Logistics & Supply Chain Management ( all inclusive)

Effectiveness is when you work on the right things in the right order. 

Efficiency is when you are able to do your work with the least waste in the fast possible manner

Adaptive supply chains In today's competitive environment, the performance and efficiency of the supply chain is a necessary requirement for business success.

• «Adaptive supply chains» can support ensuring these conditions.
• Adaptive supply chains are also called «adaptive networks», «agile supply chains» and «adaptive business networks».
• In order to transform a traditional supply chain into an adaptive network, it is necessary to review and, if necessary, change the underlying business processes.

Transformation of a static system into a permanently changing and adapting, high-performance network. Significantly influenced by the changes in market conditions caused by the internet.

Event-driven

• Control by way of demand pull
• Supported by information technology (see ECR in block 6)

Company-related

• Focus on the integration model for the design of business processes
  • Influencing factors (personnel, organization and information technology)
  • Corporate goals, strategies and guidelines
  • Company context (industry, etc.).

Self-regulating

Use of suitable information systems to continuously adapt the supply chain to actual demand (see blocks 4 and 5).

Proactively avoid supply bottlenecks and overstocking

«Adaptive supply chains or electronic business networks are enterprise-related, event-driven and self-regulating. They are based upon an, by way of information technology, integrated supply chain in which the flow of information between the different supply chain partners is the integrating factor. For this purpose, many to all supply chain business processes within the company, between the company and its business partners as well as between the company and third parties (e.g. public authorities) are implemented in whole or in part via electronic communication networks and supported by the use of suitable IT systems and application software.» (Poluha, 2010, p. 114)

Process for the Implementation of Adaptive Supply Chains from existing Supply Chains.

Four Process steps:

• First step: Visibility
  • Information exchange and the execution of standard processes for routine transactions with the supply chain partners
  • Information exchange using internet-based technology
  • Further insight into business processes and data issues.
• Second step: (Supply Chain) Community
  • Processing of regularly recurring transactions using so-called portals (virtual marketplaces through which users can conduct electronic transactions)
  • Introduction of minimum and maximum control values (e.g. for inventory levels), reduction of inventory levels and increase in efficiency of process flows by means of automation
• Third step: Collaboration
  • Exchange of customer demand information among the supply chain partners, for example through joint order planning or collaborative order planning (i.e. exchange of order and planning data between the different actors in the supply chain).
• Fourth step: Adaptability
  • Significant reduction in processing times, often elimination of work steps
  • Significant reduction in inventory and working capital
  • Opening up new market opportunities through strategic partnerships and accelerated introduction of new products.

«Reengineering […] is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed». (Hammer & Champy, 2001. p. 35)

The definition contains four keywords:

1. Fundamental: Question everything, ignore what is and focus on what should be.
2. Radical: Do not make superficial changes to what already exists, but throw away the old.
3. Dramatic: Reengineering should only be done when dramatic improvement is needed. When the old has to be blown away to be replaced by the new.
4. Business processes: Collection of activities that require one or more types of inputs and generate outputs that are of value to the customer.

What was the reason for the supply chain reengineering and its consequences?

- The starting point at Synthes-Stratec was tension in the relationships between suppliers, R&D, procurement, production, sales and end users. The consequences were sluggishness and impaired communication.

What measures were taken?

- Three overarching measures were initiated to achieve the objectives: Firstly, production and logistics were now combined under the name Operations; secondly, Supply Chain Management (SCM) was installed as the central management tool; and thirdly, the Strategic Logistics competence area was entrusted with the system design, controlling and monitoring of the new SC system.

- The service levels were subjected to permanent monitoring and the replacement and processing times were strictly monitored, measured and reduced using a bottleneckoriented flow control method.

- Thanks to the integration of all European supply chain players into the ERP system, the transparency along the information chain could be considerably increased both on the demand side and on the replenishment side.

- For process management, the supply chain was modelled according to SCOR (Supply Chain Reference Model).

Business Process Reengineering – the four «Rs»

1. Renewing
   1. Improved training and organizational integration of employees
   2. «Show people that they matter and make them fit for change.»
2. Revitalizing
   1. Redesign of processes
   2. «Turn the organization upside down and cut off old pigtails.»
3. Reframing
   1. Discarding conventional ways of thinking and treading new paths
   2. «Tread new paths, and throw old thinking overboard.»
4. Restructuring
   1. Principle revision of business processes and workflows, revision of the activity portfolio
   2. «Clear the program portfolio and put your money on new cards.»

Supply Chain: “In summary this suggests that the supply chain covers all processes throughout the product lifecycle, including the physical, informational, financial and knowledge-based processes for moving products and services (from suppliers through to end users)”. (Poluha, 2016, S. 14)

A supply chain thus includes all components that flow through the supply chain.

• Goods and services, mainly to customers
• Payments, mainly to suppliers
• Data and information in both directions

1. Products flow
   • Movement of goods from supplier to consumer (both internal and external) and dealing with customer needs such as input materials or consumables or services such as housekeeping. The product flow also includes returns and rejections (reverse flow).
2. Financial flow
   • The financial and economic aspects are considered from two perspectives. Firstly from the cost and investment perspective and secondly from the cash flow perspective.
3. Inforamtion flow
   • SCM comprises a multitude of different information: Parts lists, product data, descriptions and prices, inventories, customer and order information, etc. - and this can require a lot of communication and coordination with suppliers, transport providers, subcontractors and other parties.
4. Value flow
   • A supply chain has a number of value-adding processes that span the entire chain to provide added value to the end consumer. In each phase there are physical processes related to production, distribution. In each phase there is a certain value added to products or services.
5. Risk flow
   • Risks in the supply chain are due to a number of uncertain elements that are largely in demand, supply, price, lead time, etc. A supply chain risk is the potential occurrence of an event or the failure to take advantage of opportunities to supply the customer, the results of which lead to financial loss for the entire supply chain.

Resiliency = resilience, resilience

Thus far reactive and tactical risk management. It takes up to six weeks to assess risks.

Risks:

• The article mentions tsunamis and earthquakes. According to the video, there is fire in GM and  supplier production facilies.
• The failure of su-suppliers (Tier 2)

Solution:

• System with all direct suppliers (Tier 1) and their most important suppliers (Tier 2)
• Map the suppliers on a world map to quickly assess which suppliers may be affected.
• Based upon possible failures, quick production plan adjustment. The vehicles are produced where all parts are available. Vehicles with many additional options, and where material availability is not guaranteed, will be pushed back in the que.

business processes are activities than requires input which produces value for the customer.

Process map is a planning and management tool that visually describes the flow of work.

Process hierearchy is like an architectual blueprint. It shows the processes that keep your business upright

• Industry
  • Specific core processes
• Manufacturing
  • Product development
  • Order processing
  • After-sales service
• banking
  • Loan processing
  • Payment transaction
  • Financial consulting
• Insurance
  • Customer acquisition
  • Customer support
  • Settlement of claims
• E-commerce
  • Catalog/online shop creation
  • Order processing and shipping
  • Returns processing

Business process management is a method where processes are defined, designed, documented and improved.

Ford: mass manufacturing with a moving conveyer belt

Bell Laboratories: paved the way for Six Sigma

Toyota: Toyota production system ("just in time" concept)

Motorola: invented Six Sigma

GE: popularised Six Sigma at all levels

Dell: Lean Manufacturing

When implementing a good process management it can improve effectiveness and efficiency of business processes while making them measurable and flexible.

The SCOR model & process chain model can be used as support instruments

Adaptive supply chain focuses on the logistics of efficiently deploying resources to assemble, transport, sustain and distribute people and goods. Facilitating fulfillment of demand associated with economic commerce, national defense, disaster response, and humanitarian aid.

Event-driven

• Control by way of demand pull
• Supported by information technology

Company-related

• Focus on the integration model for the design of business processes
  • Influencing factors (personnel, organization and information technology)
  • Corporate goals, strategies and guidelines
  • Company context (industry, etc.).

Self-regulating

Use of suitable information systems to continuously adapt the supply chain to actual demand

Proactively avoid supply bottlenecks and overstocking

1. Products flow
   • Movement of goods from supplier to consumer (both internal and external) and dealing with customer needs such as input materials or consumables or services such as housekeeping. The product flow also includes returns and rejections (reverse flow).
2. Financial flow
   • The financial and economic aspects are considered from two perspectives. Firstly from the cost and investment perspective and secondly from the cash flow perspective.
3. Inforamtion flow
   • SCM comprises a multitude of different information: Parts lists, product data, descriptions and prices, inventories, customer and order information, etc. - and this can require a lot of communication and coordination with suppliers, transport providers, subcontractors and other parties.
4. Value flow
   • A supply chain has a number of value-adding processes that span the entire chain to provide added value to the end consumer. In each phase there are physical processes related to production, distribution. In each phase there is a certain value added to products or services.
5. Risk flow
   • Risks in the supply chain are due to a number of uncertain elements that are largely in demand, supply, price, lead time, etc. A supply chain risk is the potential occurrence of an event or the failure to take advantage of opportunities to supply the customer, the results of which lead to financial loss for the entire supply chain.

Is the fundamental rethinking and radical redesign of business processes to achieve dramatice improvement in critical, contemporary measures of performance, such as cost, quality, service and speed.

Supply chain management requires data and information from different areas of the organization for planning, controlling and monitoring. Data on the duration of activities in processes, financial data from bookings, assessments of business partners for cooperation, etc. is required. The controlling of the supply chain processes the data and information into meaningful key figures. Key figures that can be analyzed for internal and external comparisons and for the assessment of changes due to improvement measures.

You must understand…

• which factors influence the success of the supply chain and need to be analyzed.
• How the controlling of the supply chain can be structured.
• How supply chain key figures can be structured and categorized.

Obsolete = e.g. spare parts of machines no longer in use

Excess = too much

Supply Chain Management as a «control loop»

• The «Controller» is the management level
• The «controlled system» is the «Order-to-Payment-S» (see figure , red "S").

The control variables in value chains have a direct impact on the balance sheet and income statement.

• Inventories, freight costs, material prices, throughput times, set-up times, etc.

SC management accounting as a subsystem of leadership

• Information preparation for planning, controlling and monitoring of all activities within the supply chain
• Ensuring the supply of information to (supply chain) management

• Inventory is a component of the balance sheet

1. Capital tied up by inventories: cash invested is not available for other purposes

1. Gross and Net Inventories
2. Indirect impact on the income statement
3. Freight costs and material prices

1. Capital tied up by inventories: cash invested is not available for other purposes
   • Freed capital could generate interest: Opportunity costs
   • Reduction of inventories enables asset swap in the balance sheet (reduce current assets and increase fixed assets, e.g. by investing in equipment and buildings)

• Reduction in inventories has a positive effect on cash flow («surplus cash and cash equivalents»)

Gross earnings are like absolute inventory, whereas net earnings are what you are left with after all taxes, retirement and other withholdings are deducted. The net inventory is what you have after deducting adjustments and modifying products already ordered.

• To be distinguished in financial analyses
• Value adjustment of gross inventories in case of excess and obsolete to net inventories, e.g. uncertainties in demand planning, discontinued products, fashion trends
• Value adjustment (write-off) as a component of the income statement

Inventory is of economic significance.

Inventory reduction by 20% from 100,000 to 80,000 leads to lower current assets, which results in a higher capital turnover and ultimately in a higher ROI(certeris paribus)

• Reduction of stock by 20%

• Improves ROI by 1.21 percentage points
• Yield increased of 9.5
•  

–Indirect impact on the income statement

• Impact of allocating warehousing costs to the «cost of sales»: operating costs of the warehouse, material overheads, tooling costs, personnel costs, etc.
• Calculated inventory impact via WACC («Weighted Average Cost of Capital»): Interest is calculated using the cost of equity and borrowed capital rates (6% to 10%), Negative impact on EBIT

Freight costs and material prices

• Components in the income statement
• Increase or decrease has a 100% impact on EBIT
• The amounts are reported either in cost or separately in the income statement.

Aspects:

• The article mainly considers freight and material costs. Indirect costs of inventories.

Initial situation:

• Due to markets in the East, the longer distances increase logistics costs
• Doubling the turnover leads to a tripling of the transport costs

Decide:

• Different scenarios must be calculated and decided upon.
• The decision to move production to the east is pending (rather at the end of the article).
• Questioning future supplier decisions

Problems

• Air freight costs are partly not taken into account
• Many costs, such as customs duties, are calculated incorrectly (e.g. goods in transit do not have to be cleared through customs)
• There is no TCO models that Hilti can simply adopt
• Cost drivers must be identified
• Know the composition of the supply chain costs of products sold in different regions of the world.
• Air freight expensive but fast - sea freight inexpensive but slow.

Note: cost tracking is very often done with Excel, because ERP systems or other planning system are not able to map the, to a large extend, very specific aspects or only with great effort. Excel is clearly more flexible in this respect.

«Cost Tracking is a special monitoring system which serves to demonstrate the effectiveness of corporate activities. It is often integrated into a reporting system.». (Werner, 2017, p. 358) Aspects of Cost Tracking

• Areas of cost tracking: inventories, freight costs, and material prices
• Impact of procurement and logistics activities on the balance sheet and income statement
  • Cost changes due to new suppliers (raw materials, semi-finished and finished products)
  • "Total Cost of Ownership” (TCO): The sum of operational procurement costs.
  • "Total Landed Cost" (TLO): All costs up to the customer incl. customs duties and taxes (e.g. for an online shop or a B2B offer)
• Use of forms (e.g. as excel tables)

«KPIs generally have the function of providing quick and meaningful information about business facts and figures [...]. They represent a reproduction of quantitively measurable facts and figures in concentrated form.». (Werner, 2017, p. 365) Aspects of Key figures (KPIs)

• Enable individual operations to be linked to each other.
• When viewed in insolation, however, not very meaningful.
• Through internal or external comparison they gain in importance (e.g. internal time comparison over a period of time).

A KPI indicates where a company stands. But it does not show the way to a best practice situation. KPIs show the «where are we».

• Where is the company relative to its competition?

Benchmarking explains «how»

• How has an organization managed to capture a best practice / good practice?
• Benchmarking as a «navigation system» to improve KPIs

Key Performance Indicators (KPI): highest level key figures, highly strategic, long-term character

• Usually not exact, provide answers about the performance.
• For example, customer satisfaction and order fulfilment time.

Business Performance Indicators (BPI): tactical key figures

• Decomposition of strategic key figures into indicators
• E.g. «Order Fulfilment Time»: replenishment lead-time, storage time, packaging time and delivery time

Process Performance Indicator (PPI): operational key figures

• Measurement is accurate and can be equated with the term «key figure» in its most exact sense.
• Selected PPIs of the «replenishment lead-time» include purchase requisition time, material disposition time, goods receipt time and incoming goods inspection time (to name a few examples)