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Judge Business School Creating World-Class Supply Chains Matthias Holweg Ph.D. Judge Business School University of Cambridge

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Presentation on theme: "Judge Business School Creating World-Class Supply Chains Matthias Holweg Ph.D. Judge Business School University of Cambridge"— Presentation transcript:

1 Judge Business School Creating World-Class Supply Chains Matthias Holweg Ph.D. Judge Business School University of Cambridge World Bank - Knowledge Economy Forum VI Cambridge, April

2 Outline Supply chain mangement Why is it important? Features of high-performing supply chains The role of technology The automotive industry Global trends The case of Slovakia Conclusions Policy recommendations

3 Outline Supply chain mangement Why is it important? Features of high-performing supply chains The role of technology The automotive industry Global trends The case of Slovakia Conclusions Policy recommendations

4 Why do we talk about it? Traditional thinking: competition is driven by the 4Ps Today: supply chain capabilities determine competitiveness! Wal-Mart versus K-Mart Compaq/HP versus Dell A final product is not the sole achievement of the OEM Customer experience is determined by supply chain: quality, cost, delivery Significant proportion of value sourced from suppliers! Supply chains are connected systems: Competitiveness of one tier is a function of the supply and distribution functions, i.e. surrounding tiers. Value Chains compete, not individual companies! (Christopher 1992)

5 The Essence of Supply Chain Management The essence of SCM: 2+2=5 Conventional thinking: optimise your own operations....but sum of local optima is not a global optimum. Synergy is a systems effect The differential benefit of SCM is the value you derive by not simply managing individual pieces, but the entire system Goal: to manage upstream and downstream relationships with suppliers and customers in order to create enhanced value in the final market place at less cost to the supply chain as a whole (M Christopher)

6 Islands of Excellence or Optimal Supply Chain? Raw Material Bought-in Parts In-house Parts Pre-Assembly WIP Assembly WIP Finished Parts Inbound Transit On-site Parts Assembly WIP Dispatch Outbound Transit Distribution Customer Days of Inventory Max Average Min Source: Holweg and Pil, The Second Century, MIT Press 2004 Raw Materials and components 21% Raw Materials and components 21% Assembly Plant 6% Assembly Plant 6% Distribution 73% Distribution 73%

7 Features of High-performing Supply Chains Long-term collaborative relationships Trust and commitment, respect of the right of mutual existence Single or dual sourcing Component volume is adjusted according to performance Constant positive pressure by dual sourcing Improvement Collaboration with suppliers on operational improvement; example: Toyotas Supplier Support Center (TSSC) in Kentucky Annual cost reductions are realised in collaboration, not isolation Operations and logistics Level production schedules to avoid spikes in the supply chain Milk-round delivery systems that can handle mixed-load, small-lot deliveries Disciplined system of JIT delivery windows at the plant; suppliers deliver only what is needed, even if this compromises load efficiency in transport

8 A Cry from the (US) Supplier Heart There is little chance that beating the hell out of the supplier base, breaking contracts,....not paying your tooling bills,...is going to get to the root cause of your problem, Big Three. You know the same suppliers raked over the coals, and used as a whipping boy to explain the Big Three's cost problem, are the same suppliers investing, building partnerships and earning a good return with the vehicle producers that have the growing market share. There is a discontinuity here. But it is also very clear,...the sheer mass,...the investment,...the involvement between suppliers and the traditional Big Three can only lead to one conclusion. Our futures are inexplicably tied, and neither can afford the other to fail. Tim Leuliette, President/CEO of Metaldyne, August 12, 2002

9 The Role of Technology The Holy Grail in curing supply chain ills? Example: Bullwhip problem Demand visibility is key: RFID / AutoID, EDI, EDIFACT, EPOS, CPFR …yet they only work if the planning systems use this information! Example: transaction costs in automotive COVISINT (est. 2000) and the B2B/e-commerce revolution Predicted savings of $1,000 per vehicle in transaction costs! The Role of Technology Technology alone is not a sufficient, it can assist problem solving If the underlying processes are not capable, technology will fail It is a means to an end, not an end in itself!

10 Outline Supply chain mangement Why is it important? Features of high-performing supply chains The role of technology The automotive industry Global trends The case of Slovakia Conclusions Policy recommendations

11 Production by Region

12 Auto Industry: Major Trends Overall global growth by 1.85% CAGR since 1975 Substitution of production with adjacent low-cost regions Major growth of production in China ( : x5.2), and India ( : x1.7), - 4% in Western Europe Auto industry is regionalising, not globalising! What does this mean for the dynamics of competition? Competing in a global, distributed industry: Future competition on cost is a futile battle.. Rely on quality? Brand? Design? Proximity to customer?

13 Continuous Window of Opportunity Time Product Features Established Player Market Demand New Entrant Source: adapted from Christensen (1997) Any labour cost advantage is temporary!

14 The Auto Industry in Emerging Countries Automotive industry very attractive Job multiplier of 5-7 for every assembly job Technology transfer Many subsidies, but questions of long-term viability! The case of Slovakias auto industry VW Bratislava, PSA Trnava, Kia Zilina, growing cluster CZ, PL, HU 5m inhabitants, c.900k production, domestic sales of <80k units Challenges Logistics: lead-time to customer, reliability of supply Labour shortage, migration and rising compensation Migration further east is inevitable Domestic demand in Russia, growing labour cost differential

15 Outline Supply chain mangement Why is it important? Features of high-performing supply chains The role of technology The automotive industry Global trends The case of Slovakia Conclusions Policy recommendations

16 Conclusion: Supply Chain Enemies Common logic behind all SCM initiatives! Inventory & delays Time worsens swing of amplification Decision delays require stock Safety stock decisions send false signals Unreliability or uncertainty Any kind of uncertainty needs to be covered with inventory Unreliable processes cause unreliable delivery Hand-offs or decision points Every hand-off or tier in the system bears danger of distortion! Inventory is a substitute for information

17 Policy Recommendations Infrastructure is a always a concern.. …but uncertainty is a sure killer of any location decision! Customs clearance Currency Regulation (labour, traffic, taxation) Crime & bribes Supply chains are connected systems: Labour cost differential is only a short-term advantage Strong need to attract suppliers, not just manufacturers! Need to build local competencies, rather than screw-driver factories Domestic demand is not essential if logistics systems work

18 Judge Business School Centre for Competitiveness and Innovation, Judge Business School, Univ. of Cambridge International Motor Vehicle Program Massachusetts Institute of Technology


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