________
Introduction ___________________
In today’s increasingly turbulent commercial world, achieving an
efficient and effective supply network is central to business
success.
Every single item in your view right now from the shirt you are
wearing to the screen of your computer came from somewhere. The
world we live in depends on logistics and supply chain managers to
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make products available to us. These managers are the ultimate
back-room power players moving millions of dollars of product
every day.
Logistics and supply chain managers are the air traffic controllers
of the global market and can give a company the advantage it
needs to surge ahead of its competition. If any part of the supply
chain fails, then a business can find itself with a big problem. That
is why, good supply chain managers are such valued professionals.
and funds. It begins with the raw material and flows through to
the end user or customer. The key functions in the supply chain
are shown by the flows of the supply chain.
All supply chain functions revolve around the flow of
material/product, information and funds. Here, we will discuss
supply chain functions in terms of various flows. Figure 8.1 depicts
the flows in a supply chain. While the product/service flows
Lean Supply Chain Management
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___________________
Product, Service
___________________ Ultimate
Customer
___________________ Tier 1
Customer
Our
___________________ Operation
Tier 1
___________________ Supplier
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Tier 2
___________________ Supplier Information, Cash
___________________
___________________
Figure 8.1: Supply Chain Flows
___________________
Procurement
Procurement is concerned with purchasing and arranging inbound
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movement of materials, parts, and/or finished inventory from
suppliers to manufacturing or assembly plants, warehouses, or
retail stores. Whereas physical distribution is concerned with
outbound product shipments, it is inbound movement to the buyer
of the product.
Inbound logistics or the process of acquisition of materials is
typically called purchasing. Materials are involved in the process of
adding value through manufacturing. Purchasing is concerned
with availability of the desired material assortments where and
when needed.
Procurement involves five activities:
z Sourcing,
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These activities are shown in Figure 8.2.
Notes
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___________________
___________________
___________________
___________________
___________________
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___________________
___________________
Figure 8.2: Procurement Activities
___________________
On the operational side, inventory turns is a key performance
___________________
measure that be observed very closely. Consider an example. There
___________________
are two companies, ‘A’ and ‘B’, who have identical sales and profit
margins over a one-year period.
‘A’ buys one crore worth of parts at the beginning of the year. It
sells the finished products by year's end at a 10% profit, which
generates ` 1.1 crore in total revenues.
S
___________________ In its physical distribution operations, each firm is only one of
___________________ many participants in an overall supply chain. Materials and parts
are often purchased directly from either the original manufacturer
___________________
or a specialized industrial wholesaler. The utilization of direct
___________________ channels is an important factor in the design of a supply chain
___________________ system for procurement.
PE
___________________ It is more complex than inbound logistics, since customer order
___________________ processing handles orders in response to customers’ requirements;
random ordering must be accommodated by the physical
___________________
distribution system. The ability to determine when and where
___________________ products are purchased serves to significantly reduce operational
___________________ variance as compared to purchasing where operational variances
are much fewer.
Physical Distribution
The area of physical distribution concerns movement of a finished
product to customers. In physical distribution, the customer is
considered the final destination of a marketing channel. It is
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through the physical distribution process that the time and space
of customer service become an integral part of marketing.
Linking marketing channels with its customers: This links
marketing and the supply chain, the interface between these two
functions is critical. In this relationship, there is a potential for
conflict.
In a typical organization, marketing tries to accommodate
customer needs, while manufacturing requires long stable
production runs to control costs. Inventory is used to reunite the
difference in perspectives of marketing and manufacturing. This
compels supplies to use forward deployment throughout the system
on the basis of forecasted sales. This is often the reason for the
conflict with marketing as there is always the possibility that
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Typical physical distribution involves five activities: Order ___________________
transmission, order processing, order selection, order ___________________
transportation and customer delivery. These activities have been
___________________
shown in Figure 8.3.
___________________
PE
processing transmission order
___________________
___________________
Order Order Customer
selection transportation delivery ___________________
___________________
S
___________________
manufacturing support system gets to become more complex.
PE
supply chain that demands attention. The main objective of
___________________
information sharing is to reunite any discrepancy in the system.
___________________ Accurate information makes the supply chain become more
___________________ effective.
Fund Flows
The ability to convert purchased components into products — and
then cash — in the most efficient way possible reflect on the profits
of the supply chain. There is only one source of funds - the
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customer. You pay for the product, the retailer pays the
wholesaler, and the wholesaler pays the manufacturing company.
Similar information, material, and fund flows take place across the
entire supply chain. Hence, it is also transfer of money.
There are solutions that reduce processing costs significantly by
offering enhanced visibility and less uncertainty in accounts
UNIT 8: Supply Chain: Flows and Problems
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process of procuring goods, accelerating payment and invoice ___________________
reconciliation. Sainsbury, the leading food retailer in UK, for
___________________
example, has introduced a system that enables its suppliers to get
access to sources of funds potentially using their borrowing rate ___________________
rather than the rate they might be used to using. They found this ___________________
very attractive as according to them, financing methods can add up
___________________
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to 4% of the cost of goods.
___________________
The higher the speed of transfer of money, the better is the
___________________
financial position of the firm, as the flow of money supports the
movement of products and may also add to the cost. It is ___________________
important, therefore, to expedite the flow of funds because it ___________________
determines the financial position of the company. Dell, for
___________________
example, manages its cash flows very effectively. By managing
receivables and payables very closely, it is able to collect cash from
its customers, on average, ten to fifteen days before it has to pay
its suppliers. This is one of Dell’s major competitive advantages.
Supply chain decisions in the management of product, information,
and cash flows play a key role in the success or failure of a firm.
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The information flow determines the speed of material flow and
increased responsiveness to customer requirements, which will in
turn ensure faster money flow back into the supply chain and
greater supply chain profits.
Logistics and supply chain functions can overlap. Different
companies define them in their own ways. Logistics is generally
concerned with strategy and coordination of flows between
marketing and production (i.e. transportation and distribution).
However, it cuts across many functions such as Supply Chain.
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Activity The implementation of Supply Chain Management (SCM) can be
Fix ___________________
an appointment with a both beneficial and challenging to your business. Determining
supply chain executive of an
___________________
organization and find out the supply chain challenges before they happen is critical to SCM
problems in its supply chain.
___________________ success, as the failures and successes are extremely visible to your
trading partners. In order to achieve successful implementation of
___________________
SCM, take note of the following supply chain challenges:
___________________
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___________________ Don’t Assume SCM Technology Fixes Everything
___________________
SCM technology does many things, but it cannot do it all. One of
the most unrealistic assumptions is that SCM technology will help
___________________
you control your supply chain and vendor resources. Before you
___________________ rely too heavily on SCM technology, you must first have a specific
___________________ level of organized control within your supply chain relationships.
Supply chain management technology is most effective when you
have the ability to control your logistic providers and trading
partners.
S
trying to understand the full capabilities of your suppliers. By ___________________
understanding what a supplier can do during critical times can ___________________
greatly increase your response time to changes in demand. Skilled
___________________
supply chain managers will often review lead times, burst capacity,
standard capacity and quick turn capabilities with their suppliers ___________________
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company.
___________________
The 'Forrester Effect', is now popularly called the 'bullwhip effect' ___________________
and shows how information gets distorted as it moves along the ___________________
network and results in excess inventory at times and inventory
___________________
shortage at other times. With each stage having very different
estimates of what demand looks like, it results in the lead-lag
effect and a change in amplitude in the inventory which, in turn,
creates two possible situations:
z Too Much Stock that results in increase in costs, e.g. storage
and handling, insurance, interest etc.; loss of productivity due
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to existing inventory; high opportunity cost; and stockpiling of
unsold stock, etc.
z Too Little Stock that results in the firm's inability to cope with
demand which results in loss of customers; delays often halt
production, which leads to idle labour and machinery; and loss
of discounts for bulk buying, etc.
In effect, this effect increases manufacturing cost, increases
inventory cost, increases replenishment lead times, increases
transportation cost, increases labour costs associated with shipping
and receiving, hurts the level of product availability and results in
more stock outs, and lower profitability.
Forrester explained this phenomenon was due to the fact that
complete information is not shared between stages due to
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It took sometime for industry to absorb the implications of the
Notes
effect noticed by Forrester, but it ultimately led to the concept of
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___________________ the supply chain in the 1990s. The supply chain is based on two
___________________ core concepts.
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___________________ and downstream (distribution).
___________________ Secondly; organizations have to minimize conflicts in objectives
___________________ outside their "four walls" and manage the entire chain of activities
that ultimately delivers products to the final customer in order
___________________
that each stage of the supply chain and all its constituents can
___________________ maximize profits.
Snowball Effect
Variability in supply quantities and supply delays increase as one
moves downstream in the supply chain. For example, a small
breakdown in a machine in a thread manufacturing plant in India
can cause a four-day delivery delay to the Knitter in Malaysia,
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which can result in a seven-day delivery delay to the Dyer in Hong
Kong and finally snowball into a 10-day delivery delay of a hot,
new model to the clothing manufacturer in Europe. Thus, resulting
in loss of sales worth millions of dollars.
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z Improve supplier/quality team efficiency: Drive quality
Notes
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while not actually being on-site. As the suppliers get better at
problem solving, they will need less of Supplier-Quality ___________________
professional's time. ___________________
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accessed and reapplied when demand increases.
___________________
Check Your Progress
___________________
Fill in the blanks:
___________________
1. ……………….. in supply quantities and supply delays
___________________
increase as one moves downstream in the supply chain.
___________________
2. ……………. on past performance to predict future sales
can cause big problems.
Summary
Supply Chain Management (SCM) maximizes profit by integrating
three key flows across the boundaries of the companies that form
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the supply chain: flow of value (product/materials), information,
and funds. Successful integration or coordination of these three
flows produces improved efficiency and effectiveness for business
organizations.
Effective supply chain management is all about delivering the
right product in the right quantity and in the right condition with
the right documentation to the right place at the right time at the
right price. If only it were as simple as it sounds. Supply chains
must periodically be assessed and redesigned in response to
market changes, including new product launches, global sourcing,
new acquisitions, credit availability, the need to protect
intellectual property, and the ability to maintain asset and
shipment security. In addition, supply chain risks must be
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identified and quantified. SCC members report that less than half
of their organizations have metrics and procedures for assessing,
controlling, and mitigating such risks.
Lean Supply Chain Management
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Create a digital essay with images and text on the topic of supply
___________________
chain facility flows.
___________________
___________________ Keywords
___________________ Procurement: Procurement is the acquisition of goods or services.
___________________
Physical Distribution: Handling, movement, and storage of
PE
___________________ goods from the point of origin to the point of consumption or use,
___________________ via various channels of distribution.
___________________
Manufacturing: Manufacturing is the production of goods for use
or sale using labour and machines, tools, chemical and biological
processing, or formulation.
Information Flow: Information flow is the transfer of information
from a variable to a variable in a given process.
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
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http://www.usanfranonline.com/supply-chain-management-
challenges/ ___________________
http://supply-chain.org/top-supply-chain-challenges ___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
___________________
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UNIT 9: Attributes of Lean Supply Chain
Unit 9
107
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Attributes of Lean Supply Chain
___________________
___________________
___________________
Objectives
___________________
After completion of this unit, the students will be aware of the following
topics: ___________________
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\ Improved Demand Management ___________________
\ Waste and Cost Reduction
___________________
\ Process Standardization
___________________
\ Industry Standards Adoption
\ Cultural Change Agent ___________________
\ Cross-enterprise Collaboration ___________________
Introduction
Lean supply chain management requires retailers to examine
every process in their supply chain and identify areas that are
using unnecessary resources, which can be measured in dollars,
time, or raw materials. A lean supply chain will improve your
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company's competitiveness as well as improve your company's
overall profitability. Retailers can expect reduced inventories and
costs as well as speed and responsiveness to their multichannel
customers as a result of a lean supply chain.
Building and maintaining a Lean supply chain revolves around six
key attributes. Mastering the six attributes will lead to a Lean and
effective supply chain.
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Notes
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___________________
___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
___________________
Source: http://manrodt.com/pdf/lean_2008.pdf
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Check Your Progress Notes
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Activity
Fill in the blanks: ___________________
Create a digital essay with
images and text on the topic
1. The end-user requirement for the finished product will ___________________
of waste and cost reduction.
generally be ……………………. to a third-tier supplier.
___________________
2. One of the key principles of Lean is moving to a ………. ___________________
system.
___________________
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Waste and Cost Reduction ___________________
___________________
Elimination of waste is one of the key tenets of Lean
___________________
manufacturing. In the broadest sense, waste can be time,
inventory, process redundancy, or even digital waste. Supply chain ___________________
partners have to work together and individually to eliminate ___________________
wasteful processes and excess inventory across the chain.
This elimination of waste should have one significant by-product: a
reduction in cost for the supply chain. This is not to say that all
costs are going to decrease, but rather that the supply chain costs
will decrease. It is possible that some costs for suppliers may go up;
however, these increases should be offset by reductions in other
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areas. For instance, a supplier may hold inventory (vendor-
managed inventory) for a client. The supplier’s costs go up, as they
are still responsible for the product, but the customer’s costs
should decrease.
Please note that the initial emphasis is placed on reducing waste,
and not cost. This is not a matter of semantics, but one of
philosophy. A pre occupation with reducing costs may lead a firm
down a sub optimal path, as not all waste can easily be tied to
costs, yet still have a significant impact on them.
The focus on waste, and not cost, also makes the conversation with
suppliers and customers less threatening. If the goal is to reduce
waste, most parties are more willing to discuss their processes
with one another. An initiative to reduce cost is typically viewed as
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Activity
___________________
Within your group, discuss
process standardization.
Check Your Progress
___________________
Fill in the blanks:
___________________
1. This elimination of waste should have one significant
___________________ by-product: a …………………… in cost for the supply
___________________ chain.
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___________________ 2. An initiative to reduce cost is typically viewed as an
___________________ approach to raise ………………….
___________________
Process Standardization
___________________
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Check Your Progress Notes
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Activity
Fill in the blanks: ___________________
Create an interactive white
board activity that gets the
1. Flow is the ………………….. movement of a product or ___________________
other students on the topic of
service through the system to the customer. industry standards adoption.
___________________
2. ………………….. thinking means looking across the ___________________
traditional vertical structures of functions and
___________________
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departments.
___________________
___________________
Product and process standardization between trading partners can
still lead to waste, especially where common components are not ___________________
common practice. For instance, plugging a telephone into a wall ___________________
outlets the same in all fifty states; in this case an industry
standard was developed and accepted. When that does not happen,
as in Europe, multiple standards and products to meet these
standards have to be developed and maintained.
Industry standards should be utilized wherever possible, and
supply chain members should participate in industry standards
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bodies. Standardization of products is a benefit to customers who
are using the products and enhances service ability. However, it
also decreases the proprietary nature of the product, making other
competitive factors such as an efficient supply chain more
important.
Standardization is not limited to products, but it can also dictate
how information is shared across the supply chain. As companies
increase their supply chain systems capabilities they increase the
amount of data to organize, understand, and leverage. Add in
RFID capabilities, POS data, and collaboration with trading
partners, and the data increases exponentially. As data increases,
so too does the risk of digital waste. Digital waste is defined as
information that is not related to or supporting of defined goals
and metrics. If data cannot be tied to specific objectives and
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Activity
___________________
Write a magazine style article 1. …………………… is not limited to products, but it can
about cultural change agent.
___________________ also dictate how information is shared across the supply
chain.
___________________
2. Digital waste is defined as ………………… that is not
___________________ related to or supporting of defined goals and metrics.
___________________
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___________________
Cultural Change Agent
___________________ Supply chain partners including the upstream suppliers and
downstream customers work together as a team to provide value to
___________________
the end-user customer.
___________________
Collaboration must begin through a management understanding
___________________
and acceptance of the concept, followed by a clear conveyance of
this approval and its need to the workforce. It will continue
through the use of period meetings, discussions, and exchange of
information between supply chain partners.
There is one problem with applying Lean concepts they have to be
applied by people. These are the same people who are doing things
the old way today, the same people who have been doing things the
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old way for a long time, the same people who have a vested interest
in doing things the way they have always done. This is one of the
biggest challenges in getting Lean.
Cross-enterprise Collaboration
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Added services, regardless of the perceived value of the supply
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chain partners, are only of true value if they are understood and Activity
desired by the customer. One of the enablers of cross-enterprise ___________________
Recreate a newspaper front
collaboration is the use of teams. In a Lean supply chain, these page covering
___________________
cross-
enterprise collaboration.
teams are not functionally oriented, or focused on their
___________________
organization. Rather, they have a broader perspective, and
consider what is right for the supply chain. ___________________
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partner teams to improve their working relationship and provide a ___________________
foundation for any Lean supply chain activities.
___________________
Summary
Suppliers at each level of the process must receive the customer’s
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demand signal and convert it to something usable (part number
and quantity) to their upstream partners. From a supply chain
perspective, this can be rather difficult. Elimination of waste is one
of the key tenets of Lean manufacturing. With a joint goal of
reducing waste, supply chain partners can work together to modify
policies that produce or encourage it. Typically, waste across the
supply chain will be made manifest in excess inventory. The “flow”
or “value-stream” perspective represents a shift from vertical to
horizontal thinking.
Industry standards should be utilized wherever possible, and
supply chain members should participate in industry standards
bodies. Standardization of products is a benefit to customers who
are using the products and enhances service ability. Added
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114 Keywords
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Flow: Flow is the uninterrupted movement of a product or service
___________________
through the system to the customer.
___________________
Digital waste: Digital waste is defined as information that is not
___________________ related to or supporting of defined goals and metrics.
___________________ Standardization: A framework of agreements to which all
___________________ relevant parties in an industry or organization must adhere to
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___________________
ensure that all processes associated with the creation of a good or
performance of a service are performed within set guidelines.
___________________
Change Agent: A change agent is an event, organisation, material
___________________
thing or, more usually, a person that acts as a catalyst for change.
___________________
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
Management Essentials: A Framework for Materials Managers,
CRC Press.
Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
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Web Readings
http://manrodt.com/pdf/lean_2008.pdf
http://www.smthacker.co.uk/lean_supply_chains.htm
UNIT 10: Case Study
Unit 10
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Case Study
___________________
___________________
___________________
Objectives
___________________
After analysing this case, the student will have an appreciation of the
concept of topics studied in this Block. ___________________
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___________________
Case Study: Lean Supply Chain in Seagate, USA
___________________
Seagate Technology is the world’s largest manufacturer of disc ___________________
drives and HDD recording media. With its headquarters at Scotts
Valley, California, the company employs 62,000 people and its ___________________
Approach
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In 1998, Seagate’s senior executive team was concerned that
business performance was not on par with expectations and
capabilities. The quality group was charged with recommending a
new model or system with which to run the business. The Six
Sigma methodology was selected and launched in 1998 to bring
common tools, processes, language and statistical methodologies
to Seagate as a means to design and develop robust products and
processes. Six Sigma helps Seagate to make data-based decisions
that maximize customer and shareholder value thus improving
quality and customer satisfaction while providing bottom line
savings. Six Sigma was one of the three key activities seen as
essential for Seagate’s continuing prosperity. The other two were:
Contd…
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Implementation
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Seagate Springtown (which is part of Seagate Recording) started
___________________ a supply chain project to improve materials management and
___________________ develop a strategic vendor relationship. The fabrication plan at
Springtown introduced the Lean Manufacturing philosophy that
___________________
recognizes waste as the primary driver of cycle time and product
___________________ cost. Very soon a change had taken place at Springtown and Lean
Manufacturing was wholly integrated with the supply chain
___________________
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initiative. The corporate office at Scotts Valley was rolling out a
___________________ global Six Sigma deployment programme. The Springtown site
___________________ followed the Six Sigma training programme and implemented a
number of tools and techniques including the process map,
___________________
sampling plan, cause and effect analysis and control plans, which
___________________ identified a ‘hidden factory’. The less visible defects of this ‘hidden
factory’ included:
___________________
z Repeated measurements (in and out),
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3. Develop a system for tracking ‘soft savings’.
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4. Develop a common language and encourage its use on a
widespread basis early in the program. ___________________
training all functions – use green, black belt and customized ___________________
programs as appropriate.
___________________
Question:
___________________
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Explain the consequences of implementing lean supply chain at
___________________
Seagate.
___________________
Source:http://fachmannhunter.com/doc/supply-chain/Lean_and_agile_supply.pdf
___________________
___________________
___________________
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UNIT 11: Lean Supply Chain Leadership
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___________________
___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
___________________
BLOCK-III
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Lean Supply Chain Management
Detailed Contents
120
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UNIT 11: LEAN SUPPLY CHAIN LEADERSHIP
___________________ UNIT 13: CUSTOMER VALUE FOCUS
z Introduction z Introduction
___________________
z Traits of Successful Leaders z Lean Customer Value Principles
___________________
z Leadership Styles and Skills z Implementing a Customer Value Focus
___________________
z Teams z Customer Focus in a Service Supply Chain
___________________ Environemnt
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z Obstacles to Leadership
___________________ z Integrating Marketing and Supply Chain
z Lean Supply Chain Leadership
Management for Improved Customer Value
z
___________________
Elements of Lean Ledership
z Creating Customer Value
___________________
UNIT 12: CUSTOMER VALUE
___________________ UNIT 14: ETHICS, TRUST AND ENVIRONMENT
z Introduction
z Introduction
___________________
z Concept of Customer Value
z Trust in Lean Supply Chain
z Components of Customer Value
z Environmental Issues in Lean Supply Chains
z Customer Value Payoff
z Ethics Expectations in Supply Chains
z Customer Satisfaction
UNIT 15: CASE STUDY
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UNIT 11: Lean Supply Chain Leadership
Unit 11
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Lean Supply Chain Leadership
___________________
___________________
___________________
Objectives
___________________
After completion of this unit, the students will be aware of the following
topics: ___________________
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\ Traits of Successful Leaders ___________________
Introduction
Leadership is an individual's or organization's ability to inspire
confidence and influence people to act in a coordinated fashion in a
common direction or with a shared focus.
Broadly speaking, leadership is a process by which a person
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influences others to achieve an objective and direct the
organization in a way that makes it more cohesive as well as
coherent. Usually leaders carry out this process by applying their
leadership attributes, e.g., beliefs, values, ethics, character,
knowledge, and skills.
Good leaders develop through a never-ending process of self-study,
education, training, and experience. This implies that good leaders
are made, not born. If you have the strong desire and willpower,
you may become an effective leader. Good leaders develop through
a never-ending process of self-study, education, training, and
experience. There are certain things you must be, know, and, do to
inspire your workers into higher levels of teamwork. These do not
come naturally, but are acquired through continual work and
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study.
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Activity The term ‘trait’ simply refers to a variety of individual attributes,
___________________
Make students team and work including different aspects of personality, temperament, needs,
on historical background of
___________________
traits of successful leaders. motives and values.
___________________ Personality traits are relatively old dispositions to act in a
___________________ selective style. Different examples include self-confidence,
extroversion, emotional maturity, and energy level. The prime
___________________
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need or a motive is a strong desire for a particular type of stimuli/
___________________
experience. Psychologists usually differentiate between
___________________ physiological needs (e.g., hunger, thirst) and social motives such as
___________________ achievement, esteem, affiliation, power, and independence. Needs
and motives are considered essential and important because they
___________________
greatly influence attention to information and events and they
___________________ guide, energize, and sustain the human behaviour.
Values are closely connected attitudes for anything to be either
right or wrong, ethical or unethical, moral or immoral. Examples
include fairness, justice, honesty, freedom equality
humanitarianism, loyalty, patriotism, progress, self-fulfilment,
excellence, pragmatism courtesy, politeness, and cooperation.
Values are considered important as they highly influence a
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person's preferences, perception of problems, and choice of
behaviour.
Different evidences have shown that traits are jointly determined
by learning and by an inherited capacity to gain satisfaction from
particular types of stimuli or experiences. Some of the traits, e.g.,
values, social needs are probably more influenced by learning than
temperament and physiological needs.
The Trait Approach originates from the “Great Man” theory as a
best and most effective way of identifying the key characteristics of
successful leaders. It was supposed that through this approach
critical leadership traits could be isolated and that people with
such traits could then be recruited, selected, and installed into
leadership positions. This approach was common in the military
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considerable number of studies, the results were generally ___________________
inconclusive. It is the fact that some leaders might have possessed
___________________
certain traits but the absence of either of them did not means that
the person was not a leader. ___________________
Although there was minor consistency in the results of the various ___________________
trait studies, however, some traits appeared more frequently than ___________________
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others, including technical skills, friendliness, task motivation, ___________________
application to task, group task supportiveness, social skill,
___________________
emotional control, administrative skill, general charisma, and
intelligence. The table below lists the main leadership traits and ___________________
skills identified by Stogdill in 1974. ___________________
Traits Skills
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Activity
___________________
Present drafts of written z Emotional stability,
assignments leadership styles
and___________________
skills. z Human relations,
___________________ z Empathy,
___________________
z Objectivity,
___________________
Motivating skills,
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z
___________________
z Technical skills,
___________________
z Communication skills, and
___________________
z Social skills.
___________________
Leadership Styles
Leadership has a formal aspect as in most political or business
leadership or an informal one as in most friendships. Saying
"leadership" rather than of "leading" basically implies that the
entities doing the leading have some "leadership skills" or
competencies.
z The bureaucratic leader (Weber, 1905) is very structured
and follows the procedures as they have already been
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z The charismatic leader (Weber, 1905) leads by feeding ___________________
energy and excitement into their team members. Such type of ___________________
leader has to be committed to the organization for the long
___________________
run. If the success of the division or project is attributed to the
leader and not the team, charismatic leaders may become a ___________________
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opportunities. It takes the company time and hard work to ___________________
gain the employees' confidence back with other type of
___________________
leadership after they have committed themselves to the
magnetism of a charismatic leader. ___________________
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___________________ z The task-oriented leader (Fiedler, 1967) focuses on the job,
___________________ and concentrates on the specific tasks assigned to each
employee to reach goal achievement. This leadership style
___________________
suffers the same motivation issues as autocratic leadership,
___________________ showing no personal involvement in the team’s needs. It needs
___________________ close supervision and control to get desired results. Another
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name for this is dealmaker (Rowley & Roevens, 1999) and is
___________________
linked to a first phase in managing change, enhance, according
___________________
to the organize with Chaos approach.
___________________
z The servant leader facilitates goal accomplishment by giving
___________________ its team members what they require in order to be fruitful.
___________________ Such leader is an instrument, which employees use to reach
the goal rather than a commanding voice that moves to
change. Such leadership style, in a manner similar to
democratic leadership, tends to achieve the results in a slower
timeframe than other styles, although employee engagement is
higher.
z The transaction leader (Burns, 1978) is given power to
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perform certain tasks and reward or punish for the team’s
performance. It gives opportunities to the manager to lead the
group and the group agrees to follow his lead to accomplish a
predetermined goal in exchange for something else. Power is
assigned to the leader to evaluate, correct and train
subordinates when productivity is not up to the desired level
and reward effectiveness when expected outcome is reached.
z The transformation leader (Burns, 1978) motivates its
team to be effective and efficient. Communication is the base
for goal achievement focusing the group in the final desired
outcome or goal accomplishment. This leader is highly visible
and uses chain of command to get the job done.
Transformational leaders focus on the big picture, needing to
be surrounded by people who take great care of the
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effective. The leader uses organisational culture to inspire ___________________
individuals and develop leaders at all levels. This leadership
___________________
style relies on creating an education matrix where groups
interactively learn the fundamental psychology of group ___________________
dynamics and culture from each other. The leader uses this ___________________
psychology, and complementary language, to influence
___________________
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direction through the members of the inspired group to do
___________________
what is required for the benefit of all.
___________________
Leadership Skills
___________________
The process of successfully influencing the activities of a group
___________________
towards the achievement of a common goal. A leader has the
ability to influence others through qualities such as personal ___________________
Networking
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The ability to actively seek, identify and create effective contacts
with others, and to maintain those contacts for mutual benefit. In
addition to strong communication skills and personal skills,
networking uses the background skills of network building and
motivating others.
Teamwork
It involves working with others in a group towards a common goal.
This requires cooperating with others, being responsive to others'
ideas, taking a collaborative approach to learning, and taking a
responsibility for developing and achieving group goals. Teamwork
uses the background skills of collaboration, mentoring, decision-
making and delegation.
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Mentoring
It is:
z being a trusted advisor and helper with experience in a
particular field. Actively supporting and guiding someone to
develop knowledge and experience, or to achieve career or
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___________________
experience);
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___________________
Group Work
___________________
It is:
___________________
z any activity in which students work together;
___________________
z any activity which has been specifically designed so that
___________________
students work in pairs or groups, and may be assessed as a
group (referred to as formal group work); or
z when students come together naturally to help each other with
their work (referred to as informal group work);
z peer group activity in lab classes, tutorials etc.
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Decision-making
It is:
z identifying appropriate evidence and weighing up that
evidence to make a choice (for example, gathering and
assessing information to find the best way to perform an
experiment).
z taking responsibility for a decision and its outcomes (for
example, choosing a topic for a group presentation from a
number of suggestions).
Delegation
It is:
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lab experiment team, you could assign tasks and decisions to 129
different group members). Notes
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___________________
Collaboration
___________________
It is working cooperatively and productively with other team
___________________
members to contribute to the outcomes of the team's work (for
example, dividing the workload and sharing the results of your ___________________
own work with others in the group, or assisting members of the ___________________
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group who are having difficulty completing their tasks).
___________________
It is: ___________________
Motivating Others
It is:
z generating enthusiasm and energy by being positive, focussing
on finding solutions and maintaining a positive attitude even
when things are not going well (for example, when something
goes wrong, asking "What can we try now?" instead of saying,
"That should have worked better."); and
z encouraging others to come up with solutions, listening
carefully to their ideas and offering constructive feedback (for
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Coaching Leadership
Coaching is a form of leadership based upon feedback and
communication. In keeping with lean supply chain management
principles, it is a process of giving motivational feedback to
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___________________
helps leaders to focus efforts on goals and to develop resiliency and
interpersonal skills. As observed by Hunt and Weintraub (2002),
___________________
organizations are training managers to be coaches as a means of
___________________ improving organizational performance.
___________________ Coaching, when referring to getting coached by a professional
___________________ coach, is a teaching or training process in which an individual gets
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support while learning to achieve a specific personal or
___________________
professional result or goal. The individual getting coached may be
___________________
referred to as the client, the mentee or coachee, or they may be in
___________________ an intern or apprenticeship relationship with the person coaching
___________________ them. Coaching may also happen in an informal relationship
between one individual who has greater experience and expertise
___________________
than another and offers advice and guidance, as the other goes
through a learning process.
Coaching guidelines for leaders include the following:
z Have supply chain partners assess their own performance
z Avoid blaming or embarrassing supply chain partners
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z Develop a supportive relationship with supply chain partners
z Focus on the desired behaviours of the supply chain partner,
not simply on the supply chain partner itself
z Give praise and recognition when possible
z Give specific and descriptive feedback
z Give coaching feedback to managers in the supply chain
z Provide coaching training to managers in the supply chain
z Make feedback timely.
Teams
A "team" is defined as a group of people who collaborate or work
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131
A team comprises a group of people linked in a common purpose.
Notes
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Teams are especially appropriate for conducting tasks that are
high in complexity and have many interdependent subtasks. ___________________
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weaknesses.
___________________
Team size and composition greatly affect the team processes and
outcomes. The optimal size (and composition) of teams is debated ___________________
and will vary depending on the task at hand. At least one study of ___________________
problem-solving in groups showed an optimal size of groups at four
___________________
members. Other works estimate the optimal size between 5–12
___________________
members. Less than 5 members results in decreased perspectives
and diminished creativity. Membership in excess of 12 results in
increased conflict and greater potential of sub-groups forming.
Regarding composition, all teams will have an element of
homogeneity and heterogeneity. The more homogeneous the group,
the more cohesive it will be. The more heterogeneous the group,
the greater the differences in perspective and increased potential
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for creativity, but also the greater potential for conflict.
Team members normally have different roles, like team leader and
agents. Large teams can divide into sub-teams according to need.
Many teams go through a life-cycle of stages, identified by Bruce
Tuckman as: forming, storming, norming, performing and
adjourning.
The Forming – Storming – Norming – Performing model of group
development was first proposed by Bruce Tuckman in 1965, who
maintained that these phases are all necessary and inevitable in
order for the team to grow, to face up to challenges, to tackle
problems, to find solutions, to plan work, and to deliver results.
This model has become the basis for subsequent models of group
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Notes Check Your Progress
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Activity
___________________ Fill in the blanks:
Create a digital essay with
images and text on the topic
___________________ 1. A major shortcoming of ………………… leadership style
of obstacles of leadership.
is that it observes difficulty when decisions are needed
___________________
in a short span of time.
___________________
2. ……………….. is a form of leadership based upon
___________________
feedback and communication.
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___________________
3. Coaching seeks to maximize supply chain partner
___________________ strengths, while minimizing ……………………….
___________________ 4. Team size and composition greatly affect the team
___________________ ……………… and outcomes.
___________________
Obstacles to Leadership
As a leader, you are judged on your ability to deliver results. While
at times this might seem tough and unfair, at the end of the day it
is results that matter. In theory, delivering results is simple but in
practice can be more difficult. So, what are main obstacles you
need to address to deliver results and be an effective leader?
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Old Mindsets
This might not be the thing that you would automatically expect to
see at the top of the list. Truth is that when we become a leader it
is easy to forget that there are different expectations and
challenges. If as a new leader you are still in the manager mindset,
you are going to struggle. Even if you are not a new leader, old
mindsets and complacency can be an obstacle.
take the organisation or team forward in, how are you going to 133
communicate it and get the support you need. Notes
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___________________
Micromanaging Everything
___________________
One of the areas, which differentiates the best from the poorer
leaders is their ability to let go of things. When a leader spends all ___________________
of their time micromanaging everything they get lost in the detail ___________________
of the day to day stuff and lose sight of the bigger picture.
___________________
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Failure to Act ___________________
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Activity Here, you will come across current strategies and ideas that can
List ___________________
down any five books on serve to implement lean supply chain management principles,
leadership in lean supply
___________________
chain. overcome difficulties, and provide practical information on how
___________________
lean supply chains can be successfully operated.
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___________________
There is a difference between the factors that enable a successful
___________________ change and those that enable a sustainable, lean change. While
___________________ effective leadership and senior management commitment are vital.
Successful change largely depends upon leaders who justify
___________________
change, communicate a clear and unambiguous reason for change,
___________________
and convince people of the need to change.
Sustainable change requires leaders who “walk the talk” and
utilize key performance indicators to measure and monitor
progress. “Walking the talk” is a reverse visual management
approach that helps employees at the shop floor level see a clear
demonstration of lean values from their managers.
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In lean, effective key performance measures are those that are
related to process improvement, as well as performance or
financial measures. Found and Harvey (2007), go on to report that
the roles of leaders change during the implementation of a lean
transformation. During the lean initiation decision-making phase
when lean changes are begun, leaders have to provide the vision,
guidance, and resources to justify to employees the need for change
and to accept the reasons for change. This calls for strategic or
transformational leadership where goals and policies are clearly
defined about the lean implementation.
Once these lean goals of change have been defined, they can be
deployed throughout the organization. During this process, the
leadership is dispersed as groups and teams take responsibility for
objectives. This phase of the implementation is the decision-taking
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Strong Leadership
Cappello (2006) argues that wherever lean principles are applied,
they must be enforced by strong leadership. It is, “a battle not only
UNIT 11: Lean Supply Chain Leadership
for minds, but for hearts as well.” When lean principles are 135
applied, managers must convince employees (and supply chain Notes
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partners) that lean is not just a short-term campaign, but a ___________________
program that is characterized as a long-term proposition. This
___________________
requires determined, day-in-and-day-out promotion and selling
efforts to continually remind, educate, and enforce lean policies. ___________________
Part of that selling process may be showing kindly enthusiasm for ___________________
lean.
___________________
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Nevertheless, a greater part of leading lean in supply chains ___________________
should be accomplished by actually leading employees through the
___________________
transformational process that converts a supply chain into a lean
supply chain. Providing leadership, allaying fears about changes to ___________________
lean thinking, and guiding employees to overcome problems is ___________________
what strong leadership can do to help implement lean supply
___________________
chains.
Leadership Training
As Li observes, lean principles and lean policies are not only about
eliminating waste, but also about human behaviour, culture,
teamwork, leadership, and executive force. At one Shanghai,
Chinese manufacturing plant, shop floor employees, executives,
and the logistics department adopted and advanced lean principles
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136
z communicating among members, particularly across
Notes
organizational barriers and between supply chain partners;
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___________________ and
___________________ z clarifying roles and responsibilities in lean transformation.
___________________ The application of lean in this Shanghai facility has some
___________________ interesting teaching for learning. At a shop floor level, the firm set
___________________
up lean teams and appointed a leader. Basic training and
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leadership workshops followed. Some operators from the low-level
___________________
processes were promoted to fill permanent lean positions, which
___________________ gave them greater responsibilities and ownership of new tasks.
___________________ The spirit of the company shifted immediately as a result of these
simple changes. This spirit instilled willingness of employees to
___________________
work harder and in a different manner as and when needed.
___________________ Considering these changes motivated and led other employees to
embrace lean principles. This led the organization to focus on
leadership, cooperation, shared mindset, readiness for change and
improvement, and human resource management tasks. Using
HRM personnel to train employees in leadership supported lean
implementation and turned a failing company into a well-defined
successful operation in this Shanghai facility.
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Leadership Training from a Lean Consultant
In an open forum for lean experts, Elliott Butch suggested a
leadership role for the implementation of lean in the Toyota way.
He suggested that a plan to train management to be adept in the
Total Philosophy of the Toyota Production System (TPS). Success
cases for lean are primarily characterized by management teams
that are needed to learn, do and teach all the TPS foundational
philosophies, including 5S, pull production, standardized work,
mutual trust and understanding, in problem-solving to identify the
root causes and to implement countermeasures to eliminate the
problem (e.g., Plan-Do-Check-Act), cellular manufacturing,
elimination of waste, quick changeover and TPM.
They need managers to teach lean to subordinates and continue to
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mentor them so they can teach team members. Beyond that, they
should implement and track lean performance metrics against
expectations to identify opportunities for improvement. The
managers should encourage employees to form teams to solve
problems and execute solutions. They should be allowed to develop
new innovative ideas for process design and other production
UNIT 11: Lean Supply Chain Leadership
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Activity
and productivity increase. As Elliott Butch suggests, “Reap the ___________________
Make a presentation on the
rewards of mining the gold and diamonds of ideas that lay hidden elements of lean leadership.
___________________
in the minds of the hourly workers.”
___________________
Check Your Progress ___________________
Fill in the blanks:
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1. Successful change largely depends upon leaders who ___________________
justify ……………..
___________________
2. A greater part of leading lean in supply chains should be
___________________
accomplished by actually leading employees through the
……………………. process. ___________________
___________________
improved.
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___________________
___________________
___________________
___________________
___________________
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___________________
___________________
___________________
Source: http://www.scdigest.com/assets/Experts/Loughrin_10-04-26.php
___________________
Figure 11.1: Affected Stakeholders
___________________
Promote Education
Get everyone on the same page and using the same cookbook.
While there is flexibility in defining a strategy for crafting a lean
supply chain, an organization must follow the five principles of
lean, focus on the systematic elimination of waste, and define
organizational standards for using lean tools such as value stream
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mapping. The executive sponsor should obtain a solid
understanding of lean supply chains and lean leadership
techniques. They must then begin the cultural transformation by
changing the conversation to defining value, eliminating waste,
employee empowerment, and other lean concepts. The project
manager must acquire extensive training on using lean tools and
managing a lean project. They must then develop an education
plan for everyone in the organization.
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Source: http://www.scdigest.com/assets/Experts/Loughrin_10-04-26.php
139
Demonstrate Support
Notes
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Remove roadblocks and show you care. A good project manager will
___________________
bring obstacles to an executive sponsor and will also bring the
___________________
solution. As they say in Maine - let’s get the moose on the table;
with lean transformations, most obstacles are people who don’t ___________________
want to change. The executive sponsor can keep things moving and ___________________
avoid future catastrophe by clearing small obstacles early and
___________________
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quickly. Many times, clearing these obstacles will involve a short
and precise telephone call to someone not yet with the program. ___________________
Track Accomplishments
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Leverage that steering committee and standard methodology we
discussed earlier. The standard methodology used for guiding your
lean transformation will provide ideal points for updating the
steering committee. The executive sponsor must own the schedule
of steering committee meetings and set expectations with the
project manager on the accomplishments to be discussed at each
meeting. One standard methodology recommends the following
steering committee meetings for a lean project:
140
z Scope,
Notes
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z Benefits and Objectives,
___________________
z Costs and Resources,
___________________
z Justification, and
___________________
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___________________
The project team presents the information obtained from
___________________ customers of a value stream or a segment of value stream. For a
___________________ complete value stream, external customers will have provided their
feedback on what they value in your products and/or services.
___________________
When the scope is the segment of a value stream, the feedback will
___________________ generally be from internal customers. The executive sponsor must
ensure that external or internal customers have been contacted
and that the correct conclusions have been drawn from their
responses.
141
Implementation Plan for Future State
Notes
S
The project team lays out a plan that will create flow, leverage
___________________
pull, and then stabilize the value stream in a mode of continuous
improvement. This will also include a discussion of costs. The ___________________
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in tracking progress.
___________________
Implementation ___________________
Depending on the scope of the improvement, there may be multiple ___________________
updates to the steering committee as the future state is
___________________
implemented. The executive sponsor must remain engaged during
the implementation and keep the steering committee active as ___________________
Summary
This unit has covered the various aspects related to the
understanding of the concept of leadership. Great leadership
encompasses confidence, assertiveness and mutual respect. Great
leaders take calculated risks and are innovative and confident in
their decisions to do so.
They realize that being timid will not get them where they want to
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S
Create a multiple choice quiz on elements of lean leadership.
___________________
___________________
Keywords
___________________
Leadership: Leadership is a process of social influence in which
___________________ one person can enlist the aid and support of others in the
___________________ accomplishment of a common task.
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___________________ Traits: The term “trait” refers to a variety of individual attributes,
___________________ including aspects of personality, temperament, needs, motives, and
values.
___________________
Values: Values are internalized attitudes about what is right and
___________________
wrong, ethical and unethical, moral and immoral.
___________________
Coaching: Coaching, when referring to getting coached by a
professional coach, is a teaching or training process in which an
individual gets support while learning to achieve a specific
personal or professional result or goal.
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
UNIT 11: Lean Supply Chain Leadership
143
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
Notes
S
Management Essentials: A Framework for Materials Managers,
CRC Press. ___________________
___________________
PE
http://www.scdigest.com/assets/Experts/Loughrin_10-04-26.php
___________________
http://www.lean.org/images/october_webinar_project_slides.PDF
___________________
___________________
___________________
___________________
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UNIT 12: Customer Value
Unit 12
145
Notes
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Activity
Customer Value
___________________
Prepare a short report on
customer value.
___________________
___________________
Objectives
___________________
After completion of this unit, the students will be aware of the following
topics: ___________________
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\ Concept of Customer Value ___________________
\ Components of Customer Value
___________________
\ Customer Value Payoff
___________________
\ Customer Satisfaction
___________________
Introduction ___________________
Strategic value is the sum total profit a firm could gain from a
customer if it developed a strategy or took some marketing
initiative with that particular customer. It represents the
customer's potential business, much of which may never be
realized. Imagine, you run a retail bank and you have a banking
customer who has a checking account, savings account and car
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loan with your bank. This customer provides a certain regular
profit to your bank every month, generated by transaction fees and
the investment spread between what your borrowing and lending
rates are and the rates the customer pays you.
146 save the customer money that would have been spent on
Notes something else. A benefit also can be difficult to quantify, such as
S
Activity
___________________
the enjoyment that a customer receives from a product or service.
Make a webpage that covers
components of customer The term "customer value" should not be confused with the value
___________________
value. of customers to businesses. It refers to the value that the
___________________ customers receive, not to how valuable customers are.
___________________
Realization vs. Sacrifice
___________________
PE
Some business people explain customer value as realization
___________________
compared with sacrifice. "Realization" is a formal term for what
___________________ customers get out of their purchases. Sacrifice is what they pay for
___________________ the product or service.
Economic Value
Economic value is the financial impact of the investment. It will be
(c
Business Value
Business value is the primary consideration to the user of the
solution. What can the investment do for the organization and how
UNIT 12: Customer Value
S
Activity
obstacles when they try to convey the value. In other words, the ___________________
Recreate a newspaper front
business value needs to be conveyed in economic terms to other page covering customer value
___________________
payoff.
involved decisions makers.
___________________
Personal Value ___________________
Personal value is the third type to be considered. This is more of an
___________________
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intangible value, which answers the question, what will the
___________________
decision do for me personally? Will I get a promotion, a bonus,
peace of mind, or improve my influence with other organizations? ___________________
Personal value is equally as important as the business and ___________________
economic, and sometimes can be the determining factor in the
___________________
decision. We make decisions based on emotion and then back them
up logically. Personal value can only be uncovered when there is ___________________
148
Notes
S
___________________
___________________
___________________
___________________
___________________
PE
___________________
Source: http://www.endoc.net/PDF2/0225.pdf
___________________
Figure 12.1: Value Payoffs
___________________
Market Share
The relationship between the customer’s perception of value for the
money and market share is strong and direct.
Delivering good value enhances market share by enhancing sales
and marketing effectiveness. Customer turnover is normally
highest among new customers, those who have dealt with a firm
less than one year. By providing high value, a firm will retain a
larger proportion of these new customers. This means fewer new
customers have to be acquired to replace those who defect. By
delivering good value, the firm will lose fewer customers of any
type.
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industries, value is the single best predictor of market share. The 149
implication is that the value-market share relationship is Notes
S
important to understand and manage. ___________________
Firms that deliver high value typically have lower cost structures ___________________
than their competitors. One of the reasons is that high value firms ___________________
normally pay more attention to re-aligning their internal value
___________________
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creating processes.
___________________
High value firms pay more attention to the customer; they listen
___________________
better to what the customer says. Then they use the customer as
the key driver for continuous process improvement. Very detailed, ___________________
actionable data is gathered directly from the customer and fed to ___________________
process owners. The result of this is more efficient processes that
___________________
deliver better value to the customer. There are fewer errors,
mistakes, and defects and much more of a “do it right the first time
mentality”.
Employee Attitudes
Employee attitudes and employee retention are higher at firms
that deliver high value to their customers. In particular, the
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linkage between employee satisfaction and the customers’
perceptions of service quality are strong and positive. Positive,
enthusiastic employees build positive relationships with
customers. Disgruntled employees convey negativism both directly
and indirectly. So the employee-customer relationship is directly
influenced by employee attitudes. However, there is another
benefit from employee attitudes.
Most firms acknowledge that continuous improvement is a critical
success factor in our rapidly changing business environment.
Satisfied employees are willing to suggest ways of innovating and
improving an organization. Disgruntled employees are often
cynical about changes and are usually not willing to improve. The
result is that intra-organizational communication, trust, and
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Profitability
Firms that deliver high customer value, relative to the competitors
in their industry, are more profitable. They grow faster and have
Lean Supply Chain Management
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Activity
___________________
research shows that firms delivering high customer value are
Make a PowerPoint
presentation on customer consistently more profitable than firms with lower value
___________________
satisfaction. perceptions. This finding is very consistent with other studies.
___________________
The PIMS studies (Profit Impact of Market Strategies) involve
___________________ thousands of firms and over five thousand business units. The
___________________ primary goal of the PIMS studies is to determine which factors
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drive profitability in a business unit. Though not traditionally
___________________
measuring value, the PIMS studies found the market perceived
___________________
quality was the single best predictor of market share, which in
___________________ turn leads to higher return-on-investment.
___________________
Check Your Progress
___________________
Fill in the blanks:
1. Firms that deliver high customer value, relative to the
competitors in their industry, are more …………………..
2. Employee ………………… and employee ………………
are higher at firms that deliver high value to their
customers.
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Customer Satisfaction
Satisfaction is a state of mind that occurs when the customer feels
that his expected requirement is fulfilled by what is offered by the
organisation. The ultimate satisfaction a customer aims for has
four major components, namely:
Product Satisfaction
It covers the tangible core benefits provided by the product. It is
related to the basic minimum function expected to be performed by
the product.
Peripheral Satisfaction
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Ambience Satisfaction
It is a blend of tangible and intangible factors, which the customer
experiences, in the purchase and consumption process. The
UNIT 12: Customer Value
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The intangible aspects include the courtesy extended by sales ___________________
persons, the rapport generated and so on.
___________________
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personality traits of the customer. A talkative customer would be
___________________
much satisfied if the sales personnel engages in a lengthy dialogue.
A suspicious customer would be satisfied if all his latent and ___________________
expressed doubts are clarified. Psychic satisfaction provides the ___________________
customer an arena to reduce his anxieties and fear with respect to
___________________
the purchase and use of as product.
___________________
Each one of the above components of satisfaction contributes
towards total satisfaction, which has direct linkage to customer
retention. Therefore, it is imperative that the organisation has to
carefully monitor the level of satisfaction that their customers are
enjoying, and initiate measures to enhance the level of satisfaction.
Surely, it should be done on a continuous basis.
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Though there appears to be a direct correlation between
satisfaction and retention the condition cannot be taken for
granted by any organisation, because even a satisfied customer can
join the attrition process, when he changes his expectation in
terms of the various components of satisfaction as discussed above.
The levels of satisfaction a customer normally expects can be
booked under any one of the following categories:
Expected Satisfaction
It is the “Must be” condition the customer expects from a product
performance; those attributes contributing to expected satisfaction
must be present. In the absence of which, any customer will be
dissatisfied.
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Desired Satisfaction
This is a most desirable condition the customer expects, however
the presence or absence of the attributes contribute to preferred
satisfaction would have no effect on the level of satisfaction.
Lean Supply Chain Management
152
Exciting Satisfaction
Notes
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Indicates a condition in which the presence of certain attributes
___________________
leads to a surprisingly attractive performance. The presence of
___________________ these attributes will further add to the level of satisfaction.
___________________
The customer, whom an organisation can retain by rendering
___________________ expected satisfaction, cannot continue to be retained when the
___________________ customer changes his satisfaction level from expected to desired
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level and further from desired level to exciting level. Therefore,
___________________
organizations must keep on building up their ability to
___________________ continuously satisfy their target customers so as to have customer
___________________ retention. A suitably designed customer satisfaction audit would
serve the purpose.
___________________
Summary
Delivering good customer value is critical to the success of any
business. But customer expectations are continually evolving,
UNIT 12: Customer Value
S
improve and expand or risk failure. The old axiom that ___________________
management’s primary responsibility is to “manage change or
___________________
change management” has never been more true. Today’s rapidly
changing business environment places a huge penalty on ___________________
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more important. Designing good customer information systems ___________________
that allows data mining will help in the design and delivery of a
___________________
value proposition. Because of increased outsourcing, firms are
more reliant upon suppliers. Firms need to form partnerships and ___________________
alliances with key suppliers so that value-creating processes can be ___________________
coordinated and harmonized. The ultimate success of a business is
___________________
dependent upon the ability to align both internal and external
processes to deliver good value to the customer.
S
___________________ Books
PE
___________________ Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
___________________ Management into the Supply Chain, Butterworth-Heinemann.
___________________ Web Readings
___________________
http://www.endoc.net/PDF2/0225.pdf
___________________
http://www.walkerinfo.com/knowledge-center/walker-library/
article.asp?id=892
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UNIT 13: Customer Value Focus
Unit 13
155
Notes
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Activity
___________________
Objectives
___________________
After completion of this unit, the students will be aware of the following
topics: ___________________
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\ Lean Customer Value Principles ___________________
\ Implementing a Customer Value Focus
___________________
\ Customer Focus in a Service Supply Chain Environment
___________________
\ Integrating Marketing and Supply Chain Management for Improved
Customer Value ___________________
\ Creating Customer Value by Resource Alignment
___________________
\ Creating Customer Focused Value during Recessions
Introduction
Lean is successful in large part because of its focus on the
customer. It puts a great deal of emphasis on the concept of value.
Value Stream Maps and the practice of distinguishing value-added
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and non-value-added activities both immediately come to mind.
‘Voice of the customer’ (VOC) also helps the company look at its
products and services through the eyes of its customers. Many of
these concepts, though, are much more powerful when you have a
deeper understanding of how customers determine value.
This unit explains several ‘Customer Value Principles’ to keep in
mind when looking at how your processes in a Lean company affect
the value that your customers receive.
Customer Value
Think about this. Would you be willing to pay a different price for
a product based on how efficient a manufacturer is? Do you even
know how efficient a manufacture is most of the time?
Consider an item like batteries. When you go to the store, you base
your purchasing decision on a variety of factors like reputation,
Lean Supply Chain Management
156 prior experiences with the product, or price. You never even
Notes consider whether one manufacture has a lower cost structure than
S
___________________
another. So, if customers never link waste to value, why do
companies?
___________________
PE
___________________ pay for a candy bar in a movie theatre?
___________________ Some customers would be willing to pay more money without
___________________ blinking an eye. Some would never, on general principle, pay
___________________
US $4.00 for something that normally costs US $0.50. Some people
would only be willing to pay it if they were trying to impress a date
___________________
or to quell a pleading child.
The point is that value has to be considered in context, or it is
meaningless.
that gives them the optimum value based on their own set of
criteria.
If a customer buys a big house, she has less money left over for
other products, and less time left over for entertainment. If the
rents a small apartment, he has less space to put big furniture.
Every choice a customer makes about one product or service affects
every subsequent choice.
UNIT 13: Customer Value Focus
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Activity
following of loyal supporters. The feelings that a person gets from Visit___________________
an organization and ask
owning that product can play a large role in the purchasing a senior official if they want to
___________________
implement customer value
decision. When emotions play a role in decision-making, customer focus in their system and will
behaviour is harder to predict. they___________________
do it.
___________________
This emotion can drive people to make uninformed decisions. Late
night TV is filled with miracle cures for baldness and get-rich- ___________________
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quick programs that all have the standard ‘results not typical’ ___________________
disclaimer on the bottom of the screen. Yet, those companies sell a ___________________
lot of product. So, what do these customer value principles mean to
___________________
you?
___________________
On the shop floor, they mean making sure that you focus on the
things that add value to the customer before you look at reducing ___________________
S
Activity
Visit___________________
a garment retailer and Customer Value Creation is a customer-centric framework for
find out what is their customer
___________________ helping companies choose the best opportunities for growth by
focus in supply chain and
prepare a presentation. optimizing the value creation between the enterprise and its
___________________
customers. Besides, this also to establish the importance of good
___________________ coordination with the market orientation in order to achieve the
___________________ customer value creation towards professional services. It also aims
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to observe the research conducted to date the area of marketing
___________________
and sales integration and provide guidance to help mix these
___________________
functional areas better in professional marketing firms. It get
___________________ benefits from understanding the concept of internal customers and
___________________ how this can deliver greater productivity and enhance the creation
of customer value.
___________________
With the increased globalization of markets nowadays, competition
among market players has become more severe. In this competitive
market, one of the most important factors is the getting customer
satisfaction and quality in service. The concept of customer
satisfaction is not new, the relationship between customers and
corporations has been changing regularly. Customers are becoming
the absolute entity for corporations as the final decision makers for
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business deals and repeat purchases of products. The customer
keeps switches over to different service providers and products or
packages so often, if the products are offering value. The customer
is buying satisfaction. Highest value is resulted when the customer
is satisfied.
S
demand for better quality and customer services, and the demand ___________________
for quick and efficient response to market.
___________________
Earlier, supply chain members who were away from the end
___________________
consumers stressed factors that directly affected their own
immediate customer and supplier. Now, they too need to focus on ___________________
the end customers and see how these forces affect their end ___________________
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customers. The key to survival depends on the supply chain ___________________
members' focus on the demand side of the supply chain equation.
___________________
From the corporate perspective, end-use forces like technology and
changing lifestyles will help in determining the supply chain. ___________________
Thus, customer focused analysis influences the objectives and goals ___________________
of supply chain activities. The efficacy of "push" and "pull"
___________________
strategies has always been debatable. Of late, the consumer
provides both the strategies in the demand-chain management
process.
Demand-Chains
Instead of building and operating a supply chain from
manufacturer to market, demand-chain leaders focus on
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developing alliances with those channel partners who can meet
customer requirements. The focus on end-users directed the
attention of all supply chain partners to the demand side of the
supply chain equation and made them remind their roles in the
supply chain. The roles and responsibilities of players in today's
emerging demand chains have changed compared to those in
traditional chains. In a demand chain, the products are developed
which are primarily based on consumer research and information
gathered by any of the supply chain partners and not necessarily
by the manufacturers.
For example, retailers provide comprehensive information on
consumer spending patterns and preferences to the manufacturer
and this information helps in producing products with attributes
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___________________
the time it is launched in the market. This is essential if supply
chains are to be transformed into demand chains.
___________________
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demographics, lifestyle, and other social factors. For example, the
___________________ overall size of the average family has shrunk due to a fall in the
___________________ birth rate in industrialized nations, thus bringing down the
___________________
number of new consumers. In addition, the workforce size has
reduced due to an increase in automation. These changes greatly
___________________
influence the way in which consumers purchase goods and where
___________________ they purchase them.
Function
In a traditional supply chain model, suppliers send basic parts for
en element, such as an automobile seat, to the manufacturer. The
manufacturer then assembles the parts into a complete seat as the
car is assembled. In modular supply chain, the supplier creates the
complete seat, and sends it ready to install.
Benefits
In modular supply chain management, suppliers have considerable
design and innovation leeway. Suppliers often provide design and
cost saving development because they are given such a degree of
freedom in production. With long-term commitments and
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Scope
Automotive companies were among the first to adopt
modularization in supply chain management, but other industries
UNIT 13: Customer Value Focus
embraced the concept. The electronics industry makes heavy use of 161
modularization, as do the toy, software and airline industries. Notes
S
Modularized supply chains create efficiency in a global ___________________
marketplace as well.
___________________
Customers will always buy from retailers. Consumers are actively
___________________
searching for new sources from which they may obtain products
and services. In this process, to get value for money, they are ___________________
prepared to buy products and services from any channels member ___________________
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who can provide them with quality products, timely delivery and a ___________________
reasonable price.
___________________
B2B companies or industrial organizations need to monitor only
___________________
their customers. In industrial organizations, solving customers'
problems sometimes means solving your customer's customers' ___________________
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Activity
___________________
Write a magazine style article
about integrating marketing A network-based business model has evolved over the past few
and___________________
supply chain decades as companies have transitioned from a hierarchical,
management for improved
___________________
customer value. vertically integrated format to a much looser, even virtual,
___________________ network of partnerships with key suppliers.
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customer focus and market commitment has always had an
___________________
underlying internal competition for primacy, i.e. it is also related
___________________ to how each of the functions add value to the company. Over the
___________________ last decade, critical voices have stressed that marketing has
___________________ generally not been very good at managing out-of-the-box and
across boundaries, has been complacent in its view that marketing
___________________
is the function which “owns the customer”, has failed to provide the
coherence to corporate organisation, operations and processes that
its proponents claim, and, consequently, was outpaced by new
models aimed at building value which originated mainly in
manufacturing, operations or IT, but not in marketing.
The old “mantra” of marketing success, i.e. having the right
product in the right place at the right time, suggests why SCM has
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increasingly gained influence in areas, which were originally the
domain of marketing and marketing channel management. At the
same time, however, it also demonstrates the synergies between
both disciplines.
In SCM, much of the recent debate has centred on the ability of the
supply chain to be either “lean” or “agile”. Lean supply chains on
the one hand focus on doing “more with less” by reducing waste or
“muda” through inventory reduction, lean manufacturing, and a
just-in-time approach.
A lean approach is said to be most suitable for markets which are
characterised by predictable demand, high volume and low
requirements for product variety. Agile supply chains, on the other
hand, are designed for flexibility, emphasising the supply chain’s
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Activity
determinant of success. Still, the tempting promises of SCM, which
Visit___________________
a food chain and see how
aims at “lowering the total amount of resources required to provide customer value is created by
___________________
aligning a person’s capabilities
the necessary level of customer service”, should not disguise its and prepare a write-up.
limitations: SCM focuses on the efficient matching of supply with ___________________
demand but does not provide answers to the customer conundrum, ___________________
i.e. it does not help the company to find out what the customer
___________________
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perceives as valuable, and how this customer-perceived value can
___________________
be translated into customer value propositions. In other words,
supply chain efficiency by itself will not increase customer value ___________________
and satisfaction. ___________________
164
Creating customer value includes five major actions:
Notes
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Activity
z Define customer value segment strategy: It must be based
___________________
Prepare a short report on
creating customer focused
on choosing the customer value commitments on which you’re
___________________
value during recessions. going to compete in your target customer value segments.
___________________ z Develop superior offering: Customer value commitments
___________________ have to embody superior values and benefits for the respective
___________________
customer value segment and link the customer value
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commitments to the brand.
___________________
z Create the right organization: This requires assessment of
___________________
person’s current capabilities against the capabilities needed to
___________________ deliver the customer value commitments competitively and
___________________ effectively to the target customer value segment and a plan to
fill the gaps.
___________________
z Define Key Performance Indicators (KPIs): KPI include
the key measures and benchmarks customers use to track your
value performance.
z Communicate internally and externally: The customer
value commitments must be communicated to the target
customer value segments and within your own organization.
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This means managing both the sales, the marketing
communications, and the internal communications processes
to provide a clear, consistent message.
Customer value segment objectives are an evolution of strategic
decisions. When first targeting a customer value segment, it is
expected to pursue a growth strategy, investing in sales, expanding
channels, and offering incentives to penetrate the market. As
relationship with the customer value segment matures, the
strategy shifts to maintenance, consolidating the customer
interfaces and channels; investment is made in this customer value
segment only to protect a defined position Exit is a strategy many
companies adopt far too late for their own good.
S
z Focus on Value: During recessions, customers become more ___________________
value oriented. If your product is no longer seen as providing ___________________
value, you may have to improve quality or resort to price cuts
___________________
and temporary price promotions to keep existing customers
and get new ones. ___________________
___________________
PE
z Alter Product Portfolio: During difficult economic
conditions, consumers may change their financial habits. They ___________________
may start holding onto their money, or spend it on necessities ___________________
rather than luxuries. If your company markets several
___________________
products and brands, it may be wise to focus on
brands/products that customers view as offering greater value. ___________________
Summary
Customers have limited resources and unlimited demand. So, they
have to pare down what they want into a bucket that gives them
the optimum value based on their own set of criteria. Customer
Value Creation is a customer centric framework for helping
companies choose the best opportunities for growth by optimizing
the value creation between the enterprise and its customers. The
customer keeps switches over to different service providers and
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___________________
___________________
Lesson End Activity
___________________ Discuss within your group about the various resources through
which customer value can be created.
___________________
___________________
Keywords
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___________________
Operational Excellence: Operational excellence is a philosophy
___________________
of leadership, teamwork and problem solving resulting in
___________________ continuous improvement throughout the organization.
___________________
Key Performance Indicators (KPI): A set of quantifiable
___________________ measures that a company or industry uses to gauge or compare
performance in terms of meeting their strategic and operational
goals.
Modular Supply Chain Management: Modular supply chain
management is a method of working with suppliers to deliver
products in a shorter time frame.
Demand Chain: The demand chain is that part of the value chain
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which drives demand.
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
UNIT 13: Customer Value Focus
167
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
Notes
S
Management Essentials: A Framework for Materials Managers,
CRC Press. ___________________
___________________
PE
http://www.velaction.com/customer-value-principles/
___________________
http://www.europeanbusinessreview.com/?p=8437
___________________
___________________
___________________
___________________
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UNIT 14: Ethics, Trust and Environment
Unit 14
169
Notes
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Activity
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\ Trust in Lean Supply Chain ___________________
\ Environmental Issues in Lean Supply Chains
___________________
\ Ethics Expectations in Supply Chains
___________________
Introduction ___________________
___________________
Transforming a disjointed supply chain into a lean supply chain
need a great deal of analysis and coordination. An organization
must identify all non-value-added activity; address fragmented
functions, adversarial supplier relationships, and an unwillingness
to share important information. Basic processes such as order
fulfilment, production and logistics flows need to be analysed.
Operational areas must be fully aligned with business strategies,
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goals, and performance metrics. Every relationship must be clearly
defined and their impact on the value stream be understood.
Lean Supply Chain Management (LSCM) is not exclusively for
those companies who manufacture products, but by businesses who
want to streamline their processes by eliminating waste and
non-value added activities. Companies have a number of areas in
their supply chain where waste can be identified as time, costs or
inventory. To create a leaner supply chain companies must
examine each area of the supply chain.
S
___________________
regularly experienced example of trust is showing faith that things
will be much better in the future.
___________________
PE
have Japanese companies that perform poorly or go into
___________________
bankruptcy. Toyota does not monopolize this idea. Moreover, it has
___________________ to translate beyond Japanese culture to be successful. Of that, a
___________________ significant number are Japanese. However, there are people from
every culture working for Toyota that share the concept and this
___________________
way of doing business. From that viewpoint, growing larger does
___________________ not suggest that we are stepping out of anything that is part of our
culture.
Toyota really believes and nurtures the idea that the company
should be able to build a car with no problems or flaws. When this
does business with Ford and GM, those companies strive to be
better, but you do not get the idea they think a perfect car is
possible.
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With the Toyota Way, one of the key elements is kaizen:
continuous improvement. There is no end to it. It is a never-ending
journey. Respect for people is another important element.
Employees, Customers, Suppliers.
When it comes to consumers, they demand changes from time to
time.
Toyota's thinking based on the Toyota Way is teamwork with
suppliers. This teamwork is going to be a long-lasting relationship.
Price is only one element. Trust is a more important element. The
relationship is a sharing concept, and should always be win-win.
Price is important, too. Trust is perhaps more so. Toyota is only
doing intelligently what the business schools are teaching.
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In the church when you get married, the priest or minister does
not ask each partner how much each will get from the other in
terms of money. You are asked about how well you get along. What
is your commitment to one another? Now, in real-life situations,
some companies practice this, and some do not. Some practice this
in the U.S. Some do not. A similar scenario is found in Japan.
Therefore, there are fantastic achievements in both countries, and
UNIT 14: Ethics, Trust and Environment
S
Activity
issue. Find___________________
out 5 such organizations
who consider environmental
Check Your Progress issues in their lean supply
___________________
chain.
Fill in the blanks: ___________________
PE
another person.
___________________
2. Toyota's thinking based on the Toyota Way is ___________________
………………… with suppliers.
___________________
___________________
Climate change and the environment are the some of the biggest
issues facing the world today. Greenhouse gas emissions,
particularly CO2, are the major contributing factor global warming.
The majority (56%) of Australia's energy-related greenhouse gases
were emitted in the production and consumption of goods and
services for the purpose of household final consumption, including
the storage and transportation of these. The non-household
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transportation sector alone contributed 10% of Australia’s total
greenhouse emission in 2004, making it a critical element for its
sustainability targets.
The environment has been a constant presence in the global media
and now we are seeing the governmental and corporate response in
the emergence of green strategies.
As the public becomes more aware of environmental issues and
global warming, consumers will be asking more questions about
the products they are purchasing. Companies will have to expect
questions about how green their manufacturing processes and
supply chain are, their carbon footprints and how they recycle.
S
___________________
reductions they identified complemented the company’s
commitment to the environment.
___________________
PE
supply chain, from purchasing, planning, and managing the use of
___________________
materials to shipping and distributing final products, savings are
___________________ often identified as a benefit of implementing green policies.
___________________ Despite the public’s focus on the environment, benefits attributed
___________________ to reducing a company’s environmental impact are not in the
forefront of supply chain executive’s minds. It appears that many
___________________
executives are still unaware that improved environmental
performance means lower waste-disposal and training costs, fewer
environmental-permitting fees, and, often, reduced materials costs.
It is expected that the interest in green issues and environmental
concern by the public will not decline as economic issues become
more important due to the faltering economy.
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Lean Environmental Benefits in ISO 9000 and ISO 14000
Programs
Following are the lean benefits:
173
z The "Management system" refers to how the organization
Notes
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manages its processes, or activities.
___________________
z "Quality management" refers to the organizational activity
that enhances customer satisfaction by meeting customer and ___________________
More companies start to realize that there is a link between lean ___________________
and their environmental performances. How strong is the link? ___________________
PE
Until now, a few researchers have looked into the relationship
___________________
between lean and green and there is already a fierce debate about
whether lean benefit the green or not. ___________________
174
Some of the benefits of implementing an ISO 14000 Environmental
Notes
Management System (EMS) in accordance with the ISO 14000
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___________________ standards include:
___________________
Operational Benefits
___________________
z Efficiency, discipline and operational integration with ISO
___________________
9000
___________________
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z Greater employee involvement in business operations with a
___________________ more motivated workforce
___________________
z Easier to obtain operational permits and authorizations
___________________
z Assists in developing and transferring technology within the
___________________ company
___________________ z Helps reduce pollution
z Fewer operating costs
z Savings from safer workplace conditions
z Reduction of costs associated with emissions, discharges,
waste handling, transport and disposal
Improvements in the product as a result of process changes
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z
z Safer products
Environmental Benefits
z Minimizes hazardous and non-hazardous waste
z Conserves natural resources - electricity, gas, space and water
with resultant cost savings
z Prevents pollution and reduces wastage
Marketing Benefits
z Demonstrates to customers that the firm has met
environmental expectations
Meets potential national and international government
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z
purchasing requirements
z Delivers profits from marketing "green" products
z Provides a competitive marketing tool
z Improves international competitiveness
UNIT 14: Ethics, Trust and Environment
S
z Improves the organization’s relationship with insurance Activity
companies ___________________
Conduct a survey of 10
suppliers and find out their
z Elimination of costs associated with conformance to conflicting ___________________
ethical expectations from lean
supply chains.
national standards ___________________
z Process cost savings by reduction of material and energy input ___________________
z Satisfying investor/shareholder criteria ___________________
PE
z Helps reduce liability and risk ___________________
z Improved access to capital ___________________
___________________
1. Climate change and the …………………… are some of
the biggest issues faced by the world today.
2. More companies start to realize that there is a link
between ………………… and their ………………………
performances.
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Ethics Expectations in Supply Chains
Today consumers are not only concerned with product quality but
also the integrity of supply chain inputs when differentiating
between products. As consumers look beyond the tangible product
on the shelf and deeper into supply chain inputs, there is
significant pressure for greater supply chain transparency.
A decade ago, consumers were beginning to take an overt interest
in environmentally sustainable materials, such as recycled
materials, being integrated into the production process. This
interest has now peaked into an expectation. Not surprisingly, in a
global economy where the difference between competitors’ unit
price is often minimal, some of the less tangible factors such as
supply chain inputs and whether or not these are deemed to be
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‘ethical’ in the eyes of the consumer are now coming to the fore and
(in many instances) driving the decision making process of
consumers.
S
___________________
such as raw materials, employees, employee conditions and
distribution networks (among others) are set up to withstand
___________________
public scrutiny and meet (or preferably, exceed) consumer
___________________ expectations. In order to achieve these lofty ideals companies are
___________________ expected to internalise values-based decision-making and
processes into their day-to-day business.
___________________
PE
___________________ Product Differentiation
___________________ Ethical supply chains are influencing the way in which products
___________________ are differentiated. Products are no longer differentiated by
rudimentary characteristics such as colour and price. Rather, less
___________________
tangible factors such as the beliefs and values system to which the
___________________ parent company subscribes, the values of the people the company
employs and the way in which it in return values and looks after
those employees, as well as the sustainability of inputs and
business practices are all under the microscope. All of these factors
are becoming pivotal in a consumer’s decision making process.
Those companies able to meet the expectations of consumers are
becoming ‘blue chip’ investments.
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Declaration of Interests
Interestingly, this new global supply chain phenomenon is forcing
many companies to look inwards, create performance measures
other than the bottom line and declare their interests (or risk
becoming ‘guilty by association’). In the eyes of consumers, it is no
longer acceptable for large companies to ‘pass the buck’ and permit
subsidiaries or subcontractors to be unethical and/or do their ‘dirty
work’. Instead, consumers are holding parent companies, Chief
Executive Officers and Boards to account for the products and
supply chains they are creating. A consequence of this is that many
large companies have had to dedicate resources to track and
monitor the operations of contractors, sub-contractors and
subsidiaries in an effort to ensure their own reputation remains
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necessary, pay ‘extra’ to those companies that are listening and 177
responding to their demands. Notes
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___________________
Check Your Progress
___________________
Fill in the blanks:
___________________
1. Today consumers are not only concerned with product
___________________
quality but also the ………………. of supply chain
inputs. ___________________
PE
2. ……………… supply chains are influencing the way in ___________________
which products are differentiated. ___________________
___________________
Summary ___________________
The implementation of a Supply Chain Management system is not ___________________
just about reinventing the business. Most of the companies may
pay tremendous lip service to people and the Cultural Value
System, but when it comes to a major SCM initiative these are
ignored to their peril. The task of effectively changing the daily
activities and behaviour of many of these employees is highly
daunting. From an organizational point of view, SCM concepts are
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especially tricky because they go against the mantra of
decentralization, which many companies adopted in 70's and 80's
to spur innovation among business units.
The concept of SCM requires a switch from a functional to process
orientation. That is tough for companies with myriad independent
business units that are unaccustomed to sharing information or
coordinating with other divisions. Finally, the spate of strategic
alliances without proper cultural compatibility has made the
integration problem even more vexing. A major reason why SCM
results can fall through is that the top management typically
overestimates the degree of cooperation it will get and
underestimate the integration cost of change in the organizational
processes into the organizational system. SCM can give results
only with building of strong commitment, integrity of
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178 Keywords
Notes
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Trust: Trust means being able to predict what other people will do
___________________
and what situations will occur. If we can surround ourselves with
___________________ people we trust, then we can create a safe present and an even
___________________ better future.
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to achieve results they are more likely to achieve together than
___________________
alone.
___________________
Green Supply Chain: A Green Sustainable Supply Chain can be
___________________ defined as "the process of using environmentally friendly inputs
___________________ and transforming these inputs through change agents – whose
by-products can improve or be recycled within the existing
___________________
environment.
ISO: ISO is a network of the national standards institutes of 164
countries, one member per country, with a Central Secretariat in
Geneva, Switzerland, that coordinates the system.
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
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179
Web Readings Notes
S
___________________
http://valuestream2009.wordpress.com/2010/12/16/lean-green-
manufacturing-and-its-role-in-sustainable-supply-chain- ___________________
management/
___________________
http://www.greenbiz.com/research/report/2003/12/06/lean-and- ___________________
green-supply-chain
___________________
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___________________
___________________
___________________
___________________
___________________
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UNIT 15: Case Study
Unit 15
181
Notes
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Case Study
___________________
___________________
___________________
Objectives
___________________
After analysing this case, the student will have an appreciation of the
concept of topics studied in this Block. ___________________
PE
___________________
Case Study: Wal-Mart’s Keys to Successful Supply Chain
Management ___________________
___________________
Over the past ten years, Wal-Mart has become the world’s largest
and arguably most powerful retailer with the highest sales per ___________________
square foot, inventory turnover, and operating profit of any
___________________
discount retailer. Wal-Mart owes its transition from regional
retailer to global powerhouse largely to changes in and effective
management of its supply chain.
S
promotions, and any changes in trends or competition. Using
___________________
demand planning to develop accurate forecasts is critical to
___________________ effective inventory management. Forecasts are compared to
inventory levels to ensure that distribution centres have enough,
___________________
but not too much, inventory to supply stores with a sufficient
___________________ amount of product to meet demand. This allows companies to
___________________ reduce inventory carrying costs while still meeting customer
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needs.
___________________
Moving the product from warehouses or manufacturing plants to
___________________
stores and ultimately to customers, is the distribution function of
___________________ the supply chain.
Contd…
UNIT 15: Case Study
S
Benefits of Efficient Supply Chain Management ___________________
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become a dominant force in a competitive global market. As
technology evolves, Wal-Mart continues to focus on innovative ___________________
processes and systems to improve its supply chain and achieve ___________________
greater efficiency.
___________________
Questions:
___________________
1. Discuss, in detail, the components and methods of Supply
___________________
Chain Management for Wal-Mart.
Source: http://www.usanfranonline.com/wal-mart-successful-supply-chain-management/
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UNIT 16: Outsourcing in SCM
185
Notes
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___________________
___________________
___________________
___________________
___________________
PE
___________________
___________________
___________________
___________________
___________________
BLOCK-IV
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Lean Supply Chain Management
Detailed Contents
186
Notes
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UNIT 16: OUTSOURCING IN SCM
___________________ UNIT 18: LEAN SUPPLY CHAIN NEW PRODUCT
DEVELOPMENT
z Introduction
___________________ z Introduction
z Meaning and Definition of Outsourcing
___________________ z New Product Development Process
z Reasons and Types of Outsourcing
___________________ z Lean Product Development
z Outsourcing Planning Process
___________________ z Seven Principles to Maximize Productivity in NPD
PE
UNIT 17: LEAN OUTSOURCING STRATEGY
___________________
UNIT 19: STRATEGIES AND TACTICS IN LEAN
z Introduction
___________________ SUPPLY CHAIN
z Strategic Lean and Outsourcing z Introduction
___________________
z Trends in Outsourcing z Basics of Strategy, Tactics and Operational
___________________
z Myths of Supply Chain Outsourcing Planning
___________________ z Aligning Supply Chain Strategic Goals for Strategic
Fit
Unit 16
187
Notes
S
Activity
Outsourcing in SCM
___________________
With the help of internet,
search different definitions of
___________________
outsourcing.
___________________
Objectives
___________________
After completion of this unit, the students will be aware of the following
topics: ___________________
PE
\ Meaning and Definition of Outsourcing ___________________
\ Reasons and Types of Outsourcing ___________________
\ Outsourcing Planning Process
___________________
Introduction ___________________
___________________
"Outsourcing", in most cases, involves transferring or sharing
management control and/or decision-making of a business function
to an outside supplier, which involves a degree of two-way
information exchange, coordination and trust between the
outsourcer and its client. Such a relationship between
organizations is qualitatively different from traditional
relationships between traditional buyers and sellers.
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In the earlier years, manufacturing firms procured only raw
materials. They manufactured most of the components needed for
end products. For example, a car company handled all activities
from rolling sheet to making spring, axle, car body, casting of
engine block and cylinder head. In addition, support services like
maintenance, utilities, security, canteen, town maintenance,
education, health services and the likes were part of the firms.
However, managing all activities efficiently was becoming difficult.
In addition, a large number of suppliers emerged. As a result, the
company started outsourcing a part of its activities in recent years.
Outsourcing began with services like security and canteens and
went on extending its coverage to maintenance, IT, utilities,
workshop and a large part of production activities.
Outsourcing has become a concern for the union, the management
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188
Outsourcing is an effective cost-saving strategy when used
Notes
properly. It is sometimes more affordable to purchase a good from
S
Activity
Make___________________
a mini-documentary on companies with comparative advantages than it is to produce the
the topic reasons and types of
___________________ good internally. An example of a manufacturing company
outsourcing.
outsourcing would be Dell buying some of its computer components
___________________
from another manufacturer in order to save on production costs.
___________________ Alternatively, businesses may decide to outsource bookkeeping
___________________ duties to independent accounting firms, as it may be cheaper than
PE
retaining an in-house accountant.
___________________
___________________ Outsourcing means that firms hand over work they used to
perform in-house to outside firms. In another words, it is a sharing
___________________
of work of making products with others. Outsourcing can offer
___________________ greater budget flexibility and control. Outsourcing lets
___________________ organizations pay for only the services they need, when they need
them. It also reduces the need to hire and train specialized staff,
brings in fresh engineering expertise, and reduces capital and
operating expenses.
S
incur unexpected costs to train these overseas workers. Lower ___________________
regulatory costs are an addition to companies saving money when
___________________
outsourcing.
___________________
Companies may seek internal savings to focus money and
resources towards core business. A company may outsource its ___________________
PE
and public entities may outsource certain specialized functions, ___________________
such as payroll, to ADP or Ceridian. Companies may find the same
___________________
level of consumer satisfaction.
___________________
Import marketers may make short run profits from cheaper
overseas labour and currency mainly in wealth consuming sectors ___________________
Types of Outsourcing
It is not just information systems but service functions, in general,
have developed in the last few years. This has given rise to a new
breed of specialists has changed the way in which organizations
operate their supply chains. By partnering with existing logistics
companies in specific marketplaces and creating strategic alliances
with knowledge-based partners, i.e. Third Party Logistics
Providers (3PLs) and Fourth Party Logistics Providers (4PLs),
organizations can extend their supply chains and they do not have
to build a costly global presence in each marketplace they serve.
190 for customers. They found this a convenient way for a commodity-
Notes service logistics provider to move into higher margin, bundled
S
___________________
services.
PE
increased short-term market visibility and immediate cost and
___________________
service benefits for all trading partners within the global supply
___________________
chain.
___________________
The decision to utilize third-party or contract logistics companies
___________________ has been fostered in part by the interest in reducing asset
___________________ investment to improve asset productivity. Another rationale is the
focus of the company on its core competencies as a strategy to
operate more effectively and efficiently. A company may see its
core competency, for example, in production and marketing. A
company will, therefore, be more effective if it focuses upon its two
core competencies.
Companies, anxious to reduce costs, want what 3PLs have to offer.
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Since no single logistics provider is truly capable of handling all
aspects of the global logistics management process, the key to any
successful international 3PL lies in establishing a regionally based
3PL partner relationship that can function as an integrated global
logistics network that can be tailored to the multinational
company’s needs. The 3PL must be able to integrate critical
databases across customer levels while addressing the strategic,
tactical and operating philosophy of the multinational company
throughout the global supply chain.
The potential market opportunity for outsourced logistics service
providers, whether domestic, international and/or global is huge.
There is a current trend toward the involvement of 4PL providers,
to help manage a number of 3PLs that may be involved with a
company's operations. This is the result of the rapidly advancing
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more seamless and cost-effective supply chain process for the ___________________
customer.
___________________
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design, build and run comprehensive supply chain solutions. Apart
___________________
from managing a number of 3PL operations, a 4PL is looked to for
the provision of competencies relating to knowledge availability, ___________________
Contd…
Lean Supply Chain Management
192
3. Outsourcing may increase the risk of ………………. and
Notes
reduce ……………….
S
Activity
___________________
Re-create an aged looking
diary or journal recording
4. Companies may seek internal savings to focus
___________________
outsourcing planning at …………….. and …………………. towards core business.
different levels.
___________________
PE
___________________ facilities management services that deciding where to begin can be
overwhelming. With a variety of outsourcing options to choose
___________________
from, facility executives may have difficulty deciding the best way
___________________ to approach the decision-making process.
___________________
To develop a strategic sourcing plan, facility executives should
___________________ explore their motives for outsourcing, identify actions needed to
make the best selection of partners, and establish a methodology
for determining and measuring the critical success factors.
The first step in the strategic sourcing plan is reviewing the vision
for the facility management enterprise. Many outsourcing ventures
have failed because of insufficient attention upfront to where the
facility management organization is headed and what it wants to
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accomplish through outsourcing. The direction of the facility
management enterprise needs to be analysed in relation to the
overall corporate vision to make certain facility management goals
and objectives are in sync with those of the organization.
Core services are the seeds of the organization, the essential
services that have to be performed for customer organizations to
achieve their business missions. Core services vary from one
corporate entity to another, depending on mission, culture and
other factors that shape the way the facility organization serves its
customers. Typically, core functions are retained in-house.
Non-core services do not necessarily contribute directly to the
corporate mission and could be performed by external service
providers.
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for considering externally provided services. Seasoned outsource ___________________
veterans give several compelling reasons why most facility
___________________
organizations elect to move into an outsource relationship.
___________________
z Facility management is not a core function of the
organization. Although a facility organization may be ___________________
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corporate officials determine that the overall facility function ___________________
is not strategically linked to the corporate business mission
___________________
and is not one of the company’s core competencies. Typically,
this means that the facility organization is considered to be an ___________________
operational function that could just as easily be performed by ___________________
an external source, so the company redirects its resources to
___________________
core functions performed in-house and selects facility
management as a candidate for outsourcing.
z The organization is looking for facility management
best practices. Because internal facility organizations are
busy performing routine services, they often are not current on
the latest trends and best practices. Time constraints may
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make it impossible to keep in-house staff trained and versed in
the latest facility management tools and strategies. Internal
facility organizations are fairly insulated from competitive
market pressures that service providers face to have the latest
skills, systems and information. Senior management often
believes outsourcing providers deliver best-practice
performance because otherwise the firms could not compete in
the marketplace.
z The workforce is variable. When companies and institutions
are in flux with respect to the contraction and expansion of
their workforce, using an external resource pool may be
attractive because staff can be delivered “just-in-time.” This
flexibility allows the company to maintain a smaller in-house
workforce, which reduces overhead and administrative costs,
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S
___________________
customer units may need facility management services that
are different from what is provided by the facility department
___________________
directly, but that can be offered through an external provider.
___________________ Driving consistency of service also may be part of the
___________________ value-add concept. For example, a provider may support a call
centre, Web-based CAFM systems or other technology that can
___________________
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be applied uniformly across all customer organizations.
___________________
Following is an explanation of outsourcing at different levels of
___________________
management:
___________________
Strategic Outsource Planning
___________________
Outsourcing is a contractual agreement between the customer and
___________________
one or more suppliers to provide services or processes that the
customer is currently providing internally. The fundamental
difference between outsourcing and any other purchasing
agreement is that the customer contracts-out a part of their
existing internal activity. There are many reasons why a company
may choose to outsource and rarely will it be for one single reason.
While they are normally specific to the particular situation, some
)U
commonly-cited reasons are:
z To reduce cost
z To improve quality, service and delivery
z To improve organisational focus
z To increase flexibility
z To facilitate change
"Strategic planning is a process by which we can envision the
future and develop the necessary procedures and operations to
influence and achieve the future" Clark Crouch. Preparation of a
strategic plan and on-going business reviews ensure that you take
the most positive step you can to mitigate the risk of failure.
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195
z Provide a reference point for stakeholders to educate, motivate
Notes
S
and involve them.
___________________
z Assist performance measurement and benchmarking
___________________
z Become the building block for the next plan.
___________________
Tactical Outsource Planning ___________________
Tactical planning is the process of taking the strategic plan and ___________________
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breaking it down into specific, short term actions and plans. The
___________________
relative length of the planning horizon will vary from one market
to another but typically; the strategic plan will cover a period ___________________
greater than three years while the tactical plan covers the period ___________________
from today through to the end of year three.
___________________
The content of any business plan will depend on why the plan is ___________________
being produced. Some plans are for internal use only and act as a
common reference during the preparation of budgets and
appraisals. Some plans are basically sales documents aimed at
persuading banks to provide loans and investors to provide equity.
The process of producing a useable tactical plan is not easy, as
some flexibility is required to allow response to unplanned events.
)U
There are a large variety of strategic planning models and
organisations that provide strategic planning consulting. Some of
these are useful and can be used a check lists to ensure
completeness and as facilitators to ask the awkward questions that
people would prefer to leave unanswered.
It is important that the tactical plan should be checked to ensure it
is aligned with the strategic plan and that all activities are aimed
at moving closer to the goals defined in the strategic plan. It is
very easy for the tactical plan to diverge at a tangent because of
someone’s interests or disagreement with the strategic plan.
S
___________________
changes in the underlying business needs.
PE
___________________ analysing financial models to arrive at and evaluate business
___________________ alternatives and decisions.
Summary
Outsourcing is growing and it provides firms with a competitive
advantage. This is reflected in the many examples of outsourcing
UNIT 16: Outsourcing in SCM
S
third party or contract logistics companies has been fostered in ___________________
part by the interest in reducing asset investment to improve asset
___________________
productivity. Another rationale is the focus of the company on its
core competencies as a strategy to operate more effectively and ___________________
efficiently. A company may see its core competency, for example, in ___________________
production and marketing.
___________________
PE
___________________
Lesson End Activity
___________________
Discuss within group the types of outsourcing and their
___________________
implications.
___________________
Keywords ___________________
1. Define outsourcing.
2. What are the reasons for outsourcing to external suppliers?
3. What are the types of outsourcing?
4. What is outsourcing planning process?
Lean Supply Chain Management
198
5. How outsourcing is done at strategic, tactical and operational
Notes
level of management?
S
___________________
PE
___________________
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
___________________ Management Essentials: A Framework for Materials Managers,
___________________ CRC Press.
Web Readings
http://en.wikipedia.org/wiki/Logistics#Fourth-party_logistics
http://outsourcingreasons.blogspot.in/
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UNIT 17: Lean Outsourcing Strategy
Unit 17
199
Notes
S
Lean Outsourcing Strategy
___________________
___________________
___________________
Objectives
___________________
After completion of this unit, the students will be aware of the following
topics: ___________________
PE
\ Strategic Lean and Outsourcing ___________________
\ Trends in Outsourcing
___________________
\ Myths of Supply Chain Outsourcing
___________________
Introduction ___________________
___________________
‘Outsourcing’ involves the transfer or sub-contracting of the
management and/or day-to-day execution of an entire business
function to an external service provider. Until recently i.e. the end
of the 1980s, the manufacture of parts and components through
third party participation i.e. sourcing was the largest part of
purchasing. The bulk of purchasing was focused on these items
with some peripheral services such as legal and travel services as
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add-ons. However, this pattern has undergone a sea change.
Statistics of US companies show that, by the mid-1990s, legal
work, which constituted 29% of outsourcing activities by value
followed by logistics at 21%, and computer information systems
with 16%, were the main components of purchasing. Purchasing
activity has dramatically changed from sourcing i.e. the traditional
manufacture of parts and components (which accounts for only
31%), to outsourcing activities (which constitute 69% of purchasing
activities) in business organizations.
This change has come about because companies no longer assume
that all organizational services must be provided and managed
internally. Many products or services, when produced by outside
suppliers who are more effective and efficient, can provide
(c
S
Activity Following points will facilitate you on the relationship of lean and
___________________
Collect some data and find out outsourcing:
the relationship between
___________________
strategic lean and
outsourcing. Moving Supplier to be Lean with an Outsourcing Strategy
___________________
Having explored the current market situation and the changes
___________________
required to make the transition to a lean supply chain to help you
___________________ understand what customers are demanding and how you need to
PE
___________________ respond, we would like to examine some of the lean supply chain
___________________
components your organization will need to consider in making the
transition.
___________________
Outsourcing is the transfer of control of a process or product to a
___________________
supplier. An example of a manufacturing process is plating of a
___________________ part. Plating is difficult and messy and is often treated as a process
"orphan" in a plant. In these cases, companies have not invested
the time and money into plating process improvements. Outside
suppliers who focus on this business and have better equipment
and technology, as an automated plating line, will outperform the
process with better control, quality, and cost.
Companies outsource parts or components that are not one of their
)U
critical core processes for economic gain or better quality. An
electronics manufacturer may choose to outsource its sheet metal
work for control panels. Alternatively, an off-road equipment
manufacturer may outsource a sub-assembly, such as a cab for a
tractor. At the strategic level, outsourcing allows not only the
transfer of control to an outsider, but also the method of
manufacture using a different technology or process. In strategic
outsourcing, a company may transfer an entire product, a product
line, or an entire plant for strategic value.
The benefits generally are lower costs, higher quality, and shorter
lead times. The term "lean manufacturing" is coined to represent
half the human effort in the company, half the manufacturing
space, half the investment in tools, and half the engineering hours
(c
Supplier–Buyer Relationships
The traditional relationship between a buyer and its suppliers
needs to be transformed into one that helps build closer ties and
fosters continued collaboration between both parties to the
relationship. The philosophy your organization applies has to lead
UNIT 17: Lean Outsourcing Strategy
to "win-win" results for buyer and suppliers. Any other approach, 201
such as the traditional scenario where negotiations are one-sided, Notes
S
will result in a suboptimal situation and impact the overall ___________________
effectiveness– the leanness–of the value chain.
___________________
A collaborative relationship means a readiness on both sides to
___________________
discuss future plans, a willingness to understand each other’s
business processes, a commitment to share in each other’s long- ___________________
PE
by any joint activities. What this comes down to is a culture change ___________________
where top management and anyone else in your organization who
___________________
interact with suppliers begin to treat them as partners rather than
servants. It means communication and cooperation that is two-way ___________________
from product design to delivery at the end-user. ___________________
___________________
Balancing In-House and Outsourcing Production
Outsourcing is a business strategy that moves some of an
organization’s functions, processes, activities and decision
responsibility from within an organization to outside providers.
This is done through negotiating contract agreements with a
vendor who takes on the responsibility for the production process,
people management, quality, customer service and key asset
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management of the function. The process can greatly reduce fixed
overhead costs of an organization.
Produce in-house those products that are critical to the success of
the product or customers perception of important attributes,
require specialized design and manufacturing skills or equipment,
or fits within existing or planned core competencies.
After evaluating the opportunities strategically, it is now time to
evaluate tactically. Tactically it comprises considerations of
efficiency, control of quality and reliability, cost, capacity
utilization, cost, etc.
In addition to these, it demands answers to following questions:
z Can it be made (feasibility)?
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202
z What will be included in the cost (direct costs of materials,
Notes
labour, energy, overhead, transportation, inventory, quality,
S
___________________ obsolescence, and capital costs)?
___________________ After all costs have been identified and the marketing opportunity
___________________ evaluated, a break-even analysis must be performed to identify
what sales volumes would be necessary to product a profit and
___________________
whether your market share would be great enough.
___________________
PE
At times, outside forces make the decision for the company. If you
___________________
have unsatisfactory supplier performance, you may have to bring it
___________________ in-house. If you have changing sales demands, you may be
___________________ forced to buy supplemental support. If you have restricted
manufacturing capacity, you may have to outsource production.
___________________
However, if you need modifications of an existing product or your
___________________ firm already possesses most of the necessary production resources,
it may make sense to produce in-house.
Many considerations go into the make or buy decision in addition
to cost and availability of production capacity such as purchase
strategies, quality, quantity, service, specialized knowledge, design
or production process secrecy, urgency, labour problems, plant
capacity, capital equipment, use of idle resources. It is desirable to
)U
see that we must take into consideration a variety of issues when
considering a make or buy decision of a product or service. If the
decision is to buy, then usually some sort of outsourcing for the
product or service is initiated.
Many chief executives consider the make-or-buy decision to be
among the most critical and most difficult confronting their
organizations. Not only are billions of dollars needlessly wasted if
the wrong decision is made, but scarce management resources
frequently are stretched past the breaking point. Outsourcing is a
term being also used by service organizations primarily relating to
services such as accounting, maintenance, computer operations,
security, marketing, supply rooms, and the like. The basic issues
are the same concerning the question of doing it yourself or
(c
203
Top management has the ultimate responsibility for make-or-buy
Notes
S
decisions. In most cases, this responsibility can be satisfied
through operating procedures that develop and pool all relevant ___________________
information surrounding a make-or-buy issue. Purchasing is a ___________________
source of much of this information. In addition, Purchasing
___________________
frequently should identify candidates for a make-or-buy analysis.
___________________
Major problems are common in the make-or-buy area such as:
___________________
PE
z Make-or-buy decisions are made at too low a level in the
___________________
organization.
___________________
z Not all factors are considered when conducting a make-or-buy
analysis. ___________________
change! ___________________
z Customer demand,
z Expansion capital,
z Depreciation or taxing policy,
z Labour relation’s climate, and
z The decision is a composite effect of all these factors.
Lean Supply Chain Management
204
Notes Check Your Progress
S
Activity
___________________ Fill in the blanks:
Prepare a site white paper on
the topic of trends in
___________________ 1. Many chief executives consider the ………………….
outsourcing.
decision to be among the most critical and most difficult
___________________
confronting their organizations.
___________________
2. Outsourcing is a business strategy that moves some of
___________________
an organization’s functions, processes, activities and
PE
___________________ decision responsibility from ………………. an
___________________ organization to ……………. providers.
___________________
Trends in Outsourcing
___________________
___________________ In the following section, you will study about the trends in
outsourcing:
S
realize benefits from the procurement side very quickly because of ___________________
labour arbitrage.
___________________
Procurement outsourcing is no longer synonymous with
___________________
transactional procurement but has expanded to include strategic
aspects of procurement including category management, strategic ___________________
PE
management. Market trends and information from transactions ___________________
point to procurement outsourcing growing at the highest rate
___________________
relative to all other areas of outsourcing in business processes.
___________________
One of the strongest drivers fuelling the unprecedented interest is
the realignment of procurement organizations and their focus on ___________________
206
z create sourcing centres of excellence (CoEs) and scalable
Notes
knowledge management framework.
S
Activity
Visit___________________
a manufacturing concern z redefine activities and focus areas within the realm of supplier
and see if the above-
___________________
mentioned myths are still management.
present in the industry, and
___________________
prepare a slideshow based on
your findings. Co-sourcing
___________________
Co-sourcing can provide continued value when the procurement
___________________
PE
function and internal business stakeholders align to form a
___________________ procurement council and jointly drive spend optimization strategy
___________________ focused on lowering the overall cost of acquisition by approaching
___________________
the end-to-end supply value chain. Implementing co-sourcing
requires expert help to run advanced market analytics and
___________________
benchmarking, which are difficult to sustain internally due to lack
___________________ of tools and skilled, dedicated resources. By virtue of providing
category sourcing services, outsourcing providers have access to a
wide range of databases, analytics tools and expert resources.
Categories that are common across industries tend to be the ones
where service providers have better market information and
benchmarking data, and they can therefore bring in a higher level
of expertise. The value creation occurs through the coupling of the
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category insights from the service provider with the business
insights from the internal stakeholders to drive innovative
strategies specific to the client’s situation. If governed well, this
combination can be a powerful differentiator in business
effectiveness.
maximum volume of product at the minimum cost? Doing this does 207
not require much visibility into their supply chains; it requires Notes
S
focusing on their internal business processes. The old saying of ___________________
‘garbage in, garbage out’ applies here. The best partner in the
___________________
world will do a great job of building perfectly to specifications and
delivering on time a product that never has and never will work. It ___________________
PE
months ago, which may now be obsolete), and that you have real
___________________
time, web-based access to their work in progress and bills of
materials. Only through such oversight, can you enable your ___________________
outsourced partners to produce as though they actually were ___________________
supply chain experts.
___________________
S
___________________
and the proliferation of these third parties makes that aphorism a
reality. Therefore, you must take direct responsibility for end-to-
___________________
end execution or suffer the consequences.
___________________
___________________
Myth 4: My Outsourced Partners will Provide Expert Project
Management
___________________
PE
It is better to view these partners as renegade divisions of your
___________________ company. They may get the job done, but they will do it their way,
___________________ with their own processes and without an interest in integrating
their data with yours. How can you reconcile these apparent
___________________
conflicts of interest? Firstly, you must recognize that your
___________________
outsourcing partners would not be in business unless they had
___________________ many other customers’ demands to satisfy, many other deadlines
to meet, and a high attention to cost containment.
Secondly, you should understand that your partners will be, by the
nature of their businesses, paying attention only to that small
portion of the manufacturing fulfilment process with which they
are concerned — not to the entire supply chain, which must be
your concern. Ultimately, you must accept that outsourcing and
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retaining control of your supply chain network are complementary,
not antagonistic, activities.
S
scheduling and other data to all relevant parties. This is how to ___________________
gain a real time-to-market advantage over your competitors, who
___________________
will still be relying on their partners to shoulder such unwanted
burdens. ___________________
___________________
Myth 6: Outsourcing is the Key to Making my Operations
Highly Scalable ___________________
PE
Vertically integrated companies have to scale linearly, not ___________________
210
Nevertheless, there are strategies that you can employ that will
Notes
deliver meaningful benefits to your fulfilment partners and that
S
___________________ will enable you to capture the business of the best of these
___________________ partners. Specifically, you can deploy a system that automates the
replenishment of stock prior to the occurrence of a product
___________________
shortage. The benefit to your partner will be direct and compelling:
___________________ lower inventory carrying costs. The benefit to you will be that you
___________________ can now gain from the outsourcing of fulfilment the same
PE
advantages as you would from the outsourcing of manufacturing.
___________________
Summary
Outsourcing’s value is built upon a fundamental presumption that
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strength comes in numbers—that best-of-breed logistics providers
or an end-to-end integrator, sometimes both, give shippers greater
visibility to supply chain challenges than going it alone. Its success
is driven by a collective synergy that tears down walls between
functional silos, pulls together disparate parts, and creates an
integrated network bound by demand.
Reflecting how unique market circumstances have twisted and
torqued supply chains, how innovations in technology, the
Internet, and business process strategies have facilitated the
movement of information and inventory around the world, and how
outsourcing has gained widespread traction, the third party
logistics industry has become somewhat of a paradox. Businesses
rely on logistics providers as fixed assets, fundamental partners
that strengthen and support the enterprise. At the same time,
(c
Keywords 211
Notes
S
Supplier: Someone whose business is to supply a particular
___________________
service or commodity.
___________________
Strategy: It is a plan of action or policy designed to achieve a
major or overall aim. ___________________
PE
external service provider. ___________________
Procurement: Procurement is the acquisition of goods or services. ___________________
It is favourable that the goods/services are appropriate and that
___________________
they are procured at the best possible cost to meet the needs of the
purchaser in terms of quality and quantity, time, and location. ___________________
___________________
Outsourcing: Outsourcing is a practice used by different
companies to reduce costs by transferring portions of work to
outside suppliers rather than completing it internally.
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
(c
S
___________________ manufacturing/benchmarks-best-practices/lean-outsourcing/lean-
___________________
outsourcing-its-coming
___________________ http://en.chinasourcing.org.cn/content2.jsp?id=5794
___________________
___________________
PE
___________________
___________________
___________________
___________________
___________________
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(c
UNIT 18: Lean Supply Chain New Product Development
Unit 18
213
Notes
S
Lean Supply Chain New Product
___________________
___________________
Development ___________________
___________________
Objectives ___________________
PE
After completion of this unit, the students will be aware of the following
___________________
topics:
___________________
\ New Product Development Process
\ Lean Product Development ___________________
\ Seven Principles to Maximize Productivity in NPD ___________________
___________________
Introduction
Product features are basically defined by New Product
Development (NPD) process so as to fulfil clients' requirements.
Supply chain performances are affected by product features. The
magnitude of this effect is determined by supply chain decisions. In
order to satisfy client's needs, in terms of new products, service
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level and costs, Supply Chain Management (SCM) decisions should
be aligned to product features, i.e., to the output of NPD process.
Developing new products could be both advantageous and risky for
firms. Despite risks, failure to introduce new products is risky, too.
Why have computers and cellular phones become so successful?
Highly successful new products are always superior to competing
products, are fine-tuned to consumer needs and wants, and enable
consumers to do unique tasks. According to Robert G. Cooper and
Elko J. Kleinschmdt, a unique and superior product becomes
successful 98 per cent of the time. Products with moderate
advantage have 58 per cent success rate, and products with
minimal advantage only 18 per cent.
Several factors contribute to new product development and the
(c
214 some countries have given rise to new products such as Mecca
Notes Cola.
S
Activity
Visit___________________
a research firm and study
the process of new product
___________________
New Product Development Process
development and prepare a
report.
___________________ Consumer lifestyles and tastes are changing as a result of increase
in literacy levels, exposure to other cultures, changing role of
___________________
women, increasing shift from joint family system to nuclear
___________________
families, availability of newer media, and impact of fast
PE
___________________ technological changes. We see a host of on-going changes taking
___________________ place in ready-to-wear garments, footwear, appliances, health
foods, plastic money, and availability and consumption of many
___________________
new services, etc. All these changes are a result of lifestyle
___________________ changes. Therefore, there is a continuous need for new product
___________________ development. The stages or process or steps involved in a
new-product development are depicted in the image given below:
)U
Idea Generation
(c
215
z Inviting suggestions from employees.
Notes
S
z Brainstorming suggestions for new-product ideas.
___________________
z Searching in different markets viz., national and international
___________________
markets for new-product ideas.
___________________
z Getting feedback from agents or dealers about services offered
___________________
by competitors.
___________________
PE
z Studying the new products of the competitors.
___________________
Idea Screening ___________________
Most companies have an "Idea Committee." This committee studies ___________________
all the ideas very carefully. They select the good ideas and reject
___________________
the bad ideas. Before selecting or rejecting an idea, the following
questions are considered or asked: ___________________
Concept Testing
Concept testing is done after idea screening. It is different from
test marketing. In this stage of concept testing, the company finds
out:
z Whether the consumers understand the product idea or not?
z Whether the consumers need the new product or not?
z Whether the consumers will accept the product or not?
(c
S
___________________ development. Here, a detailed business analysis is done. The
___________________
company finds out whether the new product is commercially
profitable or not. Under business analysis, the company finds out:
___________________
z Whether the new product is commercially profitable or not?
___________________
z What will be the cost of the new product?
___________________
PE
___________________
z Is there any demand for the new product?
Test Marketing
Test marketing means to introduce the new product on a very
(c
217
Test marketing reduces the risk of large-scale marketing. It is a
Notes
S
safety device. It is very time-consuming. It must be done especially
for costly products. ___________________
___________________
Commercialization
___________________
If the test marketing is successful, then the company introduces
___________________
the new product on a large scale, say all over the country. The
company makes a large investment in the new product. It produces ___________________
PE
and distributes the new product on a huge scale. It advertises the ___________________
new product on the mass media like TV, Radio, Newspapers and
___________________
Magazines, etc.
___________________
Review of Market Performance ___________________
The company must review the marketing performance of the new
___________________
product. It must answer the following questions:
z Is the new product accepted by the consumers?
z Are the demand, sales and profits high?
z Are the consumers satisfied with the after-sales-service?
z Are the middlemen happy with their commission?
)U
z Are the marketing staffs happy with their income from the
new product?
z Is the Marketing Manager changing the marketing mix
according to the changes in the environment?
z Are the competitors introducing a similar new product in the
market?
The company must continuously monitor the performance of the
new product. They must make necessary changes in their
marketing plans and strategies, else the product will fail.
S
Activity Lean Product Development can mean many different things. In
___________________
Create a multiple choice quiz some companies, lean product development simply stands for
on the topic of lean product
___________________
development. “doing more with less.” In others, it has become a euphemism for
___________________
downsizing, off-shoring, and de-investing in product development.
Companies with “Lean” or “Six Sigma” corporate initiatives often
___________________
use lean product development to describe how they apply their
___________________ toolkit in the product development function. However, very few of
PE
___________________
these definitions describe how a lean approach can help a product
development team deliver products better, faster, and cheaper
___________________
than they have been able to do in the past.
___________________
Lean Product Design
___________________
This approach optimizes product designs so that they are easier to
___________________
make in a lean production environment, including the
manufacturing, assembly, supply chain, and distribution. Much of
the impetus for applying this approach has been from the
manufacturing functions, particularly as companies make
increasing efforts to move lean tools and practices through the
enterprise. Although some teams have focused exclusively here,
most have combined this approach with one or more of the other
approaches to lean.
)U
This approach consists of a set of tools for reducing the
downstream costs of the product in manufacturing, service, and
support. The tools draw from methods used inside Toyota and
elsewhere to make products easier to manufacture and assemble.
Design for lean production does not attempt to change the product
development system at all and says nothing about how to help a
product development organization work more effectively, so
changes in time-to-market or engineering capacity will be small.
The techniques, however, can dramatically lower total product
costs and improve product reliability.
219
Six sigma is an effective and important management approach
Notes
S
particularly used by multinational companies with manufacturing
bases in the Asian and Pacific rim. One of the key issues facing ___________________
businesses today is how to eliminate the high cost of developing ___________________
new products. This is an area where the potential of six sigma has
___________________
not been widely appreciated before. Six Sigma and the Product
Development Cycle brings the six sigma approach up-to-date and ___________________
PE
makes the concept of six sigma easy to understand and accessible ___________________
with the statistics necessary for its implementation clearly
___________________
explained. Six Sigma and the Product Development Cycle covers
the integration of quality function deployment with Taguchi’s ___________________
methods of experimental design and statistical process control. ___________________
These tools gather detailed insights into customer needs, optimize ___________________
the products or services to meet these needs at the lowest practical
cost, and ensure that this performance is maintained. It is a book
about both six sigma and product and service development.
Through this approach, an organization can gain greater
flexibility, shorter timescales, and the ability to react more quickly
to changes or new demands in the marketplace.
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Lean as an Aid in NPD
Many companies refer to the innovative arm of the business as
New Product Development (NPD). The application of Lean
principles and concepts to efficiently deliver high quality products
to market timely with minimal investment is relatively new and
therefore limited.
Once a process has been modelled and understood, it can be more
intelligently changed. Work in an office based process can be
divided to creative work and transactional work; the latter can be
standardised and the lean principles applied.
S
Activity These seven drivers – we call them “principles” – of
___________________
Search through the internet high-productivity. NPD have been identified from a long tradition
about different ways of
___________________
maximizing productivity in of research investigations; each principle is thus very much
NPD and prepare a slideshow.
___________________ fact-based. The research reveals that businesses that employ each
principle achieve superior performance results.
___________________
PE
___________________ Developing and delivering new products that are differentiated,
___________________
solve major customer problems, and offer a compelling value
proposition to the customer or user is the number one key to NPD
___________________
success and profitability. However, conceiving such unique,
___________________ superior products is not easy. Sometimes it is the result of a
___________________ genuine technological breakthrough or a disruptive technology.
However, most often, developing a differentiated, superior product
begins with a thorough understand of the customers’ and users’
unmet and often unarticulated needs through in-the-field voice-of-
customer (VoC) work. That is, the customer or user must be an
integral part of the entire development process from scoping,
through product definition, development and right to validation
and beyond.
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Front-end Loaded
Due diligence in the early days of a new product project pays off!
The right up-front homework saves development time and also
results in higher success rates. Consistently, high-productivity
businesses excel here: they demand and get the right front-end
homework done on projects – the right market, technical and
business assessments. This homework is not excessive, but is
designed to yield just enough of the vital information to make the
Go-to-Development decision, and to define the product and project
sufficiently to proceed. The right homework is also instrumental to
yielding a winning product and project definition.
Spiral Development
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main causes of long times to market, significant project delays, and 221
even product failure. Notes
S
___________________
A Holistic Approach Driven by Effective Cross-functional
Teams ___________________
PE
one key to cycle time reduction and to getting to market on time.
Many firms miss the keys to fostering a team culture, however. In ___________________
___________________
Further, each team member has an equal stake in and
commitment to the project, while the team members remain on the
project until the end, not just for one phase of the project. The
team is led by a carefully-selected leader, driving the project in an
entrepreneurial fashion, and who also remains leader until the
end. Team accountability – results measured against success
criteria – is also key to effective team performance. Moreover,
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senior management provides strong support and commitment to
the project team.
222 their resources too thinly across too many initiatives; and their
Notes project choices result in the wrong mix and balance of development
S
___________________
projects in the portfolio. Making the right Go/Kill decisions and
effectively allocating development resources is fundamental to
___________________
maximizing productivity in NPD. Recognize that every
___________________ development project is an investment, and like stock market
___________________ investments, these development investments must be carefully
scrutinized and focused through an effective portfolio management
___________________
PE
system. This is achieved through a funnelling approach. Start with
___________________ many solid new product concepts, and successively remove the
___________________ weak ones via a series of tough gates with teeth. The result is
___________________
fewer projects, but higher value projects to the company, and a
significant improvement in productivity.
___________________
Summary
(c
S
Discuss within a group of 5 students Metrics, Accountability and
___________________
Continuous Improvement discussed in this unit.
___________________
Keywords ___________________
___________________
Product: The product is defined as a "thing produced by labour or
effort" or the "result of an act or a process". ___________________
PE
New Product Development (NPD): New product development is ___________________
the term used to describe the complete process of bringing a new ___________________
product to market.
___________________
Lean Product Development: Lean Product Development can
___________________
mean many different things. In some companies, lean product
___________________
development simply stands for “doing more with less.”
Six Sigma: Six sigma is an effective and important management
approach particularly used by multinational companies with
manufacturing bases in the Asian and Pacific rim.
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
(c
S
___________________ new-product.html
___________________ www.icmis.net/infoms/icoqm10/ICOQM10CD/pdf/P438-Final.pdf.
___________________
___________________
___________________
PE
___________________
___________________
___________________
___________________
___________________
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(c
UNIT 19: Strategies and Tactics in Lean Supply Chain
Unit 19
225
Notes
S
Activity
___________________
Objectives ___________________
PE
After completion of this unit, the students will be aware of the following
___________________
topics:
___________________
\ Basics of Strategy, Tactics and Operational Planning
\ Aligning Supply Chain Strategic Goals for Strategic Fit ___________________
\ Alignment of Strategies with Lean Supply Chain ___________________
\ Interest in Lean and SCM as a Combined Strategy
___________________
Introduction
A lean supply chain has proven itself a good enabler for any
organization that strives to become more lean and efficient.
Organizations within a lean supply chain are more able to
influence their own lean journey more easily, imparting better
)U
customer value by responding more efficiently, quickly, and
predictably, to customer needs, which in turn, facilitates the
operation of the lean supply chain, creating a virtuous cycle that
ultimately translates to superior financial performance for these
organizations.
226
As per Burt and Dobler, supply management focus on the following
Notes
strategic activities:
S
___________________
z Environment Monitoring: Monitoring the supply
___________________ environments to identify threats and opportunities, is an
___________________ important task of supply managements. It aims to include
material shortages affecting both price and availability of
___________________
purchased materials and services. They can further be
___________________
classified as:
PE
___________________
Changes in legislation: affecting the workplace can affect
___________________ both price and availability.
___________________ Wars and conflicts can affect availability of materials
___________________ resulting in price increase.
___________________ Consolidation among suppliers: to the extent of monopoly.
A firm should change its strategy based on various
changes.
z Integrated Supply Strategy: Supply management should
develop and manage the firm’s supply strategy based on
wholesome integration strategy and not in isolated strategies.
Commodity Strategy: Must develop and update sound
)U
z
commodity supply strategy. The following activities have to be
performed to ensure effectiveness of the strategies:
Strategy Updating: Commodity teams must identify
materials, items of equipment and services that are
strategic in nature or should formulate a strategic plan for
obtaining them.
Technology Access Control: All supply management
organizations develop and update technology road maps,
which lists critical current and future technologies to be
pursued. Proper action should be taken at hand to protect
the technologies, which give a competitive edge, are not
transferred to competitors.
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227
z Data Management: Supply management, accounting and
Notes
S
information technology must cooperate in the collection and
application of supply data to facilitate the strategic supply ___________________
planning. ___________________
PE
Supply management provides input to the strategic planning
process on threats and opportunities in the supply world. It ___________________
also provides inputs on constraints that may affect strategic ___________________
initiatives. Its knowledge of the firm’s supply world may be a
___________________
vital source of input for strategic planning.
___________________
z Strategic Sourcing: The firm should manage and develop its
___________________
supply base in line with firm’s strategic objectives. Several
actions that should be taken are:
Periodic review of the active suppliers.
Identification of the appropriate relationship
(transactional, collaborative or alliance) for each
commodity class.
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Optimization of supply base with coordination and
combination with several forces to increase the importance
of the firm’s supply base.
228
z The nature of the changes contemplated for future sustainable
Notes
growth and development
S
___________________
z The sequence of these changes
___________________
z Those who are responsible for guiding change
___________________
z The resources required, whether they currently exist within
___________________ the organization or must be generated from external sources.
___________________ What do we hope to What are you capable of
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accomplish? doing?
___________________
___________________
Strengths and Weaknesses
___________________ z Capabilities
Mission z Resources
___________________
___________________
S
z Building a planning team with a common vision: The ___________________
strategic plan that emerges from the process is generally more ___________________
realistic and achievable, and working or interdependent
___________________
relationships within the organization are strengthened.
___________________
z Confronting key issues and solving problems: Strategic
planning sets in motion a dynamic process that allows the ___________________
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organization to continually reassess, confront change, and ___________________
grow within an agreed-upon framework.
___________________
z Defining roles and responsibilities: Measurable
___________________
performance objectives are set and the person(s) who is
responsible for specific activities is identified. ___________________
230
z Step 2: Review and update or prepare a Mission Statement for
Notes
the organization.
S
___________________
z Step 3: Analyse the organization’s external environment
___________________ (“PEST” – Political, Economic, Social, and Technological
___________________ factors) and internal environment (resources or inputs,
processes, and performance or outputs).
___________________
z Step 4: Conduct a SWOT analysis (assessing the
___________________
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organization’s internal strengths and weaknesses, and its
___________________
external opportunities and threats).
___________________
z Step 5: Create smaller groups for more in-depth planning
___________________ activities in key areas.
___________________ z Step 6: Review the organization’s existing strategic plan (if
___________________ there is one) to identify aspects of the plan that are still
strategic, those that are no longer strategic due to changing
environments, and gaps or new issues that should be
addressed in a revised plan.
z Step 7: Outline a vision of where the organization should be
three to five years from today (the “vision of success”).
z Step 8: Identify the strategic issues facing the organization.
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z Step 9: Formulate goals and strategic objectives to address
major issues facing the organization and ensure its longer-
term growth and sustainability.
z Step 10: Develop work plans showing specific activities,
persons responsible, resources needed, and indicators by which
performance will be measured.
z Step 11: Identify next steps for resource mobilization and
create a sustainability and financial plan that costs activities
and outlines approaches for generating sufficient revenue or
funding.
z Step 12: Prepare the written detailed five-year strategic plan
(mission statement, environmental or situational analyses,
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231
z Step 14: Implement and institutionalize the plan as a basis for
Notes
S
setting performance standards, decision-making, planning,
monitoring, and resource mobilization and allocation. Use and ___________________
review the plan systematically, updating or revising it after ___________________
two or three years, if needed.
___________________
___________________
___________________
PE
___________________
___________________
___________________
___________________
___________________
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Figure 19.2: Strategic Planning Process
232 between the present and the vision of the future are strategically
Notes managed.
S
___________________
Develop an Operational Plan
___________________
The Operational Plan is the executive management plan for
___________________ translating performance measures and targets from the strategic
___________________ plan into performance initiatives. It coordinates the overall scope
of the implementation. It is also the approved charter for
___________________
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authorizing initiatives and appropriating resources.
___________________
Always use operational planning tools to coordinate all activities
___________________
emerging from the Strategic Plan. It must be including:
___________________
z Operations (on-going efforts or activities that are built into the
___________________ daily routine to generate repetitive products or services)
___________________
z Projects (temporary and unique initiatives with definite
perimeters), and
z Programs (service delivery systems).
233
Check Your Progress
Notes
S
Fill in the blanks: Activity
___________________
Make a slide show and have
1. ……………… planning sets the implementation phase of your voice narration with each
the strategic plan in motion. slide___________________
on the topic aligning
supply chain strategic goals
___________________
for strategic fit.
2. …………….. planning sets in motion a dynamic process
___________________
that allows the organization to continually reassess,
confront change, and grow within an agreed-upon ___________________
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framework. ___________________
___________________
Aligning Supply Chain Strategic Goals for Strategic
___________________
Fit
___________________
The foremost step for supply chain executives is to clearly
___________________
understand how the enterprise chooses to compete. This is
important not only for the clear reason of working off the “same
play book,” but also for the reason that it forces the supply chain
operation to see itself as a customer facing entity serving the
competitive goals of the enterprise—not merely an operational
department. Supply chain strategy is not simply a linear derivative
of the business strategy. At best, supply chain strategy can be the
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enabler of the business strategy.
If the business strategy is to be the low cost provider, the supply
chain strategy should support this. And just like when developing
a business strategy, look to your core competencies, focus, and
means of differentiation when developing a supply chain strategy.
Being able to strategically source parts at an attractive price may
support both your supply chain strategy and business strategy, but
only if you have the capabilities to do so effectively. Look to your
supply chain competencies and leverage what you do well.
S
Activity
___________________
inside and outside of your industry in order to gauge core
Create a multiple-choice quiz
on the alignment of strategies competencies. Once the assessment is complete, assemble a team
with___________________
lean supply chain. to review and prioritize recommendations, validate the
___________________ opportunities, define the risks, and the requirements for
___________________ implementation. Ultimately, if there is an inequality between the
supply chain strategy and the operational assets, you may have to
___________________
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make capital investments.
___________________
235
Leagile is one of suitable ways to exploit both the approaches, lean
Notes
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and agile. It requires the selection and setting up of a material flow
decoupling point. Upstream of this decoupling point, the processes ___________________
are designed to be lean (Level scheduling) and downstream, ___________________
processes are designed to be agile.
___________________
The choice for selection of a supply chain strategy and value focus ___________________
PE
should be supported by specific enterprise capabilities and ___________________
ultimately result in intended logistical performance. For admirable
___________________
firms, a demand focus on customer service and proactive quality is
more apparent at both the capability and performance levels than ___________________
S
___________________ Then, in recent times, the emergence of customer-driven markets
___________________ has resulted in rapid changes to strategies adopted by
organizations. The agile manufacturing paradigm has been
___________________
highlighted as an alternative to leanness. Agile manufacturing
___________________ systems work in a constantly changing global market, particularly
___________________ assembly systems at the last stage of product differentiation. In
PE
these changing conditions, one of the more interesting debates in
___________________
recent years was about the creation of lean production and agile
___________________
organization as the key to survival for companies.
___________________
Indeed, in some situations it is advisable to utilize a leagile
___________________ paradigm to ensure optimal supply chain performance. Meanwhile,
___________________ in the wake of concerns regarding climate change, pollution and
non-renewable resource constraints, sustainability is becoming a
key issue for manufacturing strategy and supply chains. These
paradigms (lean, agile, leagile and sustainable) should not be
considered alone or in isolation within the supply chain although
they show up with opposed characteristics. Trade-offs between
these management paradigms may help organization and their
supply chain to become more competitive and sustainable.
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The sustainability paradigm has opened the gate for revisiting
various established strategies of supply chain management to
reassess their viability with new angle of sustainability. Supply
chains are increasingly global and complex, as companies aspire to
support a variety of strategies, such as entering new markets,
increasing speed to customers, and lowering costs. An effective
Lean supply chain strategy must provide the disciplines, methods
and tools necessary to segment the customer against growth and
value-contributing factors, link trading partners through
collaborative planning and forecasting regimens, match supply and
demand for the most appropriate use of enterprise-wide capacity
and drive the selection and integration of strategic suppliers that
offer the skills necessary to augment the entire supply chain for
(c
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demand permits the smooth, synchronized flow of materials, ___________________
information and physical assets (up or down) based on period-
___________________
specific demand requirements.
___________________
Far too often, supply chain management programs focus on the
optimization of intra-supply chain components such as inventory ___________________
management, warehousing operations or production scheduling. In ___________________
PE
the Lean environment, such producers of waste are eliminated in
___________________
favour of a universal supply chain mechanism that rapidly
self-adjusts to the pull of end-customer demand through the use of ___________________
Strategic Sourcing
Strategic sourcing is a supply management tool that delivers
significant cost reductions and other benefits. More specifically, it
is a periodic event that includes the identification and selection of
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initial commercial arrangements with a selected supplier that
either creates or resets a relationship. That sounds simple enough,
but what makes strategic sourcing different from a traditional
sourcing activity? After all, "identifying and selecting initial
commercial arrangements" can just as easily be accomplished with
the old "lowest of three bids" process, right? Not quite. Strategic
sourcing requires that organizations divide their spend into
categories and then classify the categories based on the importance
of that product or service, and on the complexity of the supplier
marketplace. From there, the purchasing organization – and the
supplier organization – must recognize that various relationships
are required.
At one end, the least strategic relationships might be based on
(c
cost, but at the other end, the most strategic suppliers are chosen
for their ability to create new business opportunities or
technological advances. Specifically targeting or searching for
suppliers in such a formalized manner, to fill this role is what
strategic sourcing is all about.
Lean Supply Chain Management
238
Notes Check Your Progress
S
Activity
___________________ Fill in the blanks:
Interview a supplier and find
out how SCM and Lean work 1. ……………….. is one of suitable ways to exploit both the
as ___________________
a combined strategy and
prepare a term paper. approaches, lean and agile.
___________________
2. Strategic sourcing is a supply management tool that
___________________
delivers significant cost …………………. and other
___________________
benefits.
PE
___________________
S
developing a value stream to eliminate all waste, including time ___________________
and to ensure a level schedule.
___________________
The positioning of the decoupling point, therefore, depends upon
___________________
the longest lead-time and at the same time customer is prepared to
tolerate this time lag and the point at which variability in product ___________________
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products are pulled by the customer demand, that is why that part ___________________
of supply chain is market driven. Upstream from the decoupling
___________________
point the supply chain is essentially forecast driven.
___________________
Check Your Progress ___________________
Fill in the blanks:
___________________
1. A combination of the two called leagility is presented
along with four alternative ……………… point positions.
2. The …………….. manufacturing has been recently
emerged as a customer demand driven option.
Summary
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The key supply chain processes are procurement, customer service,
warehouse, planning, distribution, transportation, information
systems, and inventory control. Activities that emanate from these
key processes are sales, planning, order entry, receiving, shipping,
inspection, purchasing, production scheduling, master scheduling,
warehouse management, and supplier management among others.
These functions and activities represent an average of between 4%
and 20% of sales. In a synchronized manner, these key processes
provide a seamless and well-coordinated supply chain to respond to
customers and end-users. The goal of the lean supply chain is to
deliver products at the lowest total cost while developing value-
added processes.
(c
240 Keywords
Notes
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Strategy: A strategy is a plan of action designed to achieve a
___________________
vision. Strategy is all about gaining (or being prepared to gain)a
___________________ position of advantage over adversaries or best exploiting emerging
___________________ possibilities.
PE
cards, then tape) to random access processing.
___________________
Strategic Planning: Strategic planning is an organization's
___________________
process of defining its strategy, or direction, and making decisions
___________________ on allocating its resources to pursue this strategy.
___________________ Operational Plan: The operational plan coordinates the overall
___________________ scope of the implementation.
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
Management Essentials: A Framework for Materials Managers,
CRC Press.
Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
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Web Readings
http://www.industryweek.com/articles/the_goal_of_the_lean_supply
_chain_14935.aspx
www.epa.gov/oppt/library/pubs/archive/acct-archive/pubs/lean.pdf
UNIT 20: Case Study
Unit 20
241
Notes
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Case Study
___________________
___________________
___________________
Objectives
___________________
After analysing this case, the student will have an appreciation of the
concept of topics studied in this Block. ___________________
PE
___________________
Case Study: India: A Growing Link in the Global Supply Chain
___________________
A look at the nation's success stories, and the challenges that
___________________
persist, in autos, oil, power, steel, and electronics.
___________________
With more than 500,000 new engineering graduates each year,
India is in a strong position to be an engineering powerhouse. ___________________
However, while India is one of the biggest players in the services
and information technology sector, the same cannot be said of our
supply chain and engineering capability. India's manufacturing
exports still amount to less than 10% of gross domestic product,
whereas more than one-third of China's GDP comes from
manufacturing.
)U
India still does not have the most congenial business
environment. Bureaucratic hurdles and a tough approvals system
for setting up new businesses are not as severe as in the past, but
they continue to create bottlenecks. Land acquisition is a major
hindrance to setting up new plants, as the problems of Tata
Motors in West Bengal last year demonstrated. Illiteracy and
unskilled labour are disincentives to modern organizations that
thrive on high productivity. So, too, are infrastructure problems
such as clogged ports and roads, power failures, and water
shortages.
Automobiles
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242
Notes The next challenge for Indian component suppliers is to upgrade
S
from supplying simple parts to complex assemblies and
___________________
transmissions.
___________________
The transition to high-end manufacturing already is in progress.
___________________ In the automobile sector, quality is crucial for the top players. In
addition, in a vote of confidence for India, leading carmakers such
___________________
as Hyundai, General Motors (GM), Toyota (TM), and Ford (F)
___________________ have either tied up with a local operator or opened their own
PE
___________________ manufacturing units and are supplying cars from India to the rest
of the world.
___________________
With India's manufacturers combining engineering excellence and
___________________
low costs, more companies are discovering the benefits of
___________________ operating out of the country. In the coming years, India should
continue to be a major manufacturing base for auto companies.
___________________
Local demand for small and midsize cars is growing, thanks to
increasing disposable income. The current global recession has
dampened automobile demand, but it should encourage more
cost-conscious manufacturers to shift operations out of Europe
and the U.S. to India.
Contd…
UNIT 20: Case Study
243
Power
Notes
S
Power generation, transmission, and distribution have
historically been dominated by central and state government ___________________
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players have been unable to make significant inroads primarily
because pricing remains subject to government control. ___________________
Introduction of private power distribution players in Delhi and ___________________
Mumbai has reduced theft and streamlined the distribution
___________________
process. Kolkata's RP Goenka-owned Calcutta Electric Supply
Corp. (CESC.BO), the city's sole electricity provider, has brought ___________________
near self-sufficiency to Kolkata through a combination of adopting
___________________
modern technology in power generation and an efficient
distribution mechanism. It is a strategy worthy of emulation.
Steel
India is one of the world's leading iron ore exporters, but Indian
steel manufacturers have had trouble obtaining it. Only a handful
of manufacturers have their own captive iron ore mines; the rest
depend on government-owned mines. Many states with high
reserves have poor infrastructure. Therefore, in recent times
global steel manufacturers have set up steel plants in raw-
material-rich states such as Orissa and Bihar.
investors to buy (or lease) iron ore and coking coal deposits
abroad. In the short term, the government should narrow the
supply gap by diverting some iron ore exports to domestic steel
producers. In addition, since economy of scale is a proven success
factor for growth in the steel industry, the government should
encourage global manufacturers to tie up with Indian
manufacturers.
Contd…
Lean Supply Chain Management
244
Hardware and Consumer Electronics
Notes
S
Electronics hardware is one of the largest and fastest-growing
___________________ industries in the world. The Indian government's special economic
___________________ zone policy encourages duty-free imports and tax concessions.
Global manufacturers such as Samsung, Nokia (NOK), Motorola
___________________
(MOT), and Texas Instruments (TXN) have already established
___________________ manufacturing operations in India. That's because the
government allows 100% foreign direct investment in this sector.
___________________
PE
As per the investment commission's estimate, India is expected to
___________________ attract a total of US $6 billion to US $10 billion in foreign direct
___________________ investment by the end of 2010. With the availability of cheap
skilled manpower, incentives on exports and imports, and an
___________________
ever-growing domestic market, this industry should see rapid and
___________________ continued growth in the next few years.
___________________ Question:
245
Notes
S
___________________
___________________
___________________
___________________
___________________
PE
___________________
___________________
___________________
___________________
___________________
BLOCK-V
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Lean Supply Chain Management
Detailed Contents
246
Notes
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UNIT 21: GLOBALISATION AND CULTURAL
___________________ UNIT 23: LEAN SUPPLY CHAIN AND
IMPACT ON LEAN SUPPLY CHAIN E-COMMERCE
MANAGEMENT
___________________
z Introduction
z Introduction
___________________
z Defining E-commerce
z Lean Supply Chain Globalization
___________________
z E-commerce and Supply Chain Management
z Lean Supply Chain Management and Cultural
___________________
Impact CSF in Implementing an E-commerce System
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z
___________________
UNIT 22: ERP IN LEAN SUPPLY CHAINS UNIT 24: INTEGRATING E-COMMERCE AND
___________________ SUPPLY CHAINS
z Introduction
___________________ z Introduction
z Information, Automation and Lean
___________________ z Internet-based EDI and Supply Chains
z Integrated Global Information Systems
z E-trust and Supply Chains
z
___________________
Information: A Key Supply Chain Practice
z Integration of Supply Chain and E-commerce
z Ways to Improve Supply Chain Performance Function
through Integrated ERP System
Unit 21
247
Notes
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Globalisation and Cultural Impact
___________________
___________________
Management ___________________
___________________
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Objectives ___________________
After completion of this unit, the students will be aware of the following ___________________
topics:
___________________
\ Lean Supply Chain Globalization
___________________
\ Lean Supply Chain Management and Cultural Impact
___________________
Introduction
Business today is in a global environment. This environment forces
companies, regardless of location or primary market base, to
consider the rest of the world in their competitive strategy
analysis. Firms cannot isolate themselves from or ignore external
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factors such as economic trends, competitive situations or
technology innovation in other countries, if some of their
competitors are competing or are located in those countries.
Companies are going truly global with Supply Chain Management
(SCM). A company can develop a product in the United States,
manufacture in India and sell in Europe. Companies have changed
the ways in which they manage their operations and logistics
activities. Changes in trade, the spread and modernization of
transport infrastructures and the intensification of competition
have elevated the importance of flow management to new extent.
Today’s globalisation is built around falling transportation and
telecommunication costs. The fact that low transportation costs
have been reinforced by low communication costs means that
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S
Activity Operations management, in fact, is largely, supply chain
Visit___________________
a major FMCG player management. As Scary and Larsen observe, “managing the supply
and study how they are
___________________
operating their lean supply chain is vital for international business”.
chain while going global and
___________________
prepare a detailed report. The alternate objective is to deliver products to market with
___________________ variety, responsiveness, timeliness and efficiency. Corporate
strategy must include organizing, coordinating and executing the
___________________
PE
processor product flow as a competitive necessity and as a source of
___________________
potential competitive advantage. The strategic requirements of
___________________ international business determine the extent, characteristics and
___________________ strategic direction of the supply chain. Some businesses are only
involved with international operations to secure a supply of
___________________
materials and components; marketing is domestic. Other
___________________ businesses manufacture and export from a home base and procure
materials overseas. Some corporations serving global markets
rationalize production using international factory networks for
supply.
z A company’s supply chain encompasses the coordination of
materials, information, and funds from the initial raw
material supplier to the ultimate.
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z It is the management of the value added process from the
suppliers’ supplier to the customers.
z The scope of supply chain, thus, encompasses almost the entire
system of business process.
According to Houlihan, the underlying concept of the supply chain
embraces the following points:
z The supply chain identifies the complete process of providing
goods and services to the final user.
z It includes all parties and logistics operations from supplier to
customer within a single system.
z The scope of the supply chain includes procurement,
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249
z Objectives of individual supply chain members are achieved
Notes
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through the performance of the chain as a whole.
___________________
The above exposition of the scope of the supply chain connotes that
operations management is, by and large, supply chain ___________________
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Global Integration with Information System Software ___________________
The success of most of the organizations, private, public, and ___________________
military, depends on their ability to manage the flow of materials,
___________________
information, and money into, within, and out of the organization.
Such a flow is referred to as a supply chain. Because supply chains ___________________
may be long and complex and may involve many different business ___________________
partners, we frequently see problems in the operation of the supply
chains. These problems may result in delays, in customers’
dissatisfaction, in lost sales, and in high expenses of fixing the
problems, once they occur. World-class companies, such as Dell
Computers, attribute much of their success to effective Supply
Chain Management (SCM), which is largely supported by IT.
)U
Effective solutions to supply chain problems have been provided by
IT for decades. Indeed, the concept of the supply chain is
interrelated with the computerization of its activities, which has
evolved over 50 years.
Historically, many of the supply chain activities were managed
with paper transactions, which can be very inefficient. Therefore,
since the time when computers first began to be used for business,
people have wanted to automate the processes along the supply
chain. The first software programs, which appeared in the 1950s
and early 1960s, supported short segments along the supply chain.
Typical examples are inventory management systems, production
scheduling, and billing. The major objectives were to reduce costs,
expedite processing, and reduce errors. Such applications were
developed in the functional areas, independent of each other, and
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S
computer support could greatly enhance the use of this model,
___________________
which may require daily updating. This resulted in commercial
___________________ MRP software packages coming on the market.
___________________
MRP packages were useful in many cases, and they are still in use
___________________ today, helping to drive inventory levels down and streamlining
___________________ portions of the supply chain. However, some of the MRP
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applications failed. One of the major reasons for such failure was
___________________
that schedule-inventory-purchasing operations are closely related
___________________ to both financial and labour resources, but was not included in the
___________________ MRP packages. The realization of this failure resulted in an
enhanced MRP methodology and software called Manufacturing
___________________
Resource Planning (MRP II), which adds labour and financial
___________________
planning to the simpler MRP model.
System Integration
Creating the 21st century enterprise cannot be done effectively with
twentieth century computer technology, which is functionally
oriented. Functional systems may not let different departments
communicate with each other in the same language. Worse yet,
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crucial sales, inventory, and production data often have to be
painstakingly entered manually into separate computer systems
every time they need to be processed together. In many cases,
employees simply do not get the information they need, or they get
it too late.
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The following are the major tangible and intangible benefits of 251
S
Activity
___________________
z Tangible benefits: Inventory reduction, personnel reduction, Interview a repatriate and find
out what cultural impacts he
productivity improvement, order management improvement, has___________________
seen in lean supply chain
financial-close cycle improvements, IT cost reduction, management when he was an
___________________
expatriate and prepare a
procurement cost reduction, cash management improvements, presentation.
___________________
revenue/profit increases, transportation and logistics cost
reduction, maintenance reduction, and on-time delivery ___________________
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improvement. ___________________
S
___________________ their inception, have increasingly been receiving international
___________________
attention from academics, the media and politicians in recent
times. These firms are widely recognised as drivers of national
___________________
economies, in that they play an important role in creating
___________________ employment and in the redistribution of wealth. National
___________________ governments and private enterprises are investing vast sums in
PE
R&D trying to create new technologies in the new knowledge
___________________
driven competitive landscape.
___________________
With the significant investment across regional, national and
___________________
European level, it is important to have a fundamental
___________________ understanding of how these new firms work what their needs are
___________________ and how they can be better supported to achieve success. However,
this has been made difficult by the plethora of terms and
definitions, which have been used in academia in examining the
phenomenon of early internationalisation of start-up firms.
The differences between national cultures – is an important
determinant of organizational actions and performance, both
empirical and theoretical concerns abound.
)U
The concept of "culture" is very complex and is used with various
meanings. Under a pragmatic definition, one can say that any
group of human beings whose thinking and acting differs from that
of other groups has a "culture". Hofstede likewise emphasizes the
relationship between culture and group affiliation. He clearly
defines culture as "collective programming of the mind which
distinguishes the members of one group or category of people from
another". According to Fukuyama, culture encompasses the values,
norms, interpretations and modes of behaviour that characterise
societies or other social groups.
The different definitions clearly show culture to be always a
collective phenomenon, for it is shared, at least in part, with
humans living in the same social environment or belonging to the
(c
S
changed in the short term, but has a long-term character. Against ___________________
this background, it becomes evident already at this point that
___________________
political programmes can only ever have a conditioned and long-
term impact on cultural features. ___________________
___________________
International Culture in Supply Chains and Ethics
___________________
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It is very much known that firms in developed nations have
___________________
practised Supply Chain Management (SCM) for decades, but we
ask here if they will be able to progress well under the modern ___________________
regime of harder and faster e-just-in-time systems. The end-to-end ___________________
supply chain is both a virtual and a physical reality linking the
___________________
customer to many value-added manufacturers and assemblers with
the intervention and support of logistics providers; and we must be ___________________
concerned with the reverse supply chain. For the purposes of this
section, we assume the chains to be terminated mainly in Europe
and the USA, but with origins having global outreach.
We further assume SCM to be concerned not only with data and
goods, but also in managing cultural and ethical issues. Essentially
we shall discuss the challenges of Knowledge Management (KM)
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and Organisational Learning (OL) in SCM systems that embrace
firms located in many countries, western as well as Asian, which,
to promote KM and OL must have more (or less) permeable
organisational boundaries and must learn to trust each other
regardless of their ethnic differences.
Supplier Ethics Management is the management of suppliers and
supply relationships with strategies, programs, and metrics that
better align supplier business conduct with purchaser standards,
with the goal of reducing the purchaser’s overall risk of corporate
integrity failure in the supply chain. “Corporate integrity failure”
embraces any enterprise-level scandal involving a violation of
compliance, ethics, or corporate responsibility standards.
A supply chain may not be quite as dynamic or complex as capital
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S
___________________
currency fluctuations or other economic shifts, and are agile
enough to respond quickly to changing supply and demand.
___________________
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___________________
among operations managers and employees from
different cultural backgrounds.
___________________
2. A supply chain may not be quite as ……………. or
___________________
…………….. as capital markets.
___________________
___________________ Summary
To manage supply chain disruptions, many diverse organizational
cultures must work together to restore services and help ensure
resiliency. As manufacturing operations are relocated around the
world, the efficient movement of goods is becoming more and more
important. Logistics providers are responsible for the movement of
goods and face different cultural challenges in each region that
)U
these goods move. People must realize and accept cultural
differences to develop strong working relationships.
Keywords
Globalization: Globalization refers to the process or processes of
international integration.
Liberalization: Liberalization refers to a relaxation of previous
government restrictions, usually in areas of social or economic
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policy.
Culture: Culture is a powerful human tool for survival, but it is a
fragile phenomenon. It is constantly changing and easily lost
because it exists only in our minds. Our written languages,
governments, buildings, and other man-made things are merely
the products of culture.
UNIT 21: Globalisation and Cultural Impact on Lean Supply Chain Management
255
Critical Success Factor (CSF): Critical success factor is the
Notes
S
term for an element that is necessary for an organization or project
to achieve its mission. ___________________
___________________
Questions for Discussion ___________________
PE
3. Describe the globalization impact on lean supply chain ___________________
management. ___________________
___________________
Further Readings
Books
Wincel, J. P., (2004), Lean Supply Chain Management: A
Handbook for Strategic Procurement, Productivity Press.
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Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
Management Essentials: A Framework for Materials Managers,
CRC Press.
Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
Management into the Supply Chain, Butterworth-Heinemann.
Web Readings
www.epa.gov/oppt/library/pubs/archive/acct-archive/pubs/lean.pdf
http://www.sdcexec.com/article/10289860/a-lean-supply-chain-
manifesto
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PE
S
UNIT 22: ERP in Lean Supply Chains
Unit 22
257
Notes
S
ERP in Lean Supply Chains
___________________
___________________
___________________
Objectives
___________________
After completion of this unit, the students will be aware of the following
topics: ___________________
PE
\ Information, Automation and Lean ___________________
\ Integrated Global Information Systems
___________________
\ Information as a Key Supply Chain Practice
___________________
\ Ways to Improve Supply Chain Performance through Integrated ERP
System ___________________
___________________
Introduction
ERP systems are now being observed everywhere, in large
businesses and the current move by vendors is to repackage them
for Small to Medium Enterprises (SMEs). This transformation has
number of consequences that have to be addressed through
understanding the history and evolution of ERP systems and their
)U
current architectures. The merits and demerits of the ERP systems
will impact their penetration in this new market.
Today, Enterprise Resource Planning (ERP) systems have come to
signify a never-before opportunity for organisations to gain a clear
edge over their competitors. In order to compete and grow, many
organisations in India either have already implemented or are at
the threshold of acquiring ERP systems. ERP is a high-end
sophisticated software solution that reduces the pressure and
workload of the managers and provides accurate, timely
information for taking appropriate business decisions. Enterprise
Resource Planning is the latest high-end solution that information
technology has lent to business application.
Information Technology (IT) has transformed the way we live in
(c
and the way we do business. Since the last decade, IT has made a
drastic change in our life. As compared to earlier stage, when
computer was used just as a typewriter, nowadays users have
become more intelligent and IT literate. Now the user knows that a
PC can do many more things rather than just typing a letter in a
word processing software or making balance sheets in Excel. They
expect more things out of their PC. During this phase of industry,
Lean Supply Chain Management
258 every one of us must have heard the word ERP in one or the other
Notes form. It may be in the title of any IT magazine or may be a point of
S
Activity
discussion in any IT seminar or may be in an advertisement of big
Visit___________________
an export house and
analyse their information, IT company. Thus in any form, we all have been through this word.
___________________
automation and lean systems. In fact, ERP software consists of multiple software modules that
___________________ integrate activities across functional departments - from
___________________ production planning, parts purchasing, inventory control and
product distribution to order tracking. Most ERP software systems
___________________
PE
include application modules to support common business activities
___________________ like finance, accounting and human resources.
___________________
259
z Dynamic composability and execution: A system should
Notes
S
execute as a set of distributed parts, but the resources Activity
required will be mostly unknown until runtime. Thus, the Make___________________
a mini-documentary on
the topic integrated global
infrastructure must enable resource discovery and composition ___________________
information systems.
as needed.
___________________
z Interaction: Interaction among participants might include
___________________
subtle and critical patterns, but the specific interactions might
___________________
PE
be variable and unknown until runtime. The patterns must
therefore be explicitly represented and reasoned with. Recent ___________________
work describes the power of interactions. ___________________
260
The organizational decision-making process in a multinational
Notes
corporation is very different from that of a domestic corporation.
S
___________________ The heterogeneity of language, cultural, regulation, currency,
___________________ government, and time zone causes complexity and uncertainty of
corporate decision-making. Therefore, a global information system
___________________
should include the following components:
___________________
z Compatibility in data formats and structures.
___________________
PE
z A database of local regulatory and legal systems.
___________________
z A database of cultural patterns of management and decision-
___________________
making.
___________________
z Security provisions.
___________________
z The ability to accommodate differences in time zones
___________________
z A multi-language processor.
In addition, a decision-support-oriented global information system
needs to possess the following characteristics (Chou, 1996):
z It performs global coordination within the system.
z It performs system integration.
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z It has a powerful repository for storing system-wide data and
information.
z It can perform the intelligent work.
z It has an integrated CASE-based environment.
S
Activity
z Enterprise Application Integration enables information ___________________
Create a digital essay with
images and text on the topic
exchange and process automation across business applications ___________________
of information as a key supply
that were independently developed, may use incompatible chain practice.
___________________
technology, are typically based on different data models, and
remain independently managed. ___________________
___________________
PE
Lean Integration can be summarized as seven principles similar to
Lean manufacturing and Lean software development: ___________________
___________________
z Plan for change
___________________
z Deliver fast
z Empower the team
z Build quality in
z Optimize the whole
S
Activity
___________________
Create a collage or poster Web technologies enable enterprises to become more effective, to
displaying your findings and
___________________ trade with suppliers and customers over the Internet in real time.
point of view on the topic
ways to improve supply For this, businesses have to integrate their information systems
___________________
chain performance through and applications with those of their suppliers and customers.
integrated ERP system.
___________________
First, companies have to redesign their supply chain to create an
___________________
integrated value system and afterwards, companies can develop
PE
___________________ business-to-business applications across supply chain structure for
___________________ the optimization of the supply chain. The implementation of the
supply chain information systems in companies facilitates an
___________________
increase in their competitiveness and profits.
___________________
___________________
Check Your Progress
Fill in the blanks:
1. The supply chain concept has become a concern due to
global ………………… and increasing customer demand
for value.
2. Supply chain members have to collaborate, sharing
information for improving customers
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……………………….
S
the edge of the company—along those boundaries and interaction ___________________
points that occur between the manufacturer and its customers and
___________________
suppliers.
___________________
Savvy manufacturers have recognized the benefits of investing in
integrated ERP systems, realizing that it enables them to fulfil ___________________
PE
to the changing supply chain with reduced long-term information ___________________
technology (IT) costs.
___________________
Here are four ways an integrated ERP system can help improve
___________________
supply chain performance.
___________________
Develop better Customer Insight and Interaction ___________________
To build long-term relationships with customers today, you need to
listen to and understand them. This requires that you maintain a
holistic view of those customers. You can obtain such a broad-
spectrum view from a variety of data sources, including your
supply chain systems; sales and marketing; customer service and
field service systems; internal database information; and
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knowledge gathered from unstructured interaction with customers.
This integrated view—which an ERP system helps provide—can
enable manufacturers to look beyond tactical order fulfilment and
gain a better understanding of customer wishes for customized
products and services—which can help the company differentiate
its offerings and increase profits. It can also lead to insight and
answers to questions such as: What are the buying patterns? Are
we driving larger orders to customers? What does our pipeline look
like? Are we seeing demand increases or downturns that we must
react to?
S
___________________ Beyond having the right data for internal operations,
___________________ manufacturers must also be able to provide customers with
visibility into inventory and product availability. In a demand-
___________________
driven world, real-time intelligence—not nightly batch updates—is
___________________ required to make timely and effective decisions. This now means
___________________ systems must be open to the new ways of working—including
PE
mobile and Radio Frequency Identification (RFID) technologies
___________________
and support for tracing and other regulatory compliance
___________________
requirements. The right ERP system can help meet your needs in
___________________ all these areas.
___________________
Lean Manufacturing, Global Sourcing and Supplier Integration
___________________
Managing to the lowest possible manufactured cost is essential.
This means applying lean manufacturing practices and connecting
to the best suppliers on a global basis.
Today, lean operations are driving an increase in speed and
response time for all supply chain participants. Unfortunately, for
most manufacturers, the new lean business processes are not
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supported by their legacy systems and must be implemented as
manual processes, which can defeat the information visibility
crucial to state-of-the-art supply chains.
Locating the best suppliers requires a comprehensive supplier
database that enables a manufacturer to recognize where new
opportunities for lower costs exist—such as suppliers in emerging
countries. This means that manufacturers must have real-time
connections to suppliers to respond to changing production
demands. Once identified, these new suppliers must be brought on
board quickly and cost effectively with the ability to share—and
respond to—real-time demand and production data, including new
product designs and critical engineering changes. The current
generation of integrated ERP systems includes the processes and
capabilities to help ensure lean operation, including the need for
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problems managers may face in their operations. The real power of 265
these metrics comes when managers can quickly access real-time Notes
S
data that reflects the global domain of their operations. Done well, ___________________
performance analytics can make manufacturers significantly more
___________________
agile – an important consideration in today’s very lean supply
chains. ___________________
world of disparate legacy systems, the result being that most ___________________
PE
companies do not currently have a standardized and automated ___________________
performance analysis capability to manage for higher performance.
___________________
Integrated ERP systems today include business analytics that
___________________
enable executives to standardize metrics across the organization
and monitor production and profitability. In fact, ERP systems can ___________________
Summary
A robust supply chain must work with accurate information
starting with forecasting to delivery of products to end-users.
Supply and demand should be synchronized considering factors
Lean Supply Chain Management
S
___________________ Virtual networks (e-commerce) link participants and activities
___________________ including raw material suppliers, manufacturers, distributors,
wholesalers, and consumers. Enterprise resource planning systems
___________________
and the Internet are now the technology platforms that process
___________________ information quickly and efficiently.
___________________
PE
___________________ Lesson End Activity
___________________ Discuss within a group of 3 students the ways by which supply
___________________ chain performance can be improved through ERP systems.
___________________
___________________
Keywords
Enterprise Resource Planning: ERP is an industry term for the
broad set of activities that helps a business to manage the
important parts of its operations.
Purchasing: Purchasing refers to a business or organization
attempting for acquiring goods or services to accomplish the goals
of the enterprise.
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Inventory Management: Inventory management is the process of
efficiently overseeing the constant flow of units into and out of an
existing inventory.
Information Technology: Information Technology is a principle
driver of business productivity and profitability, and an enabler of
organizational process improvement and innovation.
S
Books ___________________
PE
___________________
Plenert, Gerhard, (2010), Reinventing Lean: Introducing Lean
Management into the Supply Chain, Butterworth-Heinemann. ___________________
___________________
Web Readings
___________________
http://www.microsoft.com/dynamics/en/gulf/industries/manufacturi
ng-erp-supply-chain.aspx ___________________
http://www.infosys.com/Oracle/white-papers/Documents/ERP-
way.pdf
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PE
S
UNIT 23: Lean Supply Chain and E-commerce
Unit 23
269
Notes
S
Lean Supply Chain and
___________________
___________________
E-commerce ___________________
___________________
Objectives ___________________
PE
After completion of this unit, the students will be aware of the following
___________________
topics:
___________________
\ Defining e-commerce
\ E-commerce and Supply Chain Management ___________________
\ CSF in Implementing an E-commerce System ___________________
___________________
Introduction
Electronic commerce (E-commerce) and the Internet are
fundamentally changing the nature of supply chains, and
redefining how consumers learn about, select, purchase, and use
products and services. The result has been the emergence of new
B2B supply chains that are consumer-focused rather than product-
)U
focused. They also provide customized products and services.
E-commerce is a selling and transfer process requiring several
institutes. It is systematic and organized network for the exchange
of goods between producers and consumers. The Net aims to
establish the interconnections between producers and consumers
directly and in this process; the Internet embraces all those related
activities, which are indispensable for maintaining a continuous,
free and uninterrupted distribution and transfer of goods. The
Website or portals may be categorized into commercial and
non-commercial.
Any website or portal that offers products and/or services for sale
is a commercial website. There are thousands of commercial web
sites on the Internet. Some of them have been successful, and some
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S
Activity E-commerce is a general concept covering any form of business
___________________
Search over the internet and transaction or information exchange executed using Information
write an article on
___________________
e-commerce organizations. and Communication Technologies (ICTs). E-commerce takes place
___________________ between companies, between companies and their customers, or
between companies and public administration. E-commerce
___________________
includes electronic trading of both goods and electronic material.
___________________
PE
"E-commerce denotes the use of electronic transmission media
___________________
(telecommunication) to engage in the exchange of products and
___________________ services requiring transportation either physically or digitally, from
___________________ location to location".
271
Check Your Progress
Notes
S
Activity
Fill in the blanks:
___________________
Research an organization that
1. E-commerce is a general concept covering any form of uses e-commerce in its supply
___________________
chain and prepare a
business transaction or ……………… exchange executed presentation based on your
___________________
using information and communication technologies. findings.
___________________
2. E-commerce is the means to complete ……………..
transaction. ___________________
PE
___________________
S
___________________
activities.
___________________
___________________
___________________
___________________
PE
___________________
___________________
___________________
___________________
___________________
S
buyers and sellers by using an e-commerce version of a standard ___________________
auction) to further drive down purchase prices.
___________________
Purchasing ___________________
Using the Web, customers or purchasing agents can complete their ___________________
orders specifying the final agreed-to terms and prices.
___________________
PE
Complications can arise due to the payment process. Customers
and purchasing agents can use credit cards to facilitate payments ___________________
S
___________________
complaints about the condition, timeliness, or convenience of
deliveries are reported by customers, provides useful future
___________________
planning guidelines to further achieve customer satisfaction. With
___________________ e-commerce and Web technology, the speed with which this
___________________ information can reach decision makers is greatly increased over
other, less integrated information systems.
___________________
PE
The impact of e-commerce and its technology enablers, such as the
___________________
Internet, have on supply chain activities can be dramatic. To
___________________
illustrate this impact we can theorize and estimate the timing
___________________ difference between the manufacturing agent’s physical method
___________________ (i.e., more traditional) of purchasing a component for a product and
an e-commerce method focused on internet technology as presented
___________________
in Table 23.2. As can be seen in Table 23.2, there are substantial
differences between these methods and the resulting time required
to implement the purchase of a component part. The time saved
using e-commerce is one example of how it can enforce the lean
supply chain management principle of waste removal.
Invoice to Obtain and fill out hardcopy Use Internet or EDI to fill
customer forms, mail to customers (3 out forms and send to
day) customer (20 minutes)
Pay invoice Issue check or credit card Use Internet or EDI to issue
exchange on hardcopy forms credit or send an electronic
(2 hours) check to supplier (1 minute)
Total Time 35 days and 3 hours 4 days and 56 minutes
UNIT 23: Lean Supply Chain and E-commerce
275
The illustration in Table 23.2 also provides some idea as to the
Notes
S
profound role changes taking place as e-commerce becomes an Activity
important part of supply chain management systems. Note Find___________________
out ten such
organizations who have
particularly in the example that most of the activities, which ___________________
recently implemented
required staff in the physical method, now only require the time of e-commerce system.
___________________
the purchaser in the e-commerce method. Indeed, the use of
e-commerce models have done more to integrate the customer into ___________________
PE
effort to date. ___________________
276
z Change management for e-commerce system implementation
Notes
(i.e., utilize change management methodologies to ready the
S
___________________ organization for the implementation of the e-commerce
___________________ system),
PE
z User participation and satisfaction for e-commerce
___________________
implementation (i.e., like lean, users will be in a better
___________________ position to make suggestions on implementation, based upon
___________________ their potential satisfaction using the system.), and
Summary
E-business involves the execution of business transactions over the
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"channels" such as retail stores, sales people, and catalogues. For 277
example, companies like Lands End and W.W. Grainger have used Notes
S
catalogues to provide product information to customers. ___________________
Companies have used the internet in a variety of ways to enhance ___________________
supply chain performance. Dell uses the Internet to display all its
___________________
product options to customers. Companies like Solectron and Ford
have used the Internet to increase collaboration in product design. ___________________
UPS and Federal Express have used the Internet to allow ___________________
PE
customers to track their packages. ___________________
___________________
Lesson End Activity
___________________
Discuss within a group of 5 students about B2B type of e-commerce
___________________
transactions.
___________________
Keywords
E-Commerce: E-commerce refers to the buying and selling of
products or services over electronic systems such as the Internet
and other computer networks.
Manufacturing: Manufacturing is the production of goods for use
)U
or sale using labour and machines, tools, chemical and biological
processing, or formulation.
Information flow: Information flow is the transfer of information
from a variable to a variable in a given process.
Enterprise Resource Planning (ERP): Enterprise resource
planning systems integrate internal and external management of
information across an entire organization—embracing
finance/accounting, manufacturing, sales and service, customer
relationship management, etc.
278
5. Why is there a need for change management for the
Notes
implementation of e-commerce system?
S
___________________
PE
___________________
Kerber, Bill, Dreckshage, Brian J., (2011), Lean Supply Chain
___________________ Management Essentials: A Framework for Materials Managers,
___________________ CRC Press.
Web Readings
http://link.springer.com/chapter/10.1007%2F978-3-642-29637-
6_87#
http://www.kellogg.northwestern.edu/faculty/vanmieghem/htm/e-
business-scmr-april26.pdf
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UNIT 24: Integrating E-commerce and Supply Chains
Unit 24
279
Notes
S
Integrating E-commerce and
___________________
___________________
___________________
Objectives ___________________
PE
After completion of this unit, the students will be aware of the following
___________________
topics:
___________________
\ Internet-based EDI and Supply Chains
\ E-trust and Supply Chains ___________________
\ Integration of Supply Chain and E-commerce Function ___________________
___________________
Introduction
E-commerce is sales and marketing driven, and supply chain
management is the most important critical success factor helping
e-commerce operations to be successful. However, supply chains
often are neglected or poorly managed in e-commerce practices.
Many dot-com firms, during the early 2000s, lost customers or
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went out of the business due to the misperformance of their supply
chains. Industrial experts attributed the downfalls of many
dot-com firms to supply chain failures caused by the lack of a rapid
communication structure to identify emerging inventory stock
shortfalls, order-processing systems to manage needed repeat
orders, and supply chain customer relationship management
programmes to ensure minimal response to customer complaints
and returns. In order to be successful an e-commerce firm needs to
have an integral business model with an emphasis on supply chain
management, rather than a model solely based upon sales and
marketing.
According to Nissen (2000), an evolution has been in progress for
some years that is leading toward increased integration of supply
chain management and e-commerce. E-commerce is an application
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S
Activity
___________________
distribution processes in customer ordering and delivery. Also Lee
Write a magazine style article
about Internet-based EDI and et al. (1997a) pinpoint the relevance of information exchange in
___________________
Supply Chains. alleviating the supply chain bullwhip effect. They argue IT can
___________________ help firms create transparency of orders and operations in
___________________ providing visibility of demand throughout the supply chain.
___________________
PE
___________________
Internet-based EDI and Supply Chains
___________________ An early integration technology used in supply chains (and a factor
in their rise to prominence in strategic planning) is electronic data
___________________
processing (EDI) and its newer version, Internet-based EDI (IEDI).
___________________
Developed in the late 1960s, EDI enabled buyers to extract
___________________
purchase orders from a purchasing software application and send
it to suppliers where it would automatically feed into a sales
order-entry application. The EDI data is then translated by special
software from EDI standard data formats and converted into the
supplier’s database formats for ease of understand and direct
action. Its intent is to speed information delivery and processing
via a paperless environment, thereby achieving tremendous cost
)U
and time saving efficiencies that carry over into improved levels of
customer service.
Internet-based EDI (IEDI) is EDI, but with Internet access portals.
The use of IEDI systems further increases the supply chain
partner’s access to data via entry portals by positioning the portals
using the Internet as a connector throughout the entire supply
chain system. In terms of lean principles, it should be noted that
Steggell (1998) claimed years ago that an IEDI system is much less
expensive than EDI. Barber (1997) declared an IEDI system could
be as much as eighty percent less expensive.
The benefits that IEDI can bring to supply chain management
include:
z Timely communication via IEDI permits a more demand
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281
z It can enhance communications between the supplier and the
Notes
S
buyer by virtue of easier to use Internet technology (i.e., the
Internet is a convenient form of communication in everyday ___________________
life that users are comfortable using); ___________________
z IEDI, when linked with other ERP systems, permits easier use ___________________
of other communication technologies (e.g., a firm might
___________________
implement a Radio Frequency Identification (RFID) inventory
___________________
PE
monitoring system to track inventory levels and automatically
generate and transmit IEDI purchase orders to suppliers); ___________________
order winner for some firms (i.e., the firm that uses this ___________________
technology will get contracts with other firms that want supply
___________________
chain partners to use this technology for purposes of
___________________
information system integration).
Another integration issue of e-commerce and supply chains is
related to global supply chains. In order to successfully compete in
global markets (and e-commerce opens global markets to all firms),
organizations must meet or exceed the pace of rapidly changing
technology, while also lowering costs, increasing quality, and
improving customer service at all stages of the value-chain. A
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rapidly emerging global market drives businesses to reorganize
manufacturing and supply chain partners to be more closely
integrated in order to improve operating efficiency.
Effective management of these global supply chains presents
challenging strategic, tactical, and operational problems. It
involves the integration of all value-creating elements in the
supply chain processes, from raw material extraction to end-user
consumption. Global Supply Chain Management (GSCM) activities
are motivated by the ideals of customer service, lead-time
compression, and inventory reduction. GSCM is facilitated greatly
by communication technologies, such as IEDI, and inspired by the
lean supply chain management principles of close supplier
relationships, reduced supplier bases, and frequent on-time
(c
S
Activity
___________________
supply chain operations.
Create a digital essay with
images and text on the topic
___________________
of e-trust and supply chains. Check Your Progress
___________________
Fill in the blanks:
___________________
1. Effective management of global supply chains presents
___________________ challenging strategic, tactical, and operational
PE
___________________ ………………..
___________________
E-trust and Supply Chains
___________________
The Internet and other e-commerce technologies have created
opportunities for seamless business collaboration between all
partners that comprise a traditional supply chain. The B2B and
B2C models break down traditional boundaries between business
partners. In essence, they make all participants in a business
transaction part of an expansive extranet. Theoretically, these
business partners will easily and securely communicate, and
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complete end-to-end transactions from within their respective
firms, streamlining communications, increasing the precision of
forecasts, and reducing operational costs. What the supply chain
management in e-commerce has failed to do is replace or improve
the one fundamental attribute required to conduct business i.e.
trust.
Ratnasingham (1999) defines trust in e-commerce or e-trust as
promises, assurances and a demand for high quality products and
services. Credibility is a measure of honesty and ethical behaviour.
Higher levels of credibility create higher levels of trust
(Schniederjans and Schniederjans, 2008). Sheppard and Sherman
(1998) identify factors likely to influence the development and
maintenance of trust in the domain of a B2C supply chain.
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S
Activity
Pre- This involves knowing that individuals differ in their general ___________________
Working with one or two
Interactional propensity to trust. Foreknowledge and expectations with partners, after researching the
Filters respect to a certain industry or firm is important in case ___________________
topic of integration of supply
damage control is needed. The reputation (i.e., the strength of chain and e-commerce
a company’s brand name), previous interactions on- and/or ___________________
function, prepare an
off-line, or reports from trusted third parties (hence, informative interactive digital
transference of trust), can all be factors in building e- ___________________
poster. Then briefly present
commerce trust, because they precede the initial meeting of the poster to the class,
___________________
PE
potential supply chain partners. highlighting your main findings
and points of interest.
Interface The development of trust is strongly affected by first ___________________
Properties impressions of a business system. Thus, graphic design and
layout are important appeal components. The extent to which ___________________
a firm’s Web sites and other Internet commercial offerings
and resources are made explicit by organizing content in a ___________________
manner relevant to the end user can help build trust.
___________________
Enhancing usability by making the e-commerce system
reliable, ease-to-use, and familiar in terms of the business
___________________
model, classification schemes, and terminology also enhances
trust by eliminating confusion of purpose.
Informational Information about products and services should be complete,
Content relevant and structured in a way that reduces user costs. The
trust component here reflects the need to communicate the
firm’s history, values, and commitment. Issues of security
(i.e., the completeness and the understandability of
information about financial risks and guarantees), and
privacy (i.e., the supplier’s openness with respect to its
)U
privacy policy) are both important trust building factors.
Relationship Supply chain partners have to gain enough trust to engage in
Management a commercial relationship with an e-commerce business.
Whether the trust will be honoured in the long-term will
depend upon follow-up to initial transactions (e.g., post-
purchase communication and customer service).
Communication trust reflects the facilitating effect of
frequent and personalized supplier interactions with
customers on trust maintenance.
284
Notes Using E-commerce as a Means to Enhance Supply Chain
S
Responsiveness
___________________
Gunasekaran et al. (2008) examined the comparative differences
___________________
between three types of supply chains (i.e., lean supply chains,
___________________ agility supply chains, and responsive supply chains). As shown in
___________________ Table 24.2, they found there were differences between each of
these types of supply chains as related to the objectives, strategic
___________________
PE
planning focus, and organizational structure considerations.
___________________
Table 24.2: Comparison of Three Types of Supply Chains in E-commerce
___________________
Characteristics Lean Supply Agility Supply Responsive
___________________ Chain Chain Supply Chain
S
a responsive supply chain. ___________________
It was believed that a lean supply chain can become more agile and ___________________
more responsive to the needs of its supply chain partners. It will do
___________________
so by focusing effort and establishing a strategic goal to become a
more responsive supplier. The focus and reallocation of resources ___________________
PE
less concerned with many of the broader lean and supply chain ___________________
goals, and more interested in achieving a responsive goal. If this is
___________________
the direction that a supply chain wishes to take, e-commerce IT
technology and concepts can help make this a reality. ___________________
___________________
E-business Software Support Lean Supply Chain Principles
___________________
Ferguson (2004) reports on the Oracle Corporation’s e-business
software suite of applications that combines supply chain
management with lean principles and globalization support
features. The e-business suite enables firms to collaborate more
effectively with partners and suppliers along a global network by
including international drop shipping (i.e., enables users to
manage the required paperwork for cross-border shipments),
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multi-organization drop shipping (i.e., enables users to allow
shipment transfers from one area in an organization to another
and across different geographies), and global forecasting
capabilities. The global forecasting capability allows users to look
at their international supply network and create a global supply
plan. This functionality feature helps coordinate demand planning
forecasts across the supply chain using demand feeds from
networked ERP systems.
Embedding all of these capabilities will enable lean manufacturing
to work toward NPD, supplier management, and service
management applications. Capabilities include combining
inventory allocation planning with customer demand planning to
allow users to fulfil orders for maximize profitability. Lean
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Notes Integrating Supply Chain Management in E-commerce
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Environment
___________________
Chuang and Shaw (2005) suggested the integration of software
___________________
systems supporting e-commerce, supply chain management, and
___________________ ERP systems. This study also identified critical factors for success
___________________ with e-commerce supply chain operations, including an online
product catalogue, a secure electronic payment system, customer
___________________
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satisfaction, tight integration between ERP and SCM systems, a
___________________ reduction in costs, and online customer service.
___________________
Note the last four factors are recommended lean supply chain
___________________ management principles. Chuang and Shaw (2005) also found
___________________ several required activities performed cross-functionally within
organizations aid in the successful integration of e-commerce with
___________________
supply chains. Those activities included concurrent engineering
analysis, reliable budgeting, planning system implementation
time, reliable scheduling, supplier’s having extensive business
process knowledge, and having an accurate level of expectation
regarding supply chain performance. The aforementioned were the
most significant factors that contributed to implementation
success.
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From a supply chain management perspective, click-and-mortar ___________________
operations provide opportunities for serving different customer ___________________
segments, creating synergies, and exploiting economies of scale.
___________________
However, in order to successfully exploit these opportunities, firms
need to design a multi-channel distribution system to reach ___________________
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development effort requires a constant trade-off between process ___________________
integration and separation across multiple channels.
___________________
That is, allocating resources between an e-commerce department
___________________
and the brick-and-mortar retail outlets requires a continuous effort
of gauging each channel’s needs. In addition, sales and operations ___________________
decisions are ever more tightly intertwined, since delivery and ___________________
after-sales service are important, key components of product
offerings. The Agatz et al. (2008) review of the literature revealed a
number of critical success factors in designing and developing
either type of business. These supply chain design factors are
presented in Table 24.3. The value of these factors to supply chain
managers is that they represent key starting places in which to
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focus resource allocations in order to maximize the particular type
of e-commerce B2C operation.
integration of returns,
staffing levels
Lean Supply Chain Management
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___________________ 1. Click-and-mortar operations provide opportunities for
___________________ serving different ………….. segments, creating
synergies, and exploiting economies of scale.
___________________
2. Allocating resources between an e-commerce
___________________
department and the brick-and-mortar retail outlets
___________________ requires a continuous effort of gauging each channel’s
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___________________ ……………..
___________________ Summary
___________________
One development in the evolution of e-commerce and supply chains
___________________ has been the creation of an e-supply chain. An e-supply chain is an
___________________ organizational regrouping of supply chain efforts to more closely
focus on the supply chain as a strategic force useful in achieving
organizational goals. There are several major differences between
a traditional e-commerce use of supply chains and an e-supply
chain. E-supply chains render improvements in supply chain
management in an e-commerce setting.
Firstly, the many portals (i.e., computer-integrated system with
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laptop computers using a wireless Internet system) required for an
e-supply chain implement a supply chain-wide information
infrastructure to disseminate relevant market information quickly
and directly. Secondly, an e-supply chain uses a strategic approach
to information (i.e., rather than using information for ordering and
transactional purposes, an e-supply chain uses information for
innovation, enhanced consumer relationships, and service
activities). E-supply chain is an evolving concept by e-commerce
firms. To a greater or lesser degree, most e-commerce firms that
view their supply chain as a competitive advantage will continue to
evolve into an e-supply chain firm.
Keywords
Electronic Data Interchange (EDI): EDI is the structured
transmission of data between organizations by electronic means.
UNIT 24: Integrating E-commerce and Supply Chains
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Customer Relationship Management (CRM): CRM is a widely
Notes
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implemented model for managing a company’s interactions with
customers, clients, and sales prospects. It involves using ___________________
technology to organize, automate, and synchronize business ___________________
processes—principally sales activities, but also those for
___________________
marketing, customer service, and technical support.
___________________
Radio-frequency Identification (RFID): RFID is the use of a
wireless non-contact system that uses radio-frequency ___________________
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electromagnetic fields to transfer data from a tag attached to an ___________________
object, for the purposes of automatic identification and tracking.
___________________
___________________
Questions for Discussion
___________________
1. What is the difference between a click-and-mortar and a brick-
___________________
and-mortar e-business?
2. How are intranets and internets different, and how do they
impact supply chains?
3. How is the bullwhip effect related to e-commerce technology
usage?
4. How does EDI and IEDI support supply chain activities?
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5. What are the major components of e-commerce trust, and how
can they be used to build trust?
Further Readings
Books
Wincel. J. P. (2004), Lean supply chain management: a handbook
for strategic procurement. Productivity Press.
Kerber.Bill,Dreckshage.Brian J. (2011), Lean Supply Chain
Management Essentials: A Framework for Materials Managers,
CRC Press.
Plenert. Gerhard. (2010), Reinventing Lean: Introducing Lean
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Web Readings
http://www.industryweek.com/articles/the_goal_of_the_lean_supply
_chain_14935.aspx
www.epa.gov/oppt/library/pubs/archive/acct-archive/pubs/lean.pdf
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UNIT 20: Case Study
Unit 25
291
Notes
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Case Study
___________________
___________________
___________________
Objectives
___________________
After analysing this case, the student will have an appreciation of the
concept of topics studied in this Block. ___________________
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___________________
Case Study: B2C in the Computer Industry: Dell Computer
Online ___________________
___________________
The success story of how Michael Dell started selling computers
directly to the consumer in 1984 has become a classic introduction ___________________
to the direct business model, as it is called. Recently, the Internet
___________________
has become a logical extension of Dell's direct model.
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On the cost side, the direct model eliminates intermediaries. In
Notes addition, long-term relationship with high-reliability suppliers
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___________________ such as Sony allow Dell to ship monitors directly from the
supplier to the customer, eliminating costly warehousing costs
___________________
and the delays in additional inventories. Not only are
___________________ warehousing decreased, ordering personnel costs are transferred
onto the customer!
___________________
Question:
___________________
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Do a SWOT analysis of Dell’s online transformation.
___________________
Source:http://www.kellogg.northwestern.edu/faculty/vanmieghem/htm/e-business-scmr-
___________________ april26.pdf
___________________
___________________
___________________
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Glossary
Glossary
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Notes
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___________________
Attitude: A position of the body or manner of carrying oneself. ___________________
Business Value: Business value is the primary consideration to the user ___________________
of the solution.
___________________
Change Agent: A change agent is an event, organisation, material thing
___________________
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or, more usually, a person that acts as a catalyst for change.
___________________
Coaching: When referring to getting coached by a professional coach,
coaching is a teaching or training process in which an individual gets ___________________
support while learning to achieve a specific personal or professional result
___________________
or goal.
___________________
Collaboration: Collaboration is a mutually beneficial and well-defined
relationship entered into by two or more organizations to achieve results ___________________
they are more likely to achieve together than alone.
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Defect: The lack of something necessary or desirable for completion or
Notes
perfection.
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___________________
Demand Chain: The Demand chain is that part of the value chain which
___________________ drives demand.
___________________ Die: A die is a stamp used to form or press sheet metal into parts, like the
___________________
hood of a car.
___________________
Digital Waste: Digital waste is defined as information that is not related
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to or supporting of defined goals and metrics.
___________________
E-commerce: E-commerce refers to the buying and selling of products or
___________________ services over electronic systems such as the Internet and other computer
___________________ networks.
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Inter-organizational Information System (IOIS): These are the
systems which are based on information technologies that cross Notes
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organization boundaries. ___________________
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inventory.
___________________
ISO: ISO is a network of the national standards institutes of 164
___________________
countries, one member per country, with a Central Secretariat in Geneva,
Switzerland, that coordinates the system. ___________________
Lean Supply: Lean has evolved from just in time manufacturing to lean
manufacturing and to a lean enterprise.
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Modular Supply Chain Management: Modular supply chain
Notes
management is a method of working with suppliers to deliver products in
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___________________ a shorter time frame.
___________________ Motion: Change in the relative position of the parts of anything; action of
a machine with respect to the relative movement of its parts.
___________________
___________________
New Product Development (NPD): New product development is the
term used to describe the complete process of bringing a new product to
___________________ market.
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___________________ Operational Excellence: Operational Excellence is a philosophy of
___________________ leadership, teamwork and problem solving resulting in continuous
improvement throughout the organization.
___________________
Operational Plan: The operational plan coordinates the overall scope of
___________________
the implementation.
___________________
Outsourcing: Outsourcing is a practice used by different companies to
reduce costs by transferring portions of work to outside suppliers rather
than completing it internally.
something.
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Radio Frequency Identification (RFID): RFID is the use of a wireless
non-contact system that uses radio-frequency electromagnetic fields to Notes
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transfer data from a tag attached to an object, for the purposes of ___________________
automatic identification and tracking.
___________________
Satisfaction: Satisfaction is a state of mind that occurs when the
___________________
customer feels that his expected requirement is fulfilled by what is
offered by the organisation. ___________________
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reduce setup times (ideally to a minute) in changeovers during
___________________
alternations in production processes.
___________________
Six Sigma: It is a quality improvement approach that seeks to remove
causes of defects in manufacturing and service processes. Six sigma is an ___________________
effective and important management approach particularly used by ___________________
multinational companies with manufacturing bases in the Asian and
Pacific rim. ___________________
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Third Party Logistics (3PL): A third party logistics provider is a firm
Notes
that provides service to its customers of outsourced logistics services for
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___________________ part, or all of their supply chain management functions.
___________________ Traits: The term ‘trait’ refers to a variety of individual attributes,
including aspects of personality, temperament, needs, motives, and
___________________
values.
___________________
Trust: Trust means being able to predict what other people will do and
___________________ what situations will occur. If we can surround ourselves with people we
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___________________ trust, then we can create a safe present and an even better future.
___________________ Value Stream: A value stream map (VSM) is identical to a process map
in that it shows the activities and tasks, which make up a process.
___________________
Value: Value is defined as something that the customer is willing to pay
___________________
for.
___________________
Value-added: The enhancement a company gives its product or service
before offering the product to customers.
Values: Values are internalized attitudes about what is right and wrong,
ethical and unethical, moral and immoral.