corporate strategy

Discovering the Right Planning Approach for your Supply Chain

Daniel Dumke — Mon, 24 Oct 2011 13:51:00 +0000

Some weeks ago I wrote about Fisher’s suggestions on how to select the right supply chain for your product. But how to continue from there? How do different products affect the further planning steps needed?
So I looked for another article to fill the gap and found “Selecting the right planning approach for a product” by Kaipia and Holmström (2007) which covers different planning approaches for different products.
This review is based on the review of Fisher’s model, so make sure to read that article as well.

Methods

The authors build their planning approach on three methods:

Literature review
Development of a framework to differentiate planning approaches for different types of products based on a case company
Application of the selection framework in a case study

Figure 1: Overview Case Companies (Kaipia and Holmström, 2007; click to enlarge)

Case companies

Three case companies were examined: Vaisala, Mattel and Zara. Figure 1 exhibits the product properties and planning approaches currently used by them.

Vaisala, focusses on short lead times in the distribution network and local component buffers for supplies. Production is “to-order” with a high degree of flexibility. The strategic goal is to be responsive to customer demand.
Mattel, Inc, uses continuous, planned product changes, to keep supply and manufacturing efficient.
Zara’s system is based on fast reaction to changes in sales, in combination with a highly compressed design-to-customer process. Half of the demand can be seen as quite stable, so overall less responsiveness is necessary.

Planning approaches

The authors distill eight planning approaches from the literature, which are used as a basis for the selection of the right planning process. Included in figure 2 are the features and requirements for each planning approach.

Figure 2: Planning Approaches with Features and Requirements (Kaipia and Holmström, 2007; click to enlarge)

Selection process

Using the cases different product properties in supply and demand are analyzed and aligned with the requirements of the planning approaches. From this the authors deduce the selection process shown in figure 3.

Figure 3: Selection Process for the Right Planning Approach depending on the Product Type (Kaipia and Holmström, 2007; click to enlarge)

The authors conclude with general recommendations for the right planning approach for several OEM product types, shown in figure 4.

Figure 4: Recommendations for different Product Types (Kaipia and Holmström, 2007; click to enlarge)

Conclusion

While Fisher (1997) kept his work low-key, with only few pinpointed recommendations for specific products or companies, the authors in this article were more aggressive. There is even a strategy of last resort if everything else fails: simplify, invest and create the “planning organization”.

I did not find any errors in their logic conclusions, but of course these recommendations might be overly specific for many other case studies. What to use? I really liked the approach of listing the different planning approaches with the respective requirements and to deduce the planning process for the different product types from that, so may be this might be the common denominator which could be used for a multitude of cases.

Reference:

Kaipia, R., & Holmström, J. (2007). Selecting the right planning approach for a product Supply Chain Management: An International Journal, 12 (1), 3-13 DOI: 10.1108/13598540710724347

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Supply Uncertainty and Chain-to-Chain Competition

Daniel Dumke — Mon, 15 Aug 2011 14:22:00 +0000

I just found the first supply chain risk related paper from a professor (Biying Shou) of one of my alma maters: The City University of Hong Kong, and I think this a good time to have a look at his work. The complete article of today can be downloaded from the SSRN.

Research Question and method

For several years now researchers predicted, that in the future supply chains compete, not companies. And there has been some research on the topic, but the larger focus is still very much on single supply chains or even only elements of the chain. The authors’ goal is to analyze this broader situation, in combination with supply uncertainty.
They therefore establish a mathematical model of two simple supply “chains” containing one customers, who is served by two supply chains consisting of a retailer and a supplier each (see figure 1).

Figure 1: Model of the two competing Supply Chains (Shou et al., 2009)

Results

You can have a look at the detailed results directly in the paper. Here I just highlight the major findings. The authors analyze the decision on three different levels:

Operational level: “At the operational level, we show that a retailer should order more (less) if its competing retailer has a less (more) reliable supply.”
Design level: The authors define two possible contracts between supplier and retailer and show that a wholesale price contract is inferior to a revenue sharing model, since the former cannot coordinate the supply chain (see figure 2). Coordination of the supply chain means that all participants of the supply chain actually participate at the supply chain; this would not be the case if e.g. the supplier has a negative profit.
Strategic level: The authors test different competition models to ensure coordination of the supply chain and find: “… that supply chain coordination is always a dominant strategy under supply uncertainty and chain-to-chain competition.”

Conclusion

I was first confused about the naming of the different levels of analysis, and I still think they should be renamed. What is the difference between design and strategic level? What decisions are included in the Operational Level?
But the authors do a great job of analyzing several aspects of this double supply chain, on the “operational” level at the retailer only, on the “design” level between the retailer and the supplier and on the “strategic” level between the chains.
This article is also a great source for some more insights into micro-economics and game theory.

Reference:

Shou, B., Huang, J., & Li, Z. (2009). Managing Supply Uncertainty under Chain-to-Chain Competition SSRN

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Risk considerations in Purchasing

Daniel Dumke — Mon, 30 Aug 2010 06:37:00 +0000

Today I start an irregular series on doctoral dissertations on Supply Chain Risk Management. An immense effort and dedication is spent on these works only to find the results hidden in libraries. So the goal is raise interest in their research.

Author / Topic

The first dissertation was written by Ingo Schneider in 2009 as his doctoral thesis at the Helmut Schmidt University in Hamburg, Germany. It was published by Shaker, Aachen and can be ordered here from amazon.deor your local library. The title translates in:

Risk as Strategic Part of the Supply Chain Design: Analysis and Case Study in the German Automobile Industry

Summary

The goal of this dissertation is to create a framework for finding strategies to optimally design the supply side of a supply chain. The author starts with basic thoughts about the risk management in supply chain design and uses a case study to test his results within the German automobile industry.

His research finishes with an eight step framework that should lead to optimal supply chain design.

Develop strategies to consistently assess risks within the supply chain
Work out the possible structural decisions for the SC
Determine packages of measures that should be used
Assemble the necessary price and cost information
Develop a concept for the risk management and analyze the supply chain
Calculate the cost of the risks
Present the optimal connections to the supply and demand side from a monetary point of view
Discuss the risks to reach a final decision

Conclusion

Ingo Schneider’s work shows a clear path to optimal design of the supply side of the chain. He writes very detailed about the basics of supply chain risk management and takes special care to highlight the methodological aspects of his study.

Reference:

Schneider, Ingo (2009). Die Risikobetrachtung in der Beschaffung als strategische Komponente im Supply-Chain-Design : eine Analyse am Beispiel Karosserieblechteile in der Automobilindustrie Shaker, Aachen, Dissertation

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Corporate Strategy and Supply Chain Network Design

Daniel Dumke — Wed, 26 May 2010 13:22:00 +0000

Obviously Corporate Strategy should have an effect on the supply chain network design and its parameters. In their exploratory study Demeter, Gelei and Jenei (2006) show two examples of how supply chains are affected by different corporate strategies.

Setting

The authors analyzed the supply chains of two major car manufacturers with assemblies in Hungary. The focal companies were Audi and Suzuki. They conducted several interviews with the focal companies themselves and their best rated suppliers.

Results

From the interviews the following supply chain was extracted:

Audi / Suzuki Supply Chain (Demeter et al. (2006))

Strategies

Audi and Suzuki follow different strategies when deciding for Hungary as a production location. The major differences were: Audi came for the resource basis (skilled and cheap labor), Suzuki came for the european market and lower cost.
Audi decided to invests heavily in capacity (which was enlarged later) to produce for the world market, Suzuki only produces for the regional market (with step-by-step enlargements).

Effects

The authors find that the strategy affects supply chain configuration as well as supply chain practices.
Due to its high capacity strategy, it was possible for Audi to bring some of its suppliers to Hungary, resulting in the same sourcing pattern as elsewhere. Suzuki was not able to achieve this, instead had to insource, due to missing Integrators.
Supply chain practices can be divided into buyer-supplier relationships and the use of different management tools:
Due to the missing Integrators in the Suzuki supply chain, it was possible for them to have a much tighter control over their suppliers.
The strategies affected also the tools chosen (eg. directprice negotiations or the establishment of industrial parks by Suzuki)

Conclusion

As long as the corporate strategy is implemented effectively it must affect the supply chain as well, especially critical parameters as configuration and practices. For managers, this has to be kept in mind to forecast effects of strategic change.

Reference:

Demeter, K., Gelei, A., & Jenei, I. (2006). The effect of strategy on supply chain configuration and management practices on the basis of two supply chains in the Hungarian automotive industry International Journal of Production Economics, 104 (2), 555-570 DOI: 10.1016/j.ijpe.2006.05.002

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