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Table of Contents

Table of Contents....................................................................................................2 Abstract..................................................................................................................2 Introduction:...........................................................................................................3 Literature Review....................................................................................................5 Recent trends:........................................................................................................9 Application & Practical work..................................................................................12 Further Studies:....................................................................................................16 Conclusion............................................................................................................17 References:...........................................................................................................18

Abstract.
While the poor response implications of supply are often not elaborated on in the literature, postponement has

recently been mentioned as a useful tool for managing supply risk and disruptions. To interpret this in a more complete manner, this paper has attempted to explore the role of postponement in supply chain risk management from a complexity perspective. After a review of the relevant literature, it first draws insights emerging from normal accident theory that addresses the system characteristics of catastrophic accidents and applies them to supply chain disruptions. This is followed by the utilization of normal accident theory to explain the role of postponement in supply chain risk management. Building on this, this paper also investigates the complexity implications of some commonly recommended measures to mitigate supply chain disruptions. In certain circumstances, the introduction of those measures may add to the complexity of a system and thus become inherently infeasible.

Introduction:

With

outsourcing

and

off-shoring

increasing

the

geographical dispersion of supply chains, there has been increased attention focused on the risks from supply chain disruptions. For example, while global configurations of their supply chains provide access to cheap labor, raw materials and markets in emerging economies, companies face the challenges in maintaining continuity of supply through longer and more variable lead times, and greater delivery uncertainty (Prater et al. 2001). Meeting these challenges can be further compounded by the nature of doing business today (i.e., the mutual dependencies of companies arising from inter-organizational networking). A failure of any one element in a supply chain causes disruptions for potentially all partnering companies upstream and downstream. The need for heightened awareness of supply chain risk management has also been driven by the increased scrutiny by insurance cover providers (McGillivray 2000, Norrman and Jansson 2004). A trade-off must thus be made between the efficiency and robustness of the supply chain. This results in an additional consideration of product design, production and distribution partnership strategies, relations and the development and of with suppliers customers

(Chopra and Sodhi 2004, Tang 2006a).

Literature Review.
This section reviews three streams of literature comprising supply chain risk management, a complexity perspective in supply chains, and postponement. Supply chain risk management

Supply chain risk may be the outcome of unexpected variations such as capacity constraints, machine breakdowns, uncertain yields, quality problems, a fire or even natural disasters occurring in a supplier facility (Blackhurst et al. 2005). To respond to supply chain disruptions, two basic approaches are recommended: adding redundancy and building flexibility (Sheffi 2001, Chopra and Sodhi 2004). Adding redundancy involves maintaining excess resources such as inventory and capacity. Putting this in a supply chain context, Lee (2004) states that the best supply chains identify changes in the environment, and develop contingent networks by having more than one supply chain structure in place. While protecting against disruptions, excess resources can be costly. Flexibility can be achieved through the use of a multi-skilled workforce, versatile equipments, and the development of closer relationships with suppliers and customers to accommodate last minute changes. It also plays a facilitating role in the coordination process and provides a unique ability to help companies to manage the high levels of environmental and operating uncertainty inherent in supply chain operations (Manuj and Mentzer

2008).

Other a

suggestions demand strategic

include to and

using

sourcing products, and

strategies, developing

shifting

different

stock,

monitoring

controlling their suppliers through the use of pre-contract audits and supplier certification schemes (Zsidisin et al. 2004, Tang 2006a, 2006b). In the literature, the term resilience is also borrowed from other disciplines to characterize an organizations capability to recover to the original operating status before a disruption. In addition, keeping track on signals that may indicate disruptions helps companies to better prepare themselves to prevent, control and mitigate supply disruptions. This often involves supply chain integration and coordination programs to provide accurate and early information for managing risk such as sharing information related to risk with supply chain partners (Juttner 2005). Finally, recent years have witnessed that there has been and an increasing emphasis design of on the simultaneous coordinated product,

production process and supply chain (Fine et al. 2005). Implicit here is the ability of product design to reduce the likelihood of supply risk (Khan et al. 2008). For example, the nature of and relationships suppliers between is often

customers,

manufacturers

established early in the product design process. This significantly impacts the souring arrangements. Designing products so that product variety is pursued through

component

and

interface

standardization

allows

company to build a strong and flexible web of sources to reduce supply risk. A complexity perspective in supply chains

It has long been emphasized in the organization theory literature that a companys structure and management process must grow increasingly complex to respond to a complex environment (Anderson 1999). To respond to todays environmental complexity International Journal of Production Research 1903 such as the increasing product proliferation, outsourcing and globalization, organizational systems have become increasingly complex. For example, as companies and their supply chains expand globally, management technical of processes across different cultures, and standards, regulatory requirements

geographic distances becomes more complex. Reducing complexity enables companies to streamline their processes, eliminate waste and ultimately improve the overall performance (Wilding 1998, Khurana 1999, Vachon and Klassen 2002). The complexity experienced in a supply chain also increases the vulnerability to disruptions (Wilding 1998, Choi and Krause 2006). When the level of complexity is uncontrolled, organization systems are less predictable (Manuj and Mentzer 2008). Reducing complexity has thus been considered as a strategic goal for operations (Frizelle and Woodcock 1995).

When addressing the issue of supply chain risks, a complexity perspective has recently appeared to provide a more holistic picture. For example, much has been written in the supply chain literature regarding whether a single or multiple sourcing strategy can be used as a risk mitigation strategy. While it in general may reduce administrative and transaction costs, e.g., by concentrating greater purchase volumes with fewer suppliers, a single sourcing strategy leads to the over-dependence on one single supply source, thus exposing great vulnerability to negative events that may occur at the suppliers plants. Multiple suppliers have thus been viewed as a means of mitigating supply risk, but this implies that more efforts are required to coordinate the supply base (Vachon and Klassen 2002). On the other hand, single sourcing facilitates the building of long-term relationships with suppliers, which in turn facilitates effectively managing supply risk. From a complexity perspective, in addition to the number of elements, the level of coupling among differentiated elements within a system also affects the level of complexity (Dooley 2001). In line with this, Choi and Krause (2006) argue that, as the number of suppliers increases, we should also consider the level of interrelationships among suppliers in a supply base, another factor contributing to the complexity of a supply chain. With a low level of inter-relationships among suppliers it would be difficult for one supplier to step in for another supplier in case of an unexpected event. That is, the low

level of inter-relationships would be associated with a high risk. By contrast, as the inter-relationships increase, the risk mitigation strategies could be implemented more readily and thus the level of risk would decrease.

Recent trends:

Supply chain management: understanding the transition although supply chains have existed since ancient times, supply chain management as both a business development and an academic field of study and research is relatively new (Gibson et al. 2005, Storey et al. 2006). Its origins can be traced to the work and system dynamics theory and his attempts to understand the product delivery system as a whole and model the system. Followon work by Sterman (1989) used the beer distribution game as a prime example of empirically-based, observed managerial behavior and attributed the bullwhip effect, in addition to other managerial difficulties, to a lack of system thinking by management. Supply chain management appeared as a term in the early 1980s (Oliver and Webber 1982), and since then has rapidly evolved (Lummus and Vokurka 1999). During this evolution, several supply chain management traits have emerged.

First, as a relatively new concept, SCM has been the subject of disagreement regarding what it is and what it is not. One indication of this confusion can be seen in the breadth and variety of definitions offered for this construct. In a recent GOOGLE search (2007) for supply chain management definition, some 2,680,000 hits were returned. Some researchers define supply chain management as being synonymous with other functions e.g., Stuart (1997) used supply chain management and purchasing interchangeably. Others have begun to recognize that supply chain management is something broader and believe that it involves more than integration of operations, purchasing, and logistics. They see it involving issues such as strategic partnerships (Storey et al. 2006), relationship building and management (Giunipero et al. 2006), and concern with all processes from sourcing to manufacture and through selling to the consumer (Davis 1993). As these studies indicate, there is little agreement on what SCM is and what activities fall under its purview. There is also disagreement on what external factors, enablers, and inhibitors 2006). In this paper, we view supply chain management as an integrated system that brings together the supply base influence the shape of supply chain management, both today and in the future (Storey et al.

(the upstream portion including the supply network), the firm, and its customers (the downstream portion including the distributive network). It is a system that involves resources and relationships in order to design and deliver goods and services that provide the target customer(s) with the highest levels of value relative to that provided by the competition. This supply chain system design is not static nor is there one supply chain design for every company. As Aitken et al. (2005) describe, there may be a portfolio of different supply chain solutions for different customers and careful analysis is required to determine the design that is appropriate to a particular business strategy. Over time, the theory and practice of supply chain management has experienced a transition from a tactical to a strategic focus. SCM involves more than simply making a better buy; it affects the ability of the firm to make and maintain a sustainable competitive advantage. Other researchers have summarized the impact of improved relationships, supplier evaluation, globalization, collaboration, outsourcing, technology, and partnerships on corporate performance (Ogden et al. 2005). The strategic view recognizes the need to align the supply chain and its structure with the strategic needs of the firm and avoid the adverse impact of misaligned supply management on corporate performance (e.g., Randall et al. 2003, Cigolini et al. 2004). This evolution is still on-

going and the shape and structure of supply chain management in the future has yet to be determined.

Application & Practical work


In this issue, Automotive Industries explores changes in supply chain management for the parts industry. Ed Richardson spoke to Bengt-Eric Sjoelinder Global Industry Director Automotive with DHL Global Customer Solutions. Automotive Industries: What are the changes in the business environment for parts as you see it: there are four major evolutions in the business environment for parts have become apparent. Firstly, there has been the development of a parallel spare parts market. OEM's are facing increased competition from their own suppliers OEM's are increasingly outsourcing the components used in their cars. Inevitably, this means increasing amounts of 'genuine' spare parts are also produced by third parties. The OEM's do not have the same 'if any' control over these suppliers as they do over in-house suppliers. Secondly, there has been an improvement in the quality of new vehicles. In the last 15-20 years, the maintenance intervals for 'the average new car' in mature markets have increased three to five times (from roughly every 7 500 10 000 kilometres in the eighties to every 30 000 - 50 000 kilometres today). This means fewer visits to the dealers and hence less frequent demand for spare parts.

The third change in the business environment for parts has been the increased complexity of cars. Cars contain increasing amounts of components and technology (for example active safety systems, GPS, electronic engine management), which means a higher number of spare parts need to be available for repair and maintenance. Fourthly, there have been regulatory changes in the European Union. The EU Block Exemption regulation essentially means the OEM's loose the monopoly on spare parts with their dealers. Dealers can source parts from any supplier they see fit. With regard to OEM's, one of the challenges is to see competition arise in a market that has been monopolized for decades. Another challenge is the loose grip on the major distribution channel in the market. Due to the monopoly situation, margins on spare parts are high. With margins on new vehicles being under severe competitive pressure, the after sales revenue is vital for the financial health of all of the major OEM's. Whilst they can differentiate themselves through the 'genuine parts' stamp, the OEM cannot justify a large price gap between his 'genuine parts' and the prices of alternative suppliers for two reasons. Firstly, some of the largest alternative suppliers have a strong brand name themselves, either reducing or completely eliminating consumer and dealer quality concerns. Secondly, the consumer mostly leaves the choice of the spare parts up

to his/her dealer, who is in a much better position to judge the real value proposition of the spare parts. Parts warehouse There are two main challenges facing us in the parts warehouse. One of them is that the warehouse needs to hold a higher number of inventory references (reflecting the increased number of components in a car). The other is the less frequent need for spare parts due to improved car quality. All other things staying the same, this leads to a decreasing inventory turn-around ratio. The impact of this evolution is partly direct (need for more warehouse space). However, the indirect impact (more complex inventory management) is at the same time harder to manage and potentially more costly than the direct impact. Dealer From a logistics perspective, the key challenge for a dealer wishing to purchase spare parts from parallel suppliers is in the administrative and planning burden: in the traditional after sales concept, the dealer holds a small stock of fast moving parts and gets overnight deliveries of any other parts he or she needs. Essentially, the dealer entirely manages his own inbound supply chain, which requires a resource investment from his side. When using multiple suppliers for the spare parts, this management task increases. For every repair or maintenance job, the

dealer needs to find out which supplier to use, whether the supplier is able to source the parts or not and how much time it takes for the part to be delivered. The management workload increases exponentially with the number of suppliers used. The major disadvantage of the classic after sales logistics set up for both the dealer and the customer is that it regularly occurs that a consumer needs to wait one or more days for his or her car to be repaired for the reason that unplanned parts take at least one day to be delivered to the dealer. Bring multiple suppliers and an increased number of less frequently used parts into that picture and you can expect the average repair time to increase simply because the spare parts are not available when they are needed.

What

is

DHL

doing

to

provide

solutions

for

these

challenges? DHL has introduced the Local Distribution Centre (LDC) concept to increase the spare parts availability at dealer level and offer a tangible competitive advantage to the OEM. Through the LDC concept, the dealer receives two to three deliveries per day (one during the night, one in the morning and one in the afternoon). If ordered in the morning, unplanned parts can be delivered to the dealer

on the same day in the afternoon. The consumer therefore is likely to have his or her car repaired on the same day. This solution also cuts dealer administration and planning time as well as inventory. With a near 100% same day spare parts availability, the dealer stock can be reduced by approximately 75%. In addition, the dealer does not need to plan his work in advance. On one hand this benefit creates commercial opportunities (maintenance without appointment) and on the other hand it eases the planning process related to the pre-ordering of parts based on the scheduled jobs.

Further Studies:
The five principles of supply chain networks Supply chain networks involve five principles, and these principles are useful from three perspectives (Walker 2005): 1. To analyze a competitors network. How does your competitor use its supply chain network to be more competitive than you? 2. To rationalize an existing network. How can you become more competitive with the supply chain network you already have? 3. To design, operate, and optimize a new network. How can you develop the right supply chain network for a new business start-up, a business acquisition, or a product introduction?

competitive

network

represents

the

deliberate

integration of network design with a product bill of materials and with network operations. Supply chain architecture is the practical application of the velocity, variability, visualize, vocalize, and value principles to engineer network. Table 1. The 5-V principle point to emerging trends. Principle Supply chain architecture emerging trend. Velocity: The use of chaotic networks, where a different set of trading partners participate in each order-todelivery-to-cash cycle. Variability: The re-engineering of supply chain networks for greater flexibility. Vocalize: The ability of organizations along the network edges to easily plug and play into the core network information system. Visualize: The standardization of collaborative and optimize a competitive supply chain

performance measures. Value: The cultural shift from focusing internally on minimizing cost to collaborating externally on maximizing throughput.

Conclusion.

Supply chain management (SCM) is now a business fact of life. Increasingly, managers, researchers, and educators recognize the importance of effective and efficient SCM and its impact on functional performance (as measured in terms of lead time, cost, quality, and flexibility) and on corporate performance (e.g., Ogden et al. 2005, Giunipero et al. 2006). Our view of the supply chain and how it is managed is changing. In the past, SCM was viewed as a system primarily responsible for placing buys and managing the flow of orders and information with immediate suppliers. Today, supply chain managers are being asked to improve customer service, enhance continuity of supply, reduce the exposure of the firm to unanticipated risks in the supply chain, improve the new product design process, reduce environmental waste, improve environmental performance, and contribute to enhanced product and service quality (e.g., Sheffi 2005).

References:

1.

Lee, H.L., 2004. The triple-A supply chain.

Harvard Business Review, 82 (10), 102112.

2.

Manuj, I. and Mentzer, J.T., 2008. Global supply risk of management Physical strategies. International & Logistics Distribution

chain Journal

Management, 38 (3), 192223. 3. Walker, W.T., Supply chain flexibility. Achieving

Supply Chain Excellence through Technology, 2004, 6, 4447.