Value Chain Management - Creating Value with Operations and Supply Chain Management

PROFESSOR:

DANIEL CORSTEN

Email: daniel.corsten@unisg.ch How to manage relationships between people, customers and suppliers and organizations in general is at the heart of my work which spans supply chain management, marketing and more recently finance says Daniel who spent more than a decade investigating business models in different industries such as automotive, software and computers. Recently, Daniel embarked on a new research initiative to identify new business models at the interface of supply chain and finance. Asked about his new interest in banks he answers: Because thats where the money is! A founding academic of the Efficient Consumer Response Initiative, the biggest collaborative movement in the world, Daniel has researched and consulted Procter & Gamble, Unilever, Wal-Mart, Migros, Sainsbury and many other consumer and retail companies to help them improve customer service, lower cost, reduce out-of-stock level and create sustainable supply chains. Working with a diverse group of students or executives is what I love says Daniel who - before joining IE taught or researched at St. Gallen (Switzerland), Bocconi (Italy), INSEAD (France and Singapore), London Business School (UK) and Wharton (USA). He directed many programmes and received several awards for his teaching and his case studies. Before joining academia Daniel worked for Bayer Leverkusen and AGFA in Germany and the US. Collaborating with industry to solve burning issues and then bring the solution into the classroom is what I enjoy most.

OBJECTIVES
No matter what will be your job, you are most likely to hold responsibility for a process or part of it be it a marketing, accounting, consulting or manufacturing process. The objective of this course is to introduce you to Operations Management and Supply Chain Management, broadly meant as the science of designing, executing, controlling and improving business processes and supply chains. By taking this course you will: Learn analytic and conceptual tools to manage and improve business processes Appreciate how process design can or cannot support the overall business strategy Understand how operations management principles can be applied to very diverse contexts The course will also explore the social and environmental issues associated to process design, control and improvement.

ACHIEVING THE COURSE OBJECTIVES

Useful skills do not come for free. Expect the course to be demanding, in particular there will a substantial amount of reading. However, we will watch many video clips to stimulate case discussion and have some fun. To achieve the course objectives most effectively, you will need to attend all and show up on time. An attendance class list will circulate and a 5% penalty for each regular class guest lecture class will be applied unless good reasons are provided.

PERFORMANCE EVALUATION CRITERIA

Evaluation of your performance will be based on and weighted as follows: A Individual Class Participation 25% Class participation is a very important indicator of student comprehension. Note that this course strictly follows the case discussion method. Cases have to be read and prepared in advance. B Group Report 30% During the course we will play a simulation. Time will be allocated to play the game during class hours but expect it to extend somewhat to the early evening. The group report will be the writeup of the simulation experience C Final Exam 45% The final exam, building on the exercises, will be open book and key formulas will be provided.

RECOMMENDED TEXTBOOK
Cachon & Terwiesch: Matching Supply & Demand View An Introduction to Operations Management, McGraw Hill 2006 (Note that session sequence might still shift to accommodate guest speakers)

DAY 1 Operations Fundamentals

SESSION 1: What is Operations & Supply Chain Management about? How do I analyze a process? What are key concepts? P.C.: Kristens Cookie Company A (HBS 9-686-093) HAND-OUT AFTER CLASS: Kristens Cookie Company A2 (HBS 9-686-094) Discussion Questions: Answer the set of questions in the case. (This case is short but tricky. PLEASE COME PREPARED WITH ANSWERS.) SESSION 2: How do I manage process flows? P.C.: National Cranberry Cooperative (HBS 9-675-014) Discussion Questions: What is your impression of the process fruit operations at receiving plant #1? Why are trucks waiting to unload berries? Why does the plant incur excessive overtime cost? What recommendations, both long and short term would you make Mr. Shaeffer? (Glance over the case and map the process. We will do most of the case analysis in class) SESSION 3: How do I manage capacity and reduce waiting times? P.C.: Benihana of Tokyo (HBS 9-673-057) Discussion Questions: How successful is Benihana and why? Does Benihana have enough capacity (assume 360 guests over 3 hours and capacity of 14 tables)? What if Benihana was run like a normal restaurant? How does Benihana control variability? Should Benihana expand into the conventional restaurant business? (This easy case was originally a marketing case but is quite surprising when seen from an Operations angle. You can prepare the case on paper but you can also download the Extend 6 Player at http://www.extendsim.com/prods_player.html and use the Benihana simulation file which I will distribute. Mac users might have difficulties but there is nothing I can do about) SESSION 4: How does operations improve financial performance? (In this lecture we will develop decision trees that link operations and finance)

DAY 2 Supply Chain Fundamentals

SESSION 5: How do I align incentives between different actors in a supply chain? Using the Newsvendor concept, this session provide a framework to develop solutions for overcoming incentive conflicts in supply chains. P.C.: Hamptonshire Express, (HBS 9-698-053) Discussion Questions See case. (Please use the Excel files to input different numbers and playfully arrive at optimal conditions. Create some graphs to illustrate your solutions. Try to come up with explanations why the solutions differ. With a bit of thought you should come up with some. I will explain the analytics in class) SESSION 6: How do I accurately forecast seemingly unpredictable demand? In this session we will explore the difficulties of predicting demand in highly volatile markets. P.C.: Sport Obermeyer (HBS 9-695-022) Discussion Questions: What operational changes would you recommend Wally to improve performance?

 How should Obermeyers management thing about sourcing in Hongkong versus China both short and long-term? Based on Exhibit 10 in the case, how should Wally plan production in November? Make sure you identify all relevant drivers. T.N.: Fisher, Marshall, Janice Hammond, Ananth Raman, Wally Obermeyer; Making Supply meet Demand in a highly uncertain world, HBR 1997 (HBR 94302) (Read the case carefully.) SESSION 7: How do I manage inventories? How does unpredictable demand influence outsourcing decisions? P.C. Timbukt2 (Unpublished Wharton Case) The first part will be lecture on inventory management with quizzes and some very simple math. In the second part will briefly apply this to the case. 1. What channels does Timbuk2 sell through and which one is the most profitable? What are some of the pros and cons of Timbuk2s Build your own channel (i.e., its e-commerce channel)? 2. How should Timbuk2 go about deciding which options to offer customers in the e-commerce channel? In other words, what general principles or analysis could be used to deepen their understanding of the appropriate choices? You may want to consider several of the options mentioned (an added handle, different color logos, different size panels, etc.) 3. Estimate the cost of manufacturing a bag in San Francisco and the cost of producing a bag in China. 4. Should Timbuk2 pursue the option of manufacturing in China? If so, what challenges are they likely to face and what changes will they need to make? In particular, think about the utilization of the San Francisco factory before and after outsourcing as well as about inventory needs. SESSION 8: Initiating the GSCM Simulation How do I forecast, stock and replenish volatile products? Introduction to Simulation: This interactive online simulation will allow you to manage the supply chain of a mobile phone manufacturer. The simulation will be played outside class and this session is dedicated to the discussion of the results. P.C.: Global Supply Chain Game (HBS GSCM Simulation) (sc/op) (Playing this game might extend into the early evening depending on the groups decision speed)

DAY 3 Lean and Agile Management

SESSION 9: How do I continuously improve manufacturing processes? P.C.: Toyota Motor Manufacturing, U.S.A., Inc. (HBS 9-693-019) HANDOUT: Decoding the DNA of the Toyota Production System (HBR 99509) Discussion Questions: As Doug Friesen, how would you address the seat problem? Where would you focus your attention and solutions efforts? What options exist? What would you recommend? Why? Where, if at all, does the current routine for handling defects deviate from the principles of the Toyota Production System What is the real problem facing Doug Friesen? (This fascinating case is used to explain the principles of the famous Toyota Production System. Some of the numbers needed for the case are somewhat spread can be easily gathered.) SESSION 10: How do I create lean service processes? P.C.: Lean at Wipro (HBS 9-693-019) HANDOUT: Discussion Questions: How does 6 sigma link into quality management?

What are the differences if any between in a manufacturing and in a service environment? What would you recommend Deb and Alexis?

SESSION 11: Discussion of Exercises SESSION 12: Reserved for Guest Speaker (2)

DAY 4 Interface with Finance

SESSION 13 : How do I manage inventories to please Wall Street? In this session we examine the decision of David Berman, a hedge fund manager, who is considering investing in a retail stock. Berman is concerned about the retailer's inventory level. Explores the relationship between the retailer's inventory and future earnings--and, hence, the relationship between inventory level and stock price. P.C.: David Berman (HBS 9-605-081) Discussion Questions: Why might inventory by a leading indicator of a retailers profits? Examine the impact of a $ 20 mio inventory write-off in the spreadsheet David Berman Toy Model.xls. Look at the value in cell B15 in the worksheet Key Assumptions. Similarly, examine the impact of a $ 30 mio write-off. How much inventory should Berman expect to write off at John River? What data or analysis could he use to refine his estimate? What are the strengths and weaknesses of David Bermans business model? (This case has a different twist on inventory management by asking how can outsiders use available inventory information to assess future earnings and therefore stock price. No previous financial knowledge is necessary except for difference between buying long and selling short.) SESSION 14: How do I manage working capital to finance supply chains? While the definition of Supply Chain Management often includes the management of financial flows, only recently have firms started to truly coordinate material and informational with financial flow. Supply Chain Finance, sometimes labeled the marriage between Supply Chain and Finance, has moved to center of attention now that many companies have outsourced Plant, Property and Production Equipment. This new concept focuses on working capital management, or the optimization of Days Inventory (DIO), Sales (DSO) and Payables (DPO) Outstanding. Counter intuitively, some of the new concepts have been developed in the context of the Worldbank in emerging markets. P.C.: Nestle Russia Supplier Finance, IE Business Case (Posted on Campusonline) (sc/op) Discussion Questions: What are the challenges for Nestle Russia? What makes Reverse Factoring attractive for Nestle Russia and how does it work? What are the benefits and risks? (include an analysis of the spreadsheet) What should Philippe Blondiaux do? (This new case analyzes how supply chain management contributes to working capital optimization) SESSION 15: How can I use operations management in private equity settings? P.C. The Carlyle Group: The Acquisition of Schlosser Forge Company, by Sezer lk, Assistant Professor at McDonough School of Business at Georgetown University (available on Campusoline) Discussion Questions: What are the sources of value creation in Carlyles Firth Rixson and FMI acquisitions? Should Carlyle support the acquisition of Schlosser Forge? Why or why not? SESSION 16: Reserved for Guest Speaker (2)

DAY 5 Network and Partnerships

SESSION 17: Debrief Global Supply Chain Management Simulation SESSION 18: Reserved for Guest Speaker (3) SESSION 19: How do I manage customer and supplier relationships? Description: Arms length relationships and conflicts are still common in supply chain relationships and collaboration and trust are fairly recent phenomena. The emerging relational view of competitive advantage suggests that there are four sources of relational advantage: (1) dedicated assets, (2) complementary capabilities, (3) knowledge sharing routines and (4) effective governance. We discuss how power relations influence fairness perceptions. We also explore how rewards and punishment influence relational success and illustrate this with examples of automotive supplier relationships. P.C.: Sainsburys (B): Collaborative Performance Management, (Insead 103-057-1) Discussion Questions: Why has Sainsbury's moved from adversarial to collaborative ECR-type relationships? Why are the suppliers reluctant to use Sainsbury's Information Direct system? What is the value of information sharing for the suppliers? Why do they resist CPS? What are obstacles towards Collaborative Scorecarding? T.N.: Corsten, Daniel and Nirmalya Kumar: Profits in the Pie of the Beholder, (Harvard Business Review, May 2003) (This case is more strategic, read it carefully, no numbers) SESSION 20: FINAL EXAM