Innovative and Integrated Supply Chains in the 21st Century · Total Quality Management (TQM) ... • Background in SCM through education and experience 2. Initiate Benchmarking and

Innovative and Integrated Supply Chains

in the 21st Century

Innovative Supply Chains Practices (Post-Dinner Meeting)

Dr. Manu Vora, ASQ Fellow and CQE

Chairman and President, Business Excellence, Inc., USA

Advisor of Eminence, Business Excellence, ASQ India, New Delhi, India Adjunct Faculty, School of Professional Studies, Northwestern Univ., USA

Adjunct Faculty, Great Lakes Institute of Management, Chennai, India

ASQ Section 1208, Warrenville, IL, 11/03/15

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Introduction Total Quality Management (TQM) Baldrige Performance Excellence Criteria Linking Quality Improvement vis-à-vis

Baldrige Criteria to Supply Chain Risk Management in Supply Chain Best-in-Class Supply Chain Examples Major References

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TQM - Organizational Performance Excellence

Delighted Customers

(VOC)

Improved Processes

(VOP)

Excited Employees

(VOE)

Operational Performance Financial Performance

VOC - Voice of the Customer

VOE -Voice of the Employee

VOP - Voice of the Process

Baldrige Criteria Framework: A Systems Perspective (2015-2016)

TQM Integration in Supply Chains • Global organizations are establishing a system of quality

through the framework of the U. S. Baldrige Performance Excellence Framework which was established in 1987 by the National Institute of Standards and Technology, an agency of the U. S. Department of Commerce.

• This program empowers organizations to accomplish their mission, improve results, and become more competitive. Each year, winners of the Baldrige Performance Excellence Award are chosen to spotlight U.S. organizations based on their world-class performance and improvement processes.

• The seven criteria which form the Baldrige framework - Leadership, Strategic Planning, Customer Focus, Information and Knowledge Management, Workforce Focus, Operations Focus, and Business Results offer supply chain experts an excellent roadmap for how to incorporate quality into their own processes.

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VOC Model

Capture

Analyze

Respond

Verify

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Five Dysfunctions of Team (P. Lencioni, 2002)

Absence of Trust (Invulnerability)

Fear of Conflict (Artificial Harmony)

Lack of Commitment (Ambiguity)

Avoidance of Accountability (Low Standards)

Inattention to Results (Status & Ego)

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How Project Leaders Can Overcome Crisis of Silence (Grenny et.al., MIT Sloan MR, Summer 2007)

Are we planning around facts?

Is the Project Sponsor providing support?

Are we faithful to the process?

Are we honestly assessing progress & risks ?

Are team members pulling

their weight ?

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Change Management Model

Determine Need for Change

Prepare & Plan for Change

Implement the Change

Sustain the Change

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Baldrige Winners – Multiple Awards (Major Transformations: 1988-2014 –> 106 winners )

• AT&T – 3 (1992 – Mfg; 1992 – Service; 1994 – Service) • Boeing – 2 (1998 – Mfg.; 2003 – Service) • Cargill – 3 (1999 – Small Bus., 2005 – Mfg., 2008 – Mfg.) • Dana Corporation – 2 (1996 – Service; 2000 – Mfg.) • MEDRAD – 2 (2003 – Mfg., 2010 – Mfg.) • MESA – 2 (2006 – Small Bus., 2012 – Small Bus.) • Motorola – 2 (1988 – Mfg.; 2002 – Mfg.) • Ritz Carlton – 2 (1992 – Service; 1999 – Service) • Solectron Corporation – 2 (1991 – Mfg.; 1997 – Mfg.) • Sunny Fresh Foods – 2 (1999 – Small Bus.; 2005 – Mfg.) • Texas Nameplate Company, Inc. – 2 (1998 – Small Bus.; 2004 – Small Bus.) • Xerox – 2 (1989 – Mfg.; 1997 – Service) Source: http://www.nist.gov/baldrige

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The Superefficient Company

Coordinate and streamline cross-company processes:

Identify the appropriate business process to redesign operating at peak internal efficiency. Select a partner with a collaborative

culture. Establish an executive steering committee. Convene a design team with experts from

both companies. Source: Michael Hammer, HBR, 9/2001.

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The Superefficient Company

Coordinate and streamline cross-company processes:

Design the new, integrated process in a way that fulfils performance goals. Roll out the new process. Communicate, communicate,

communicate! Source: Michael Hammer, HBR, 9/2001.

PMBOK® Process Groupings - PMI

2. Identify Risks 1. Plan Risk Management

3. Perform Qualitative Risk Analysis 4. Perform Quantitative Risk Analysis

5. Plan Risk Responses

6. Monitor and Control Risk Responses

Project Start

Project End

Risk Matrix

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Managing Risk to Avoid SC Breakdown Types of Supply Chain Risks: Disruptions, Delays, Systems, Forecasts, Intellectual

Property, Procurement, Receivables, Inventory, and Capacity.

Create a Shared, Organization-wide Understanding of

Supply Chain Risk: Stress Test Your Supply Chain in the context of Supplier-

Related, Internal, and Customer-Related Activities.

Determine how to Adapt General Risk-Management Approaches for their Company: Tailoring Risk Management Approaches – build reserves

including inventory, capacity, redundant suppliers, and responsiveness.

Source: S. Chopra, & M. S. Sodhi, MIT Sloan Management Review Fall 2004.

Supply Chain Risk Management (SCC)

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Are You the Weakest Link in Your Company’s SC?

A CEO must: 1. Pick the Right Leaders (senior executive down to entry-level)

• Background in SCM through education and experience 2. Initiate Benchmarking and Select Metrics (inventory turns, SKU system cost)

• Conduct external benchmarking on key aspects of SC performance 3. Set Incentives (suppliers and retailers to work in concert)

• Establish rewards to encourage suppliers & employees to support SC goals 4. Keep up with Technology and Trends (software, RFID, Lean & Six Sigma)

• Stay current with SC technology advances and process tools 5. Eliminate Cross-Functional Crossed Wires (sales, mrktg. & operations)

• Harmonize the interplay of cross-functional and SC priorities 6. Factor Supply Chain Management into Business Plans

• Make SC considerations core components of operations, sales & mktg. planning as well as contract negotiations with customers and partners

7. Resist the Tyranny of Short-Term Thinking (no urge to surge or hold back) • Discourage use of deep discounts at quarter’s end to “make the numbers”

Source: R. E. Slone, J.T. Mentzer & J. P. Dittmann, HBR, September 2007

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Apple’s Supply Chain (Mark and Johnson, 2014) • Apple manages its global supply chain with creative development in

the U.S., outsourced manufacturing in Asia, and components sourced from suppliers around the world. It produces market-leading consumer devices.

• Apple prefers to control its entire supply chain internally. It is highly integrated with centralized R&D accounting for the entire company.

• Its procurement strategy is to purchase suppliers' production capacity in advance to ensure steady supply of key parts. It manages its reverse logistics system well providing better customer experience.

• It could monitor product sales by the hour and it relies on this information to tweak its production forecasts on a daily basis.

• For fiscal year 2013, Apple reported $171 billion in sales, $37 billion profit, and market capitalization of $457 billion. With $160 billion in cash in February 2014, the company was well capitalized.

• Apple's supply chain was ranked number one by Gartner Group.

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Wal-Mart’s Supply Chain (Mark and Johnson, 2013) • Wal-Mart is the world's largest company by revenue reported on

January 31, 2014 net sales of $473.1 billion with 2.2 million associates globally. They have 11,000 retail units operating in 27 countries. • Wal-Mart's supply chain, a key enabler of growth from its beginnings in rural Arkansas, was long considered to be a major source of competitive advantage for the company. •Wal-Mart's strategy was to provide a broad assortment of quality merchandise and services at "everyday low prices" (EDLP). • Some of its SC best practices are: suppler management with single invoice price, operates its own transportation fleet, has a non-union operation, outstanding information system to receive near real-time information on each store's in-stock levels, adopted the Collaborative Planning, Forecasting, and Replenishment (CPFR) by sharing data on promotions, inventory levels, and daily sales. • It uses Vendor-Managed Inventory (VMI).

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Leading a Supply Chain Turnaround at Whirlpool

Devise the Supply Chain Strategy Sell the Revolution Get Focused – integrate forecasting using Collaborative

Planning, Forecasting, and Replenishment (CPFR) Engaging Talent Sustaining Momentum Results:

Product availability over 93% in 2003 compared to 88.3% in 2001. Number of days of finished goods inventory dropped from 32.8 to

26. Lowered working capital by $100 million and supply chain

costs by $20 million from 2002 to 2003. Reuben Slone, HBR, 10/2004.

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Rapid-Fire Fulfillment (Spanish Clothier Zara)

650 Zara Stores in Some 50 Countries in Luxury Shopping Districts Around the World.

From 1991 to 2003, the Parent Company Inditex’s Sales Grew More than 12-fold (E367 million to E4.6 billion) and Net Profits Ballooned 14-fold (E31 million to E447 million).

Basic Philosophy – Control What Happens to Your Product until the Customer Buys it.

Zara has Developed a Super Responsive Supply Chain. Produces a Large Variety of the Latest Designs Quickly and in limited

Quantities – Collects 85% of Full Ticket Price (Industry Avg. 60-70%). Half of its Production In-House (Intentionally Leaves Over Capacity). Key Principles: 1). Close the Communication Loop 2). Stick to Rhythm Across the Entire Chain 3). Leverage Your Capital Assets to Increase Supply Chain Flexibility.

K. Ferdows, M. A. Lewis, & J. A. D. Machuca, HBR, 11/2004.

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SCM Hong Kong Style (Li & Fung)

Hong Kong-based, multinational trading company Li & Fung provides innovation, flexibility, and speed in the apparel industry’s supply chain.

It fills orders from its 350 customers (American and European clothing and accessory retailers) with worldwide network of thousands of independent suppliers. It owns no factories.

At the Front End: It offers design, engineering, and production-planning services.

In the Middle Stages, Li & Fung moves upstream, providing production-management expertise (organizes raw-material and component sourcing from 7,500 independent factories).

At the Back End: It offers quality control, testing, and logistics services. Li & Fung is organized around its customers and creates unique value

chain for every customer. Each unit head has considerable autonomy and unlimited bonus incentives to “move heaven and earth” for that customer.

Joan Magretta, HBR, 9-10/1998.

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Bad Data – Big Headaches in SC

Based on Study of 35 Leading Retailers, Data at the Heart of the Supply Chain were Often Wildly Inaccurate: One company’s physical audit showed that inventory

levels were off the mark for 2/3 of the stores’ Stock Keeping Units (SKUs).

It reduced the company’s overall profits by 10% through unnecessary inventory carrying costs and lost sales from stock-outs.

A. Raman, N. DeHoratius, Z. Ton, HBR, 5/2001.

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Bad Data – Big Headaches in SC Root Causes of Bad Inventory Data: Employees routinely put products in the wrong places.

Clerks behavior at the cash register – swiping one of the unit multiple times even when the product has different varieties.

Managers track the checkout clerk’s speed rather than accuracy.

Pickers at the company’s distribution center being sloppy in assembling the store’s mix of SKUs.

Lack of incentives to check accuracy of deliveries from the company’s distribution centers.

Measure inventory by dollar value and not by item A. Raman, N. DeHoratius, Z. Ton, HBR, 5/2001.

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The Triple-A Supply Chain - SEJ Agility – respond to short-term changes in demand and supply

quickly. Adaptability – adjust supply chain design to accommodate

market changes. Alignment – establish incentives for supply chain partners to

improve performance of the entire chain. Results from Seven-Eleven Japan (SEJ):

Agility - Real-time systems to detect customer preference changes and track sales and customer data at every store.

Adaptability – Six hours after the 1995 Kobe earthquake, SEJ overcame highway gridlock by mobilizing helicopters and motorcycles to deliver 64,000 rice balls to stores in the beleaguered city.

Alignment – Makes partners incentives and disincentives clear. When carriers fail to deliver on time, they pay a penalty.

Source: Hau L. Lee, , HBR, 10/2004.

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SC - US Armed Services Supply Chain Lessons from the War in Iraq (1993 vs 2003):

Make collaboration a reality – integrated the four branches of the US Armed Services and created a single logistics back room. Manage the flow, not the inventory to meet

shifting patterns of demand and customer requirements. Go with the off-the-shelf technology, pushed

to the limit – Radio Frequency Identification (RFID).

Source: Diane K. Morales & Steve Geary, HBR, 11/2003.

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The Reverse Supply Chain It is a Series of Activities to Retrieve a Used Product

from a Customer and Either Dispose of it or Reuse it. Required by Environmental Regulations or Consumer

Pressures: European Union require tire manufacturers operating in Europe to

arrange for the recycling of one used tire for every new tire they sell. Kodak in 1990s recycled 310 million single-use cameras in more than

20 countries. Five Key Components of RSC are: Product Acquisition,

Reverse Logistics, Inspection and Disposition, Reconditioning, Distribution and Sales.

Smart Manufacturers are Designing Efficient Processes for reusing Their Products.

V. D. R. Guide and L. N. Van Wassenhove, HBR, 2/2002.

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Major References Sunil Chopra and Peter Meindl (2012). Supply Chain Management: Strategy, Planning, and Operation, 5th Edition,

Prentice Hall, Upper Saddle River, NJ. Manu K. Vora (2015). 7 Steps to Link Quality Improvement to Your Supply Chain, Supply Chain Management Review,

Vol. 19, No. 4, pp. 44-51, July/August, Framingham, MA. Tom Kendrick (2009). Identifying and Managing Project Risk: Essential Tools for Failure Proofing Your Project, 2nd Edition, AMACOM, New York, NY, 2009. “Are You the Weakest Link in Your Company’s Supply Chain?”, by Reuben E. Slone, John T. Mentzer & J. Paul Dittmann,

HBR Reprint No. R0709H - 9/2007. Reuben E. Slone, J.. Paul Dittmann, & John T. Mentzer (2010). The New Supply Chain Agenda: The 5 Steps that Drive Real

Value, Harvard Business Press, Boston, MA , 2010. Mark, K. and Johnson, F. P. (2014). "Apple Inc.: Managing a Global Supply Chain" Case, Ivey Publishing. June. Mark, K. and Johnson, F. P. (2013). "Supply Chain Management at Wal-Mart", Ivey Publishing. November. “Speed Kills: Supply Chain Lessons from the War in Iraq” by Diane K. Morales and Steve Geary, HBR Reprint No. F0311A – 11/2003. “The Reverse Supply Chain” by V. Daniel R. Guide, Jr. and Luk N. Van Wasenhove, HBR Reprint No. F0202D – 2/2002. “Leading Supply Chain Turnaround” by Reuben E. Slone, HBR Reprint No. R0410G – 10/2004. “Managing Supply Chain Inventory: Pitfalls and Opportunities” by Hau L. Lee and Corey Billington, Sloan Management Review –

Spring 1992. “The Triple-A Supply Chain” by Hau L. Lee, HBR Reprint No. 8096 – 10/2004. “Rapid-Fire Fulfillment” by Kasra Ferdows, Michael A. Lewis, and Jose A.D. Machuca, HBR Reprint No. R0411G ($3.70) – 11/2004. “Aligning Incentives in Supply Chains” by V. G. Narayanan and Ananth Raman, HBR Reprint No. 8363 – 11/2004. “Mass Customization at Hewlett-Packard: The Power of Postponement” by Edward Feitzinger and Hau L. Lee, HBR Reprint No.

97101 – 1-2/1997. “How to Ensure Information Integrity for Effective and Economic Health Care” by Vijay V. Mandke, Sharon R. Miller,

Paul R. Prabhaker, Manu K. Vora, and Nila M. Vora, AHIMA 2003 National Convention, Minneapolis, MN, 10/21/2003.

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Manu Vora discusses Government Quality in India (10.49 min.): https://www.youtube.com/watch?v=YnII-BSt45Y&feature=youtu.be

Government Quality in India

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Post-Dinner Meeting

Thanks!

Any Questions?