As a human being, we all consume products and/or services all the time. This morning you got up and ate your breakfast, e.g., eggs, milk, bread, fresh fruits, and the like. After the breakfast, you drove your car to work or school. At your office, you used your computer, perhaps equipped with 27” LCD monitor. During your break, you drank a cup of coffee and played with your iPhone. So on and so forth. You probably take it for granted that you can enjoy all of these products. But if you take a closer look at how each of these products can be made and eventually delivered to you, you will realize that each one of these is no short of miracle. For example, which fruit do you like? Consider fresh strawberries. In order for the strawberries to be on your breakfast table, there must be numerous functions, activities, transactions, and people involved in planting, cultivating, delivering, and consuming strawberries. Moreover, all of these functions, activities, transactions, and people are connected as an integral chain, through which physical products like strawberries themselves and virtual elements such as information and communication flow back and forth constantly. By grouping related functions or activities, we have a supply chain, comprised of four primary functions such as supplier, manufacturer, distributor, and finally consumer. A supply chain is essentially a value chain. For the society or economy as a whole, the goal is to maximize value, i.e., to create satisfactory value without spending too much. In order to create the maximum value for the strawberry supply chain, every participant in the chain must carry out its function efficiently. In addition, all of the members must coordinate with each other effectively in order to ensure value maximization. We have to face the same issues for almost all the products and services we take for granted in our everyday life, e.g., cars, hamburgers, haircuts, surgeries, movies, banks, restaurants, and you name it! In this course, we want to understand fundamental principles of value creation for the consumers or the market. We try to answer questions like how the product or service is made, how the value-creating activities or functions are coordinated, who should play what leadership roles in realizing all these, and so on. As our course title hints, we approach all of these issues from a learning perspective, which is dynamic in nature and emphasizes long-term capability building rather than short-term symptomatic problem solving.
SCM Process Strategy
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Do curso por Korea Advanced Institute of Science and Technology
Gestão da cadeia logística: uma perspectiva investigativa
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Korea Advanced Institute of Science and Technology
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Na lição
Supply Chain Strategy I: Structural and Infrastructural Dimensions
In order to optimize the supply chain performance, the firm must design its supply chain effectively. In this chapter, we will talk about how to design the effective supply chain and look into the designing factors of supply chain management in detail.
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Bowon KimProfessor
KAIST Business School
I want to briefly talk about process strategy
which is related with this supply chain management.
What is process?
We talked about process before.
Process is basically a collection of tasks and activities and functions.
There are connected by flows of goods and information.
Physical things as well as virtual things.
And, through the process we can transform various inputs into valuable outputs.
So process is actually at the core of value creation.
And
sometimes we talk about whether a certain
industry is a service industry or manufacturing industry.
In the past, people tried to make a disti, distinction between these two by looking
whether we can have inventory or not, whether
we can have a physical product or not.
But what about McDonald's?
Is, is McDonald's in the service industry or in the manufacturing industry?
McDonald's obviously makes physical products, hamburgers, right?
So somehow we say that McDonald's is in manufacturing sector, but it's
not comfortable for us to say that McDonald's is in manufacturing industry.
Why?
Because we know that during this value creation process,
the customers are getting involved to a significant [INAUDIBLE].
And therefore, it's not, you know, comfortable to
say that McDonald's is in the manufacturing sector only.
And as we can see in this example.
How to make distinction between base and manufacturer
probably the best criterion is to estimate how much customer
involvement is required during the value creation process.
Having said that I think that so much useless, to
try to make create a distinction between service and manufacturing.
Is BMW in in a manufacturing sector?
Traditionally, yes, we would say BMW is in the manufacturing sector but as BMW tries
to increase its cars manufactured in the made
to order system, then BMW is approaching more.
Saw this orientation, and therefore sooner or later I just say the automobile
industry, will have many characteristics very
similar with the service sectors as well.
So it's not just about service versus manufacturing, but it's about how
to make, you know, ideal mix between these two.
And I think that every industry, every company
should try to have more service orientation in the
future.
And we want to get this as, you know, process structure or process strategy.
Which can be applied to both service sectors
and also manufacturing sectors at the same time.
In order to define this services process or strategy,
we wanted to get [UNKNOWN] volume versus customization.
Okay, so volume we'll just say that low volume and high volume or customization,
high level of customization, and low level of
customization and high level of customization.
And let’s think about this one, what, what
are the examples, what are some of the examples?
If we look at the food industry,
let’s say, McDonald’s, somehow we can place here.
The McDonalds volume is large [INAUDIBLE] they sell
lots of you know, hamburgers in a day.
But their customization, whatever it is, is relatively low.
So McDonald's is you know, placed here, and we call that as standardized system.
Or if it's manufacturing, we call that as
make to stack system, make to stack system.
What about you know, very luxurious French
or Italian restaurant in five star hotel.
In that restaurant, the food is prepared exactly
according to the requirements of the customer,
requirements of the consumer, 'kay?
So the customization [INAUDIBLE] very high.
Yet, we know that the volume is not that big.
In other words, you don't actually you know sell your table several times.
In the hotel probably, the table is sought
only one time during the dinner time, right?
So the volume is pretty low and customization [UNKNOWN] is really high.
So we place the luxurious restaurant here
and we call that as a made to order system.
Made to the system.
Or we can say that that's kind of project start, project to start process.
Project to start process.
And now we can imagine that there might be some inverse relationship or
trade-off relationship between, between customization and volume, right?
So we have sort of a trade off relationship.
And here some people also add some
other system, and they call that as
assemble, assemble to order system.
And now, somehow we can say that there is a trade-off
or inverse relationship between volume and customization.
It makes sense.
And that's why we sometimes
call this as a feasible region.
Feasible region.
That means that any company can have business here.
Any company can do business in this area as long as you
have the so-called you know, quality.
The, a qualifier right?
Or the qualifying attribute.
As long as you have all the qualifying attributes you can be here.
Everybody can be here.
The other side of that statement is that nobody can make more money than others.
If they are in the feasible region.
So everybody just have barely you know, marginal
profit that helps them to survive in the market.
But there is another concept which is
mass customization, mass customization, mass customization is what?
We want to retain high level of customization, yet
we want to make those things in large volume.
So mass customization,
has become a very important goal of a company.
But the thing is that mass customization is somehow, occur
in the sense that it is outside the feasible region.
So by definition, mass customization is kind of contradicting our common sense.
Contradicting our traditional way of thinking.
But we know that if company achieves this mass customization.
The company will be able to own more profit, and the company will
have more competitive advantages, versus its competitors.
Then the question is, how can a company achieve this mass customization?
[BLANK_AUDIO]
Supply chain coordination or value chain coordination and
integration, is the way, the company can achieve mass customization.
Mass customization.
So this we also call general capability.
As opposed to individual capability.
There's a big difference between general capability and individual capability.
General capability is actually supply chain capability, supply chain capability.
On the other end, there is individual capability.
Individual capability is the ability forms ability that
that individual company can unilaterally in hands so individual
capabilities is specific to that individual company individual.
Where as tenure capability is something a single company can not unilaterally
develop the tenure capability must be nurtured through the co ordination.
Between the supply chain partners and between this value chain partners.
So how to accomplish this mass customization?
How, you know, can the company reach that goal of mass customization?
The only way to achieve that mass customization is through effective
supply chain coordination or effective in value chain coordination.
So, this is another example of why we emphasize the importance of coordination.
And why it's really, you know, [UNKNOWN], not
only from this, you know supply chain management.
But, you know from this value chain management,
and sustainable issues, and so on and so forth.
I think this concludes our discussion on the supply
chain design, and [INAUDIBLE] structure dimension and infrastructure dimension.
So whatever you do, you have to pay attention to these
two dimensions at the same time and think about this computer analogy.
If
you have only hardware, that's useless.
If you have only software, it's useless.
Only when you put them together and only
when you use them together effectively and efficiently.
Then you create some values.
This is the same situation in supply chain management.
You better, you better do get this
structure dimension, infrastructure dimension at the same time.
That's how you can optimize, you can maximize both efficiency
given value and responsiveness given value at the same time.
[BLANK_AUDIO]
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