15 Feb Stakeholders, Future Supply Chains, Competitive Environment

SUPPLY CHAIN MANAGEMENT BA 244

Reminders •  Finals: 22 Feb, Wednesday, 12:00 am to 9:20 pm

•  LinkedIn Group: Presentation Grades for all groups

Article 6 and 7 • Supply chain sustainability: A risk management approach

• The relationship between green supply chain management and performance: A meta-analysis of empirical evidences in Asian emerging economies

STAKEHOLDERS OF A SUPPLY CHAIN FUNCTION

Stakeholders •  Individuals or groups who depend on the organization to fulfill their own goals

and on whom, in turn, the organization depends (Johnson & Scholes)

Why important? •  They may seek to influence the organization if they perceive that their interests

are threatened •  There is strong public and regulatory pressure to be socially responsible

Internal, Connected, External or Secondary Stakeholders

Internal Stakeholders • Members of the organization

•  e.g. Directors & Managers (Senior Management), Employees

Connected Stakeholders • Have direct legal, contractual, or commercial dealings with the organization

•  e.g. shareholders / owners, bank financiers, customers, suppliers, distributors

External or Secondary Stakeholders • No direct contractual or commercial dealings, but have an interest in, or are

affected by, its activities

•  e.g. government, regulatory bodies, professional bodies, pressure groups, local community

•  “Walang natutulong ang mga rallyista” (?)

Corporate Social Responsibility

Corporate Social Responsibility • Commitment to systematic consideration of the environmental, social, and

cultural aspects of an organization’s operations

• Beyond legal obligations

• Objective is to create long-term business value and contribute to improving the social conditions of the people affected by our operations

Corporate Social Responsibility • Government policies e.g. waste management, air pollution acts • Government incentives e.g. subsidies on Solar PV by China, Malaysia, SG • Based on research, ‘Green’ can be profitable • Willingness to pay a premium for ‘Green’ goods and services

Corporate Social Responsibility • Modern Slavery is now more subtle

•  e.g. minimum wages, immigrant workers’ passports, immigrant workers’ freedom to shift jobs

FUTURE SUPPLY CHAINS How else can you add value to the firm?

Future Supply Chains Supply chains of the future can be characterized by the three major traits:

1.  They are Strategic (not Tactical)

2.  They are Dynamic (not Static)

3.  They are Customer-Driven

All for adding value to the firm, product, and service

SCM Methods to Add Value • Early Supplier Involvement (ESI)

• Ethical, Environmental, Sustainable Supply Chain

• Outsourcing

•  Lean Supply Chain

• Agile Supply Chain

More SCM Methods to Add Value • Collaborative Planning, Forecasting, and Replenishment (CPFR)

• Shared Services in Supply Chain Management

• Supply Chain Network Design (SCND)

Collaborative Planning, Forecasting, and Replenishment (CPFR) • Combines the intelligence of multiple trading partners in the planning and

fulfillment of customer demand

• Helps reduce inventory and achieve efficiency in transport and logistics planning through aligning and sharing sales, and marketing best practice

• CPFR allows companies to exploit the knowledge of their suppliers and customers to make better forecasts

Collaborative Planning, Forecasting, and Replenishment (CPFR)

Collaborative Planning, Forecasting, and Replenishment (CPFR) • Collaboration is generally hard to achieve. CPFR requires a lot of initiative

• Collaborative technologies can be extremely expensive

•  There might be trust issues in collaboration with external service providers, as CPFR can require exchanging of strategic and confidential information

Collaborative Planning, Forecasting, and Replenishment (CPFR) Case Studies: Walmart, Warner-Lambert, SAP

•  In the mid-1990s, decided to plan and forecast how to replenish mouthwash Listerine in the market

• Service level of Warner-Lambert increased from 87% to 98% •  Lead time for product release reduced from 21 to 11 days • Over the test period the Sales of the product went up by US$8.5m

Collaborative Planning, Forecasting, and Replenishment (CPFR) Case Studies: Superdrug ran a CPFR initiative with Johnson & Johnson

• Experienced 13% reduced stock on the collaborated product lines •  Forecast accuracy for Superdrug increased by 21% and the warehouse

availability by 1.6% •  The lines that were subject to CPFR saw Present Stock On Hand levels

reduced by 23% compared to the product lines that were not exposed to CPFR which increased by 11.8%

Shared Services in Supply Chain Management •  "A shared service is a collaborative strategy in which a subset of existing

business functions are concentrated into a new, semi-autonomous business unit that has a management structure designed to promote efficiency, value generation, cost savings, and improved service for internal customers of the parent organization” (Bergeron, 2003)

Shared Services in Supply Chain Management • VS. Centralized Organization – the corporate office dictates procedures across

organizational functions and controls resources. In a shared services organization resources from the different fields are shared but the control over resources remains in those fields

• VS. Outsourcing – In a shared services, some activities previously located in head office are retained within the firm but aggregated into a new central unit acting as a vendor to internal customers

Shared Services and BPO Functions •  IT Support Services • Customer Contact (Call) Centers • Healthcare Information Management

(Medical Transcription) Knowledge Process Outsourcing • Animation and Graphics • Engineering Design • Software Development • Game Development • Marketing and Sales

•  Legal • Accounting and Finance • Human Resources •  Logistics • Procurement

BPO Benefits • Aggregates demand for economies of scale

• Standardizes processes

BPO Benefits • SAVINGS STRATEGY

• Savings from Offshore BPO Operations: 18% to 26% net savings • Savings from IT Outsourcing: 20% to 27% net savings (Securities Industry

News, 2004) • Savings from Offshore Operations in a 5-year span: 20% to 50% (Vowler,

2003)

• GROWTH STRATEGY •  73% of respondents state that offshore activities support their companies’

growth strategies (Lewin & Peeters, 2006) • Operations could be expanded to 24 hours per day

BPO Benefits •  From 2002 to 2008, outsourcing created in the US an additional 20 million

jobs, compared to the quantity of jobs outsourced offshore (Babcock, 2004)

• BPOs allow more challenging employment in home countries, which could be seen as a promotion to higher-skilled ranks within the company (Bank Technology News, 2004)

• Startups: Engineering and marketing staff was employed from Emerging Economies like India by up to 40% of technology startups (Curry, 2005)

Emerging Economies • Low labor cost and large talent pool

Figure 1. Average Wage per Month in 2011 (US$) from PWC (2013)

Big Mac Index

Business Process Outsourcing and Shared Services Annual Increase

•  India: 10.2% for 2013 service export revenues

• Philippines: 19% for 2013 service export revenues (vs. GDP growth?)

• China: 32.5% for 2009 outsourcing segment (9.5% for service sector)

Examples of BPOs • Accenture, Inc. • Canon Business Process Services Philippines, Inc. •  IBM Business Services

Examples of Shared Services • British, Canadian, Australian Embassies • ABS-CBN Shared Service Center (ROHQ) • AIG Shared Services – Business Processing Inc. • ANZ Global Services and Operations • Chevron Holdings Inc. • Maersk Global Service Centres (Philippines) Ltd. • Shell Shared Services (Asia) B.V.

Supply Chain Network Design (SCND) • Also known as ‘Strategic Supply Chain Planning’

• Determines logistics infrastructure over an extended planning horizon • Aims at finding the best possible supply chain configuration so that all

operations can be performed in an efficient way

•  e.g. Number, type, location of plants and warehouses

Supply Chain Network Design (SCND) •  Three planning levels depending on the time horizon: strategic, tactical, and

operational

• SCND can be costly; Companies should consider budget constraints and define the investment that can be made during each period

Supply Chain Network Design (SCND) Case Studies: Chrysler

• Under the new SCND in 1989, suppliers are pre-selected based on their capabilities and are responsible for design, prototype, and production parts

• Reduction in new product development costs by 20%-40% or around US$1b • Profits per vehicle increased from an average of US$250 in 1980s to $2,110 in

1998

THE COMPETITIVE ENVIRONMENT

The Competitive Environment • Supply chains impact significantly on quality, price, and supply

• Effective Supply Chains achieve Competitive Advantage

• How to analyze?

STEEPLE (or PEST or PESTLE) ANALYSIS

• To analyze external macro environment or supply market factors

• Socio-cultural, Technological, Economic, Environmental, Political, Legal, Ethical

• Examples of STEEPLE factors which impact supply chains:

STEEPLE (or PEST or PESTLE) ANALYSIS • Socio-cultural – age, gender, etc. affecting demand • Technological – ICT developments supporting SCM • Economic – stability of markets, inflation rates, wages • Environmental (or Ecological) – risks from weather, availability of natural resources

• Political – government policies, political risk • Legal – laws affecting commercial contracts, employment rights, workplace health & safety

• Ethical – labor standards, sustainable sourcing

MICHAEL E. PORTER • Bishop William Lawrence University Professor

•  Institute for Strategy & Competitiveness, Harvard Business School

PORTER’S FIVE FORCES

Competitive rivalry

within the industry

Threats from New Entrants

Buyers’ bargaining

power

Threats from

Substitutes

Suppliers’ bargaining

power

PORTER’S FIVE FORCES • New Entrants

•  Expands supply • Substitutes

•  Buyers can switch, limiting price rises • Buyers

•  Can force down prices, bargain better quality

• Suppliers •  Raise prices

• Competitive Rivalry •  From collusion to price wars

Competitive rivalry

within the industry

Threats from New Entrants

Buyers’ bargaining

power

Threats from

Substitutes

Suppliers’ bargaining

power

SWOT ANALYSIS

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

INTERNAL

EXTERNAL

•  Used to assess the resources of an organization, function, or supply chain to cope with and capitalize on factors in its environment

Generic Sources of Competitive Advantage

Focus or

FOCUS STRATEGIES • Serve the needs of a particular competitive segment, customer segment, or industry segment •  a particular buyer group (such as youths or senior citizens) •  a different geographic market (such as MM, Luzon, VisMin)


COST LEADERSHIP STRATEGY

• No-frills, standardized products for typical customers • Focuses on efficiency so costs are lower than competitors’ costs

Risks: • Loss of competitive advantage to newer technologies • Ability of competitors to imitate the cost leader’s competitive advantage

FIVE BUSINESS-LEVEL STRATEGIES

DIFFERENTIATION STRATEGY • Products that have valued features • Sold at a premium price • The less similarity to competitors’ products, along as many dimensions as possible, the more buffered a firm is from competition

Risks • Firms cannot sufficiently differentiate a product to create value for which customers will pay a premium price

• Counterfeiters offer a cheap “knockoff” of a differentiated good or service

FIVE BUSINESS-LEVEL STRATEGIES


INTEGRATED COST LEADERSHIP & DIFFERENTIATION STRATEGY

• provide relatively low cost products with valued differentiated features

Risks • a firm produces products that lack sufficient low cost or differentiation

The Competitive Environment • STEEPLE • Porter’s Five Forces

• SWOT

• Porter’s Generic Sources of Competitive Advantage

End…of BA 244

Summary of Life Lessons •  Supply Chain Management Concepts •  Appreciation of Journal Articles and Research •  Insights from Industry Practitioners

•  How to Prioritize using Pareto Analysis •  Negotiation •  Collectivist and Individualist Cultures •  Developed and Emerging Economies •  Importation •  Contracts •  Ethics •  Adding Value and the Competitive Environment •  Collaborative Working and Relationships

Reminders •  Finals: 22 Feb, Wednesday, 12:00 am to 9:20 pm

•  LinkedIn Group: Presentation Grades for all groups