Topic 5 – Supply Chain Business Processes Outline 1.1 Customer Service Relationship Management

1. Topic 5 – Supply Chain Business Processes Outline 1.1 Customer Service Relationship Management 1.2 Customer Service Management 1.3 Demand Management 1.4 Customer Order Fulfillment 1.5 Manufacturing Flow Management 1.6 Procurement

2. Topic 5 – Supply Chain Business Processes Outline (con’t) 1.7 Product Development & Commercialization 1.8 Returns 1.9 Business Process Chains 1.10 Management Components of Supply Chain Management

3. 1.1 Customer Relationship Management • The customer is the primary focus in supply chain management. • Effective customer interfaces lead to improved communication and better predictions of customer demand, which in turn leads to improved service to customers. • Key steps in managing customer relationships: a. Identify key customers or customer groups critical to the organization b. Develop and implement partnering programs with these customers

4. 1.1 Customer Relationship Management • Key steps in managing customer relationships: (con’t) c. Incorporate product and service agreements into these programs d. Tailor agreements to the needs of key individual customers e. Identify and eliminate sources of demand variability f. Measure performance and review service levels and customer profitability

5. 1.2 Customer Service Management • Focus of customer service management is to provide a key point of contact for administering product and service agreements with customers • Typically requires an on-line, real-time system that interfaces with the organization’s production and distribution operations • Elements of customer service management include: a. Providing product availability and pricing information b. Facility for order placement and advice on promised shipping dates

6. 1.2 Customer Service Management • Elements of customer service management include: (con’t) c. Track and trace d. After-sales service – faulty products, customer returns, etc. e. Providing technical support and recommendations on product applications

7. 1.3 Demand Management • Inventory is either: a. Essential - includes factory work-in-process and in-transit pipeline products b. Result of system variability – variances in process, supply and demand  Irregular customer demand is one of the largest source of variability • Demand management balances customer’s requirements with the organization’s supply capabilities.

8. 1.3 Demand Management • Process involves: a. Determining what customers will buy, how much and when b. Using point-of-sale and key customer data to reduce uncertainty c. Synchronize customer demand and production rates d. Considering multiple sourcing and routing options

9. 1.4 Customer Order Fulfillment • Objective is to meet or exceed “customer need dates” at the lowest possible total delivered cost to customers.  Important to achieve high order fill rates on either a line-item or an order basis • Requires integration of the organization’s manufacturing, distribution and transportation plans. • Partnerships with key supply chain members and carriers is key to achieving a seamless process from supplier to the organization and on to customers.

10. 1.5 Manufacturing Flow Management • Matching Demand and Production Capability • In SCM, product is pulled through the plant based on confirmed customer orders. a. Orders are processed on a just-in-time basis in minimum lot sizes. b. Production priorities are driven by required delivery dates.

11. 1.5 Manufacturing Flow Management • Manufacturing processes must be flexible to respond to market changes. a. Ability to perform rapid changeover to accommodate mass customization b. Keeping setup/changeover costs low. Requires:  Reengineering of processes  Change in product design  Attention to product sequencing

12. 1.6 Procurement • Long-term partnerships with key suppliers to support programs like JIT • Centralized procurement with global supply contracts to support world-wide manufacturing operations • Earlier supplier involvement in design cycle to “get it right the first time” and reduce time-to-market • Develop rapid communication mechanisms – EDI, Internet – to reduce time and money spent on transaction portion of the purchase Frees purchasers to focus time and effort on value-added supplier development and management

13. 1.7 Product Development & Commercialization • New products sustain an organization’s existence. • Product development is the lifeblood of an organization’s new products. • Customers and suppliers must be integrated into the product development process. a. Coordination with customer relationship management to identify articulated and unarticulated customer needs b. Select materials and suppliers in conjunction with procurement c. Develop production technology in manufacturing flow to assess manufacturability and integration into the best supply chain flow for the product/market combination

14. 1.8 Returns • Effective management of returns channel enables: a. Enhancement of customer satisfaction with the total product experience b. Identification of productivity improvement opportunities • “Return to available” is a measure of the cycle time required to return an asset to its useful status. a. Important for products where customers are given immediate replacement in case of product failure b. Equipment destined for scrap and waste from manufacturing is measured in terms of the time it takes for the organization to receive cash

15. 1.9 Business Process Chains • A process is a structure of activities designed to manage dynamic flows of products, information, cash, knowledge and ideas, with a focus on the end customer. • Every company is involved in supply chain relationships. a. When two companies establish a relationship, for example a manufacturer and its distributor, some of their internal activities will be linked and managed between them. b. These two companies would have established relationships with other members of their supply chain. Therefore, a supply chain network is formed. c. Structure of activities within and between companies is critical for creating unique and superior supply chain performance.

16. 1.9 Business Process Chains • There is a lack of consistency in how each company within a supply chain structures its own activities. a. Companies in the same supply chain may have different activity structures. b. Examples:  Functional structure versus process structure versus combination of both  Different number of processes consisting of different activities and links between activities  Different names for similar processes, and similar names for different processes c. Lack of inter-company consistency causes friction and inefficiencies in the supply chain.

17. 1.9 Business Process Chains • Leadership and coordination is a pre-requisite for successful supply chain management. a. Identify key business processes and manage them using cross-functional teams. b. Where appropriate, extend internal business processes to external organizations such as suppliers and customers. c. Synchronize structures, processes and activities across supply chain members. d. Leadership role means an organization’s internal business processes can become the supply chain business processes.

18. 1.10 Management Components of SCM • Certain management components are common across all business processes and members of the supply chain • Primary components are: a. Planning & control methods b. Work flow/activity structure c. Organization structure d. Communication and information flow facility structure e. Product flow facility structure f. Management methods g. Power & leadership structure h. Risk & reward structure i. Culture & attitude

19. 1.10 Management Components of SCM • Can be categorized into two groups: a. Physical & technical management components - visible, tangible, measurable and easy to change components  Planning & control methods  Work flow/activity structure  Organization structure  Communications & information flow facility structure Product flow facility structure

20. 1.10 Management Components of SCM b. Managerial & behavioural management components – less tangible and visible, difficult to assess and alter  Management methods  Power & leadership structure  Risk & reward structure  Culture & attitude These components define the organizational behaviour and influence how the physical and technical management components can be implemented.

21. 1.10 Management Components of SCM c. Organizations must focus on both groups. d. If one or more physical and technical management components are changed, management components in the managerial and behavioual group likewise may have to be adjusted.

22. 1.10 Management Components of SCM • Planning & Control Methods a. Planning is key to moving an organization or supply chain in a desired direction to achieve desired objectives b. Control should be operationalized into measurable performance metrics for appraising supply chain effectiveness

23. 1.10 Management Components of SCM • Work Flow/Activity Structure a. Work flow/activity structure dictates how an organization performs its tasks and activities. b. Level of integration of processes is a measure of work flow/activity structure.

24. 1.10 Management Components of SCM • Organizational Structure a. Use of cross-functional teams indicates a process approach. b. Supply chain integration occurs when such teams cross organizational boundaries. Example : in-plant supplier personnel

25. 1.10 Management Components of SCM • Communication & Information Flow Facility Structure a. Usually the first component integrated across a supply chain b. Type of information shared and timeliness affects supply chain efficiency

26. 1.10 Management Components of SCM • Product Flow Facility Structure a. Network structure for sourcing, manufacturing and distribution across the supply chain b. Issues and dependencies: i. Inventory reduction pressures ii. Postponement strategies iii. New product launch iv. Complexity of product design v. Promotions vi. Seasonality of demand

27. 1.10 Management Components of SCM • Management Methods a. Include corporate philosophy and management techniques b. Level of management involvement in daily operations can differ across supply chain members. c. Integration of different management structures among supply chain members can be difficult. Example : Top-down organization structure versus bottom-up structure

28. 1.10 Management Components of SCM • Power & Leadership Structure a. Affects supply chain form b. Usually one or two strong leaders exist within a supply chain.  Strong leaders will drive direction of supply chain c. Exercise or lack of power affects level of commitment of other supply chain members.  Given the opportunity, forced participation will encourage exit behaviour.

29. 1.10 Management Components of SCM • Risk & Reward Structure a. Anticipation of sharing of risks and rewards across supply chain affects members’ long-term commitment.

30. 1.10 Management Components of SCM • Culture & Attitude a. Corporate culture and its compatibility across supply chain members cannot be ignored. b. Meshing cultures and individuals’ attitudes is time-consuming but necessary for supply chain to perform as a coordinated network.

31. Topic 5 Summary and Conclusion

32. Successful supply chain management requires a change from managing individual functions to integrating activities within these functions into key supply chain processes. • Focusing effort on the key supply chain processes provides the foundation for an effective supply chain management philosophy. • The goals and outcomes of these processes are to: • a. Develop customer-focused teams that provide mutually beneficial product and service agreements to strategically important customers • b. Provide a point of contact that efficiently handles all customer enquiries

33. The goals and outcomes of these processes are to: (con’t) • c. Continuously gather, compile and update customer demand to match requirements with supply • d. Develop flexible manufacturing systems that respond quickly to changing market conditions