A Framework for Supply Chains - Oakden chapter 02

PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Chapter 2

Business Planning, Risk and Sustainability

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Introduction

Learning Outcomes

After this lesson, you should be able to:• recognise the necessity for a business plan• identify key elements of the logistics strategy and

contribute to its development• follow a framework for evaluating risk in a supply

chain• understand the importance of sustainability in

supply chain environments• appreciate the role of reverse logistics and how it

is distinct from forward logistics

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Introduction

Learning Outcomes

After this lesson, you should be able to:• conceptualise the connections between multiple

supply networks• explain the rationale behind the enterprise’s

choice of supply network structure.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Strategic Approach

• Few companies have a strategic plan for their supply chains and logistics.

Supply chains are currently viewed with a cost focus.

Supply chains are a cross-organisational concept that is not under the control of any one function.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Strategic Approach

Business Plan• Purpose of Business Plan: planning to take advantage of current opportunities allows management to make informed choices

concerning the ‘best’ portfolio of regions or countries and products

provides the guide to building on future or longer term opportunities.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Approach• Logistics strategy model developed by Professor

Pieter Nagel. • Logistics strategy of the enterprise is informed by

current structure of the supply chains that interact with the business.

• Structure also defines the framework within which the logistics operations can execute the strategy.

• The logistics strategy is driven, in part, by the strongest influence on the strategy; either the brand, the customers or suppliers.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Approach

Power and its impact on supply chains• Power – capability of a party in a relationship to

make the other member do something they otherwise would not do.

• Porter (1979) proposed that five forces shape industry competition.

• Aspect of logistics strategy will identify how power is being used in the business relationships through the supply chains.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Approach

Power and its impact on supply chains• Examples of how companies may increase their

power: restricting the availability of supply for an item in

high demand incorporating product(s) into a superior service

package that is not easily duplicated gaining influence through contacts in government providing a continual flow of innovative (‘must

have’) products and services that customers have to stock.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Approach

Power and its impact on supply chains obtaining a licence to operate from government promoting reputation and prestige by the seller or

buyer increasing the size of the organisation and its buying

strength promoting specialised knowledge, e.g. commodity

trading eliminating dependency on a few powerful customers being a technology leader, e.g. holding patents developing superior information, optimisation and

modelling systems.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Approach

Power and its impact on supply chains• An established power base can be weakened by: implementing superior technologies disintermediation (removal of intermediaries in

the buying and selling process) e-procurement techniques creating joint ventures and joint purchasing

initiatives.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Approach

Supply Chain Risks• Supply chain can be complex and, due to the time,

distances and range of assets used, subject to variability.

• Importance of contingency plan – ‘Plan B’.

• Uncertainty is the totality of all the variables, constraints and complexity that can exist in a supply chain.

• Level of uncertainty is high – current supply chain situation may change, but we do not know exactly when and to what extent.

• Level of uncertainty is low – the most likely limits of change in a supply chain are known, based on observation and analysis.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Approach

Supply Chain Risks• Pressures on supply chains can all be called risks,

which are amplified by the current acceptance of: distance from suppliers and customers focus on speed of operations disruption of natural and political disasters elimination of ‘safety margins’ concerning time,

inventory and working capital.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Approach

Supply Chain Risks• Risk assessment – important initial process in risk

management for supply chains, it consists of the

following steps: Identify potential supply chain risks Observe the process Identify and document the criticality of risks Assess the likelihood of the event occurring Assess the consequences Develop a risk management plan Implement Evaluate

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Considerations

• Assumptions must be made relating to future demand requirements, based on the quality of data.

• Additional questions relating to the logistics strategy are:

What is the fit between life cycle stages of products and the design of specific logistical activities?

How can customer service be improved, with reference to the ‘cost to serve’?

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Logistics Strategy Considerations

Where should the various parts of the manufacturing process be performed?

From where should materials and components be sourced?

Should the enterprise have ownership or control of the upstream and downstream links?

What global collaborations will assist the efficiency and effectiveness of the supply chains?

PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Considerations

Network mapping• Network mapping can be of value in providing a

visual structure for a business. • Network mapping requires the capturing of

extensive information, such as: the direction and volume of materials flowing

through each supply chain details of core suppliers and customers and their

respective locations ownership and control of specific links contractual responsibilities.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Considerations

Network mapping• The benefits of using network mapping for a supply

network:

1. It shows how value is being driven through the supply chains.

2. It maintains the big picture of the business.

3. It assists in maintaining competitiveness.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Considerations

Logistics Strategy Elements• Logistics strategy can be considered within five

elements:

1. Customer service strategy

2. Inventory location strategy

3. Inventory management policy

4. Cost strategy

5. Transport and distribution strategy

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Logistics Strategy Considerations

Logistics Strategy Elements• Outsourcing strategy – degree to which the

business will ‘make’ (do something within the business) or ‘buy’ (contract another party to do something).

• Off-shoring – the transfer of an organisational function to another country; this decision is likely to be outsourced.

• Near-shoring – signifies outsourcing or relocating operations to a lower cost country that is within a few hours’ distance.

• In-sourcing – a function that has been outsourced is being brought back within the enterprise.

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Sustainability and Logistics Strategy

Sustainability and business• Future sustainability of supply chains increasingly

important element of the logistics strategy.• Critical element of sustainability is the operation of

supply chains.• Both product and service companies can

incorporate sustainability objectives within their overall business and supply chain logistics strategy.

• Examples: HP and Linfox

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Sustainability and Logistics StrategyReverse Logistics

Process of handling items as they travel back through a supply chain for one of the following reasons:

• recall (faulty)• repair (service)• returns (warranty)• recycle (convert)• refurbishment (end of lease or rental period)• remanufacturing (hours of operation or trade-in).

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PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Sustainability and Logistics Strategy

Developments in freight movement• Dense trade cluster (DTC) – An approach to

improving and consolidating freight movements.• Typical designations of DTCs: freight village inland port logistics hub logistics city.

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