1. Updated by: Reham S. Al-Homayan B200 PROCESSES MODULE

2. Updated by: Reham S. Al-Homayan Themes of the Processes Module encourages thought about what organisations actually do and introduces the main activities that they undertake. introduces a series of processes, each requiring appropriate resources to produce the desired outputs. how all organisations aim to add value while minimising costs. examples of organisational activities in processing customers, materials and information.

3. Updated by: Reham S. Al-Homayan Student Key Learning Outcomes Processes Module recognise and describe the processes in the activities of an organisation recognise and describe the resources used in the activities of an organisation describe the behaviour of an organisation in terms of the processes and resources used in its activities. critically assess how useful it is to take a process perspective in understanding the behaviour of an organisation (more details in processes study guide p69)

4. Updated by: Reham S. Al-Homayan WEEK FOUR: Materials Processing RESOURCES Understanding Business: Processes Chapter 11 Logistics and Competitive Strategy by Martin Christopher Pages 49-51 of Processes Study Guide (up to end of Disposing of Materials) Chapter 12 Reverse Logistics by Richard Lancioni Pages 51-52 of Processes Study Guide

5. Updated by: Reham S. Al-Homayan Chapter 11 Logistics and Competitive Strategy by Martin Christopher Logistic is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory through the organization and its marketing channels in such a way that current and future profitability are maximized through the cost-effective fulfillment or orders.

6. Updated by: Reham S. Al-Homayan Effective logistics management can provide a major source of competitive advantage. How? The source of competitive advantage is found in the ability of the organization to differentiate itself in the eyes of customers, lower cost and increase profit.

7. Updated by: Reham S. Al-Homayan Simple model is “Competitive Advantage and the Three Cs”. The advantage of 3Cs First: The ability of the organization to differentiate itself, in the eyes of the customer, from its competition. Second : By operating at a lower cost and hence at greater profit. Needs seeking benefits At acceptable prices Assets and Utilisation Assets and Utilisation Customers Company Competitor VALUE

8. Updated by: Reham S. Al-Homayan Productivity Advantage or Value Advantage In many industries there will be typically one competitor who will be the low cost producer and more often then not that competitor will have the greatest sales volume in the sector. The productivity advantage gives a lower cost profile to have greater sales value. Logistic management can provide a multitude of ways to increase efficiency and productivity and contribute to reduce unit costs.

9. Updated by: Reham S. Al-Homayan and the value advantage gives the product a differential "plus" over competitive offerings. Customers don’t buy products, they buy benefits. These benefits may be intangible Adding value is services to gain competitive edge. Services developing relationship with the customers through agreement on delivery services, after sales service, financial package, technical support, …. e.g BMW (as value advantage) – Nissan as (Cost advantage).

10. Updated by: Reham S. Al-Homayan Logistics and competitive advantage matrix In practice, successful companies will often seek to achieve a position based upon both productivity advantage and value advantage. Fig 11.3 p 153 Service Leader Commodity Market You must differentiate Your self Cost Leader New technology help Cost & service Leader Japanese companies High Low Value advantages Productivity advantages High Low

11. Updated by: Reham S. Al-Homayan Michael Porter Page 154 Processes book “Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product.” Each of these activities can contribute to a firm's relative cost position and create a basis for differentiation; the value chain disaggregates a firm in to its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors.”

12. Updated by: Reham S. Al-Homayan Gain competitive advantage through Value chain (fig 11.5 p 154) Competitive advantage grow out of organize and perform discrete activities within the value chain. To gain competitive advantage over its rivals, must promote value to its customers through performing activities more efficiently that its competitors and in a unique way that create greater buyer value. Gain competitive advantage through logistics (fig 11.6 p 155) Organization will be a leader when they focus on both value advantages and productivity advantages.

13. Updated by: Reham S. Al-Homayan The Mission of Logistics Management The mission of logistics management is to plan and co- ordinate all activities necessary to achieve the desired levels of delivered service and quality at lowest possible cost. Logistics must therefore be seen as the link between the market place and the operating activity of the business. The scope of logistics spans the organization, from the management of raw materials, right through to the delivery of the final product.

14. Updated by: Reham S. Al-Homayan The Supply Chain and Competitive Performance “The supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer.” Supply chain management covers the flows of goods from supplier through manufacture and distribution chain to the end user. Page 157, Processes book.

15. Updated by: Reham S. Al-Homayan The difference between logistics management and supply chain management Logistics management is primarily concerned with optimizing flows within the organization. while,supply chain management recognizes that internal integration by itself is not sufficient. See figure 11.9 Achieving an integrated supply chain on page 159. implementation

16. Updated by: Reham S. Al-Homayan The Changing Logistic Environment As the competitive content of business continues to change, bringing with it new complexities and concerns for management generally it also has to be recognized that the impact on logistics of environmental change can be considerable. Of the many strategic uses that confront the business organization today, perhaps the most challenging are in the area of logistics:  The customer service explosion  Time compression  Globalization of industry  Organizational integration Page 159 Processes book

17. Updated by: Reham S. Al-Homayan The customer service explosion  Quality and excellence. The customer in today's market place is more demanding, not just of product quality, but also of service.  As commodity market we need to offer the customer more value through customer services and achievement of service will be through integrated logistic strategy.  The ability to become a world class supplier depends as much upon the effectiveness of the organization's operating systems as it does upon the presentation of the product, the creation of images and the influencing of consumer perceptions.

18. Updated by: Reham S. Al-Homayan Time Compression  Time has become a critical issue in management. Product life cycles are shorter than ever, industrial customers and distributors require just in time deliveries.  In the case of introducing a new product, there are many implications for management resulting from the reduction of the “time window" in which profits may be made.  To overcome these problems and to establish enduring competitive advantage. To ensure timely response to volatile demand a new and fundamentally different approach to the management of lead-times is required.

19. Updated by: Reham S. Al-Homayan Globalisation of industry  A global company is more than multinational company. In global businesses, materials and components are sourced world-wide, manufactured off-shore, and sold in many different countries.  The global company seeks to achieve competitive advantage by identifying world markets for its products and then to develop a manufacturing and logistics strategy to support its marketing strategy.  You must be flexible manufacturing and logistics to provide the specific products demanded by each market.

20. Updated by: Reham S. Al-Homayan Organisational integration  The classical business organization is based upon strict functional division and hierarchies.  In these conventional organizations, materials managers manage materials. Whilst production managers manage production and marketing managers manage marketing.  Yet, these functions are components of a system that needs some overall plan or guidance to fit together. Managing the organization under the traditional model is just like trying to complete a complex puzzle without having the picture on the box cover in from of you.

21. Updated by: Reham S. Al-Homayan Conclusion Under logistics management, the goal is to link the market place, the distribution network, the manufacturing process and the procurement activity, in such a way that customers are serviced at higher levels and yet at lower cost. Thereby achieving the goal of competitive advantage through both cost reduction and service enhancement. Logistics management demands that all those activities which link the supply market to the demand market be viewed as an interconnected system. The management of that added value is best accomplished by focusing upon the materials flow rather than upon traditional notions of functional or departmental efficiency.

22. Updated by: Reham S. Al-Homayan Chapter 12 Reverse Logistics by Richard Lancioni “The actual value of product units recalled and solid recycled waste needed to be transported runs into billions of dollars.” The trend will continue for the following reasons:  Fast-changing technology necessitating frequent changes in product design.  New laws being enacted worldwide, requiring the recall of defective products and the recycling of solid waste. Page 165 Processes book

23. Updated by: Reham S. Al-Homayan The Concept of Backward Distribution One of the major obstacles in the recycling process is the lack of an orderly reverse distribution system and the high cost of collection and transportation. The crucial area where the concept of reverse physical distribution applies is the product recall area.

24. Updated by: Reham S. Al-Homayan Urgency, Scope and Effectiveness of the Recall Process The urgency of a recall depends upon certain factors – there are three classes: Class I: Immediate risk, such product lead to death or serious injury (e.g Johnson & Johnson) Class II: No immediate hazardous and might still dangerous and cause injury but have to be cleared quickly. Class III : recalled for variety reasons, violation of federal regulations. The scope of the recall process depends on the nature of the product and the level of penetration in the distribution system. The challenge exists for a logistician to design a reverse system of distribution and get it to work at a desired performance level at the lowest possible total cost.

25. Updated by: Reham S. Al-Homayan Locating the Product Three distinct levels of increasing difficulty associated with the penetration of the product in the system: 1Product still under control of he manufacturer in company controlled warehouses or primary distributor controlled warehouses. A simple matter to recall. 2Product would have to be located and withdrawn from the middlemen involved in the distribution of the product (wholesalers and retailers). Recall Slightly more difficult. 3Product is in the hand of consumers. the most difficult. Movement of the product into each successive level not only complicates the recall for the logistician but adds to the cost of the operation as well.

26. Updated by: Reham S. Al-Homayan Warranty Cards Information that can be coded on computerized warranty cards are: Product description Manufacturing Plans Lot (group) Batch number and dates with quantities manufactured, forward order number, shipping dates, rail or truck number, geographic areas of distribution, scheduled arrival dates, shelf life and estimated rate of use. Customer details obtained after the sale can then be coded into the card and stored for retrieval.

27. Updated by: Reham S. Al-Homayan Retrieval of Products After the product is located, logisticians can coordinate the process of retrieving the product in the field either through:  the company's field sales force  the retailer or other middlemen  outside collection specialists Effective retrievals require that:  The customer be motivated to return defective products for repair, replacement or refund.  Good relationships be established among carriers and other participants in the distribution process such as channel members. The biggest obstacle in recalling products is the consumers. Both organization, sellers and distributors are responsible to solve this issue.

28. Updated by: Reham S. Al-Homayan reverse distribution as a part of logistics strategy The reverse distribution process for product recall should be treated as an integral part of logistics strategy. The success of a firms' recall will to a large extent be contingent upon prior planning and the clear assignment of responsibilities. The concern of logistics managers must be to determine in advance what, if any, modifications are needed in the existing distribution system to handle recalls. Management of the logistics aspects of the reverse distribution system should be assigned to a senior coordinator.

29. Updated by: Reham S. Al-Homayan Logisticians must be able to determine at short notice the number of effective products anywhere in the distribution system, be they in company warehouse or public warehouses. Good communications and order processing systems will allow the logisticians to substantially reduce the time and manpower required for a recall and limit geographical area of involvement. Transportation and traffic management reviewed with special emphasis on pinpointing shipping dates, orders, destinations, vehicle identifications,and stoppage of further movement. An accounting and cost review of expenditures for the performance of activities involved in recall must be made. See Figure 12.1 on page 171.

30. Updated by: Reham S. Al-Homayan ACTIVITIES Please select from the following activities which could be undertaken by students at this stage: Processes Study Guide Activity 15 page 52 Processes Mini Case Study Zara (see slide below)

31. Updated by: Reham S. Al-Homayan Processes Mini-case Study Zara Read the case study http://hbswk.hbs.edu/item.jhtml?id=4652&t=operations What type of processes do Zara use to good effect? Use course concepts and models from the Processes module in your answer.

32. Updated by: Reham S. Al-Homayan Reading to be completed by NEXT WEEK Re-read pages 49-52 of the Processes Study Guide File to reinforce your learning from this tutorial. Read Understanding Business Processes, Section 5, Business Process Management (pp 175-196) to prepare you for the next tutorial. Read pages 53-58 of the Processes Study Guide File to prepare you for the next tutorial.