Prospering Through Collaboration and Supply Chain Visibility Jointly sponsored by
Our sponsors “WMG is an outstanding example of combining academic excellence with industrial relevance – a unique international contribution, which we are all proud of”. Tony Blair.
Joined-up thinking “An efficient supply chain depends on the easy exchange of information between participants, but for too long IT systems have struggled to provide the smooth flow of orders, delivery notes and forecasts necessary to keep goods moving freely”. John Lamb 2005 “Strategic growth depends on integrating with trading partners in the supply chain” – Spencer Marlowe 2005
“The concept of supply chain collaboration has been applauded for years, but it falls short in practice because participants rarely act in concert for the greater good of their supply chain……. The goal of collaboration is to compress overall (supply chain) costs, not shift them between partners”. Finley and Srikanth 2005
“…. . it is clear that collaborative initiatives are not being held back by systems, as generally the technology solutions are available. Where companies lag behind is in terms of their people skills…if you don’t trust and don’t know how to work effectively with your trading partners, then relationships break down and performance is impaired. For this reason, companies must adopt a mindset of sharing information – some of it potentially commercially sensitive……. ” A Waller and C Geldard 2005
Definitions Visibility – Clarity of vision; how well we see something. The ability to understand interact with enterprise data for analysis and for making better business decisions. Collaboration – diverse entities working together - to cooperate traitorously with the enemy
Building a Supply-Chain and making it visible An exploration of low cost technology. Dr. Jay Bal Warwick Manufacturing Group
Visibility and Collaboration – linked? Visibility "An efficient Supply-Chain depends on the easy exchange of information between participants". Collaboration Recent AMR research identified four levels of supply chain progress - Reacting, Anticipating, Collaborating and Orchestrating. The research found that only one sector - consumer electronics - had reached the collaborating stage. No company had reached the orchestrating level.
Moving Up the Food Chain Exploiting E-Business
The Value System Suppliers Distributors Competitors Value and Demand Information Cost and Supply Information Buyers
Priess INTERPRISE RELATIONSHIP MODEL REWARD Y Shared Risk and Revenue Variable Payment need for movement towards enriching solutions Manual Fax, Phone, Mail Electronic Data Interchange (EDI) Development Process Linkage Business LINKAGE Z Collaboration Current Unit Price Current position of positionof automotive SMEs Simple Standard Product ENRICHMENT X Much Before and After -Sale Value -Adding Knowledge and Service
Many Suppliers, with many modules! my. SAP Supply Chain Management
Dashboards
Existing Solutions Ü Too Fragmented Ü Too Costly Ü Require Too much IT Ü Don’t Reach down to the small supplier Ü Not flexible enough
West Midlands Collaborative Commerce Marketplace A FREE online hub for Small Businesses in the West Midlands to …. 1. Access New Business Opportunities… …based on what you Can do, not what you do now! 2. Form New Partnerships… …to help address new opportunities. 3. Sustain that Business… …collaborate on-line to support communication & delivery.
Other Similar? Portal Gateway. Asia
WMCCM Supply Chain Module Ü Low Cost Ü Many to Many Visibility Ü Embedded Functionality Ü Combines Bill of Materials (BOM) and Process viewpoints Ü Definable “heartbeat” Ü Data Collection and Store
SC definition Ü Component Process Measure Definitions Measure Values Alerts / Notifications Component Attributes Subcomponent(s)
Measure Property Ü Each measure requires the following properties: Ü A name by which it is identified A ‘low’ value below which the status for the process becomes “amber” Ü · A ‘low’ value below which the status for the process becomes “red”. (this obviously has to be lower than the ‘low’ value defined for the amber status Ü · A ‘high’ value above which the status for the process becomes “amber” Ü · A ‘high’ value above which the status for the process becomes “red”. (this obviously than value for has the defined be ‘high’ higher to the amber status Ü
How the solution works! F D E BOM Structure C B A
Application Scenario Black Box SN Vehicle ID Storage Activation Control SIM Card ID Vehicle ID
WMCCM Supply Chain Module Demo
To find out more about the complete WMCCM service and how it WILL benefit YOUR company, visit www. wmccm. co. uk Or why not register your details with us today …
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Contractual Problems Inherent in Collaboration Richard Hickman R. J. Hickman@warwick. ac. u k Prospering Through Collaboration and Supply Chain Visibility 14 th September 2005
Dimensions of Collaboration Ü Concepts of dimensions that influence transactions from O E Williamson Ü Asset Specificity Ü Uncertainty Ü Frequency Ü Examples from LOTi. SS Research in Defence Long-Term Service Support Collaborations
Specific Assets, Bilateral Dependency or Barriers to Entry Ü Tangible -non-specific - mixed – highly specific Ü Intangible – IPR - skills - knowledge Ü Ability to switch or locked into a bilateral dependency Ü Tendency to continue to trade – barriers to entry - effectively merge – breach competition
Controlling Specific Assets Ü Investment in pre-contractual research – limiting levels to avoid dependency – ensure competition – defer problems Ü International collaborations – alternative approach: Ü Share and balance investment Ü Implement a “lock-in”
Uncertainty – vagaries, manipulations, contracts and competition Ü External vagaries – force majeure Ü Manipulation of information for advantage Ü “evasive ignorance and ambiguity” Ü Future work? or transparency Ü Short-term contracts to ensure competition but used on long-term projects
Frequency Ü High costs of negotiation and contracts Ü Re-negotiated and standard forms: Ü Set industry standard – we know what to do or inertia in management and relationships Ü Too much of a good thing! – thousands of forms – confusion – who does what?
Dimensions from LOTi. SS Ü Mo. D move to in-service contracting Ü Benefits from civil practice to reduce costs and inventory Ü 8 major case studies from military, civil and construction
Frequency Ü Previously maintained with spares, up- grades and long life-cycles Ü In-service support as growth market as major projects decline Ü Contracts and negotiations – complex and incomplete
Uncertainty Ü Competition is introduced or the threat of competition
Specific assets Ü Short term contracts policy restricts investment Ü Prime contractors have specific assets that demonstrate a bilateral dependency: Ü IPR Ü Warranty Ü Knowledge and skills Ü Management of supply chain
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Case Study: Capital Equipment Supplier to the Semi Conductor Industry prepared by John Garside University of Warwick
Background Ü The company designs and manufactures high technology ion implantation equipment for the semi-conductor industry. Ü Independent Market research (Data. Quest & VSLI) showed an estimated doubling in the size of the market from 1998 to 2001.
Inside manufacturing plant in the UK The 3 PL-managed warehouse in Partridge Green, situated 10 miles away from the main UK manufacturing plant in Horsham
Overall Objective The task was to design a manufacturing process capable of increasing the volume of product shipped Machine a Week (50 p. a. ) to Machine a Day (MAD - 250 machines per year generating £ 250 m sales) within two years, without any significant increase in direct labour. Ü Build flexibility into the process enabling the company to accommodate future business cycle peaks and troughs, prevalent in the semiconductor industry, without having to reduce staffing levels in the downturn and also provide the basis for the next business upswing to a planned £ 1 billion sales. Ü
Key Factors The business had been through a recession from 1996 and the order book had dropped from 18 units per quarter to 4 units per quarter by 1998 Ü Marketing predicted the volume would increase by a factor of eight in the next two years Ü The space on site was limited and the company had a policy of controlling any increase in head count Ü The business was managed by people who had developed the technology ten years earlier Ü
Key Factors Business has expanded from its Silicon Valley base in the USA into a multi billion international business operating in companies around the world. Ü The market demands new products and new orders in the market recovery will be for Quantum an up rated machine that will accommodate the standard 200 mm and also 300 mm silicone discs. Ü Swift a new concept machine that moves the beam across the silicone disc as opposed to moving the disc through the beam was needed to complement the product range. Ü
Key Factors Ü Ü Ü New operations manager appointed but business dominated by engineering and marketing Small number of very important and influential customers Business was dependent upon winning the equipment order for the complete fabrication shop which included the ion implant machine Ion implant machine was the only major product developed outside the USA Relied on the most advanced technology of any product supplied by the company Ranked number two in the world behind Eaton
Question ? Ü If you were the newly appointed operational director what would you do to ensure that you met the volumes predicted by the marketing department? Very significant bonuses and share options were dependent upon delivering the business performance commitments agreed with Senior Company Directors. All the managers on site depended upon you making the shipments for them to receive their rewards.
Course of action Ü Ü Ü Created a Teaching Company Scheme as a way of recruiting new staff without increasing headcount. Made the well respected production manager with ten years experience of running the factory full time project manager. Enlisted the chief manufacturing engineer full time to work on the project. Appointed administrator / chief liaison engineer to keep everyone informed of progress and support needed from across the site. Recruited four Teaching Company Associates and paid them industrial salaries.
Key Strategies • World Class Manufacturing Process – harvesting “Best Practice” from Blue Chip industries via the TCS, Networking with academic and other institutions • Automatic Link of Product Structure to BOM and Sales Order Entry – Enable system specific QMS • Outsource Material Logistics – Link with Blue Chip global logistics provider
Key Strategies • Outsourcing of Major Assembly work to reduce cycle time – Detailing Supply Chain and Establish Agreed Standard Operating Procedures. – Proliferate “Ma. D Process” through the supplier chain • Extension of Computer Aided Test System (CATS ) – Re-Engineered to include SPC, fully automated, reducing cycle time • Synchronised Site and Factory Operations – Implement TQC onsite, SPC – Factory Team to be Start Up Team
Policy Guide Lines • True Paperless System – Intranet/Internet/Radio Frequency LAN connections – Barcodes – Electronic image manipulation (local and remote) • Utilise existing systems – PKM/PST – FRACAS/Manman/Oracle/SAP – CATS/PDM • Seamless relationships with key suppliers
Purpose of the TCS project • Common manufacturing methodology for Quantum Batch Machine and new SWIFT Implant including capability for manufacturing other products • Enable $3 M/Head Revenue
Objectives for the project • Demonstrate a machine a day capability by end of Q 1 of FY 2000. Actually achieve a production rate of over a 100 systems years with a maximum target of 285 • Enable Revenue per head of $3 M per factory employee • Reduce Quote to Ship cycle times from 15 to 5 wks • Maintain On Time Delivery at greater than 98% • Quality: Internal 6 Sigma External < 1 field found defect per System • Support mixed model Production
Key Assumptions • • Revenue on 150 Systems Plus by 2000 Average Selling Price = $2. 2 M Spares business is Outsourced Support for site from up to 2 Design Engineers per shift • Work force 150 max Manufacturing Heads (not including installation) - Direct: Indirect ratio 1: 1
Key Assumptions • Ma. D only applies to released products • Build to order only - If configuration to change remove product from line. • Need to retain core expertise and product knowledge • All functional Customer Special Configuration (CSC) requirements are met by Options. • CSC’s will be dealt with on a case by case basis and may affect cycle time.
Key Assumptions • Cycle Time reduction achieved through assembly by vendors: Cable, Piping, Beamline, Wafer Loader, Target Chamber, Integration, Strip/Pack (support from Schenker), Shipping, Re-assembly • Cycle Time reduction achieved through running Tests over night (CATS IV) • Retain Wafer Handling Set-Up as core competency
Key Assumptions • Support on site from Vendors supplying sub- assemblies and installing standard components • AIT will retain master Schedule, Product structure, Quality & Test Plan • 24 Hour working Seven Day working week • Utilise Existing Buildings (B 1/B 2 < 100/Yr & A > 100/Yr) • Oracle Mfg Implementation Start Date May 1 st 1999
Key Management Actions Identify suitable supplier to that were willing to invest in the additional capacity to meet the predicted market demands Ü Introduce rigorous process for evaluating and selecting key suppliers. Ü Obtain formal agreements with suppliers on the work they will be responsible for, including sub-assemblies and installation on site Ü Establish electronic network for exchanging information on build status, technical specification and delivery schedules Ü
Individual activities for Teaching Associates • Bill of Materials restructured to allow modular build of implant machines and sub-assemblies subcontracted to key suppliers • Establish production planning control process to give visibility to key suppliers and production departments • Work with Engineering Department on Engineering Change process and how these will be communicated the supply base • Direct assistance to beam line supplier with BOMs & MRP
Individual activities for Teaching Associates “Create a Total Quality environment across the supply chain to achieve consistency of product quality, on-time delivery at an acceptable cost” • • Integrated Manufacturing Quality System - TQC, 5’s, Vendor Process FMECA’s for Assembly Defined Ma. D requirements and introduced into Quality Management System
Assemble machines at customer sites • Defined specific Quality and Test Plan for each Ion Implantation System. • Site quality performance linked to Quality Plan: Must achieve less than 1 Field Found Defect • Two Day Assembly schedule introduced for systems being assembled directly at customer sites • Start Up Cycle Time to be equal to or less than at Factory • Factory System Engineer manages Start Up on site • Established ‘AA’ Team: Retrofits, Rework, Late Customer Configuration, Prototype/Engineering work
We were an Organisation that : • worked very hard to do everything • but missed some important things Ops Strategy $300 k rev/Ops hd, 19 wk cycle time 100 Batch sys pa capability 10+ Field Found Defects/system Poor Gross margins By implementing the Operations Strategy during 1998 and 1999 • Analysis against best practice, shows our core competencies need to be : System Collation, Supplier Management, Quality and Kaizen • We outsource everything else to preferred long-term suppliers Shipping, Warehousing, Expediting, Sub assembly , Module assembly etc • We detail how we will work this way with a systematic approach to the entire supply chain process (the Machine a Day or “Ma. D” process) • We train and reorganise the existing workforce in the core competencies • We accept that we won’t increase headcount and factory space except for the core competencies • We focus on what is really important Product cost reduction, shorter lead times, improving quality etc $3 M rev/Ops head, 5 wk cycle time, 280 sys pa capability Batch and SWIFT <1 Field Found Defect /system World class profitability We will be a team that : • Is Focussed on the important things • Is the most productive, bar none
Achievements · The project focused the company on identified core competencies needed to sustain profitable growth; system configuration and collation, supplier management, quality assurance and continual process improvement. · Logistics provision was identified as non-core and outsourced to a Blue Chip Logistics provider. · The full manufacturing scope for the new business ERP system has been agreed with Oracle and the system currently being installed · The supply chain has been rationalised from several hundred suppliers to initially 7, tier 1 companies, capable of providing finished machine modules. · Suppliers have the capacity for producing 25 systems per quarter that is in line with current demand.
Achievements Ü Ü Ü Product process maps redesigned to support the new supply chain and the company’s bills of material restructured to suit outsourced, modular MAD production concepts. Web-based supplier interface tools have been implemented enabling full on-line interrogation of product build and test plans. The build and test plans define activities to be undertaken by tier 1 suppliers and these are used for generating their own quality documentation, conforming to standard operating procedures. Touch quality hand over checks for modules have been agreed with suppliers and self-certification approved. A new computer automated test system (CATS) for Ion Implant Machines has been created from a base test specification. The system automatically generates the test plan from the machine configuration and takes control of the verification programme.
Achievements Ü Ü Ü The system has a degree of built in artificial intelligence allowing testing to continue unattended on the identification of minor defects. Machine set-up and tests to be automated, leading to a test cycle time reduction from 21 to 7 days. The site layout has been redesigned to utilise the space created from outsourcing manufacturing. The space in the warehouse and build areas has been converted into multiple product test bays to support the core competencies needed for ramp in production. Learning from the MAD programme is now being adopted by tier 1 suppliers to increase effectiveness The MAD programme has secured the future as a manufacturing site, through becoming the most productive manufacturing plant in the company and meeting the MAD objectives within 18 months
Ü Ü Ü Achievements The TCS programme designed a new manufacturing process allowing production rates to increase from 4 systems per quarter to a peak run rate for Q 4 - 2000 of 37 per quarter, a nine fold increase with the addition of only 25 final test technicians. The peak demand in this business cycle has passed and orders are down in Q 1 - 2001 to 22 machines. The new manufacturing system has accommodated this change without staff reductions in the factory. Intel has reviewed the methodology developed by the company for providing web-based information and automatic testing of systems. And are considering a similar system This innovative manufacturing process based upon strategic partnerships, with preferred suppliers taking responsibility for component manufacture has been adopted for Swift the next generation This Swift machine has been launched and five machines were delivered in Q 4 - 2000.
Achievements Ü Ü Ü The MAD project provided the foundation for ISO 9001 : 2000 certification, achieved May 2001, a first in the semiconductor market in the UK. Established effective documented processes helped reduce lead-times for the launch of the new Swift product into manufacture by 30%. The facility at Horsham has now been identified as a strategic manufacturing site within the worldwide organisation. Based upon key company measures of performance, it has been demonstrated to be a more cost effective production facility than operations based in the USA. Consequently, the supply-chain model will be adopted for new products. Volume production facilities to manufacture the new Swift machine are currently being installed at Horsham and USA based upon this approach.
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NB 2 BC Demonstrations Supply Chain and Collaboration Technologies
Demo Suite Layout WMCCM Demo edi. Track Demo • Marketplace • Supplier Collaboration • Collaboration & Clusters • Data and Process Visibility • Virtual Partnerships • Exception Management • Online Communities • Join Systems • Hosted edi. Track demo WMCCM demo NB 2 BC Main Screen
How to Use Your Legal Department Ü Penny-Anne F. Cullen, LLB. (Hons), Ph. D School of Law, University of Warwick
Traditional Western Lawyers’ Perspective Ü “Arms’ length contractual relations” (Sako, 1992) Ü Presumption: protect your client through use of contract terms and the legal system WHEN not IF things go wrong i. e. contracting for failure Ü Based on classical adversarial presumption of contract law in the West (Macneil, 1973)
Traditional Western Lawyers’ perspective Ü Contracts should be agreed before any work starts on the new product/project Ü Contract perspective “presentiation” (Macneil, 1973, 1978, 1981) Transactional contracts (Macneil) Ü Economic perspective Neo Classical contracting (Williamson, 1996) Risk averse Ü English commercial contract law Classical sanctity of “freedom to contract”
Williams v Roffey Brothers & Nichols (Contractors) Ltd (1990) 1 All ER 512 Ü Courts adopted a pragmatic approach to ascertain the real contract Ü Parties varied the original terms of the subcontract for mutual benefit Also, avoided main contractor’s liability to client for damages under main contract Ü Typified pragmatic business relationships of 20 c If in parties’ mutual advantage to continue contractual relationship, on new terms = incentive for subcontractor to complete on time
Relevance of Roffey to Established Commercial Practice Ü If a main contractor agrees to a low price, with a subcontractor, it acts contrary to its own interests because it will never get the job finished without paying more money (Glidewell LJ in Roffey) But: Ü Common practice in UK defence procurement (ECLOS, LOTISS) Ü Significant parts of UK engineering and construction industries bid low – retain work – claim for variations
Classical Legal Presumption of English Commercial Contract Law Ü Brownsword R. 1997; 2000 Ü Collins H. 1999 Ü Watford Electronics v Sanderson (2001) Adversarial basis Ü Baird v Marks & Spencer Plc. (2001) Special partner relationship with suppliers No legal basis
Traditional Non-lawyers’ Perspective Ü Contracting perceived as outside the scope of re-engineering activities Ü Lawyers can be perceived as pests! Ü But consider contracts significantly influence: Logistics Functionalities, costs, lead-times of finished products Life-cycle support costs
Research Programme Ü 2 Principal phases Effective Contracting & other Legal Obligations in equipment procurement (“ECLOS”) Long-Term in Service Support (“LOTISS”) Ü Practical emphasis on cost and lead-time reduction across the supply chain through: Business Process Re-engineering “Lean” Initiatives (Lamming, 1993) Efficient contracting
Traditional Contracting Process Ü Request for proposal and statement of work drafted without any reference to supplier Ü Customer maintains arm’s length relationships in order to prevent allegations of bias during competitive tendering Ü Supplier could be wasting time and effort as a ‘stalking horse’ with no real chance of winning the order Ü Proposal prepared by supplier alone Ü High risk of misunderstanding by both parties of requirements and proposal details Ü Face to face meetings begin very late and are adversarial in nature
DOD Alpha Contracting Process Ü Collaborative working begins at the start of the process Ü If customer wants competition it will: equal time and effort working with potential suppliers avoid wastage attached to ‘stalking horses’ Ü Process does not require actual competition threat of competition may be adequate Benchmarking against other supplier performance Open book approaches Ü Collaborative approach minimises scope for misunderstandings Provides for realistic design specification
Results: Defence Practice Progressively out-source long-term in-service support Private sector unwilling to change from tradition of: Ü Need for incentives to change from distinct OE and spares contracts to long-term support Ü If long-term contracts are outsourced by Mo. D, : Ü loss of in-house capability Increased dependence on private sector providers Issues in time of ‘national emergency Ü Therefore consider incentives to: Ensure compliant contractor performance Preclude opportunism and self interest
Results: Trends in UK Contracting Defence Civil Aerospace Company specific contracts Sector specific contracts Risk-revenue: Smart Procurement: i. e. Investment, risks “partnering” and IPTs and profits shared effective? Overriding agreements: ECLOS : govern long-term Code of Conduct – not relationships and legally binding specific contracts Post Levene (1987): Neo classical completive contracting remains
RELATIONAL CONTRACTING: CIVIL AEROSPACE Memorandum of Understanding (1) Formal Long-term strategic alliance Co. Y&Co. B Including non-disclosure clause Memorandum of Understanding (2) Formal Outline design & specifications Supplier selection Project “YYY” incl. & N. B Knowledge valuation clause Risk-revenue share basis Detailed design & specifications Project contract Formal Initial production All parties know that preferred suppliers 1 & 2 work on similar Co-located terms project teams; shared computer networks
TRENDS IN RELATIONAL CONTRACTING: CONSTRUCTION EXAMPLE: “Be” Form of Contract Formal Framework Agreement: Collaborative Terms cannot be changed Project Protocol (informal) Risk Register (informal) Purchase Order (formal) Terms replicated to all “purchasers” & “suppliers” Role of project team but: -Limited Autonomy -Participants not legally bound by Project Team’s decisions Risk Allocation Schedule (formal) showing amount included in target cost/contract sum “Relief Events” (formal)
Results: Contract Documents Ü Adversarial contract terms promote adversarial relations e. g. unbalanced risk allocation Ü Unfair terms enshrining ex ante economic power promote transaction costs through: Complicated, unclear gain-share/risk-revenue share Mistrust and defensive behaviours Prolonged renegotiations Delays and cost-overruns
Results: Contracts can: Support collaboration and mutual cooperation Ü Balance benefits from monitoring and trust Ü Develop long-term relations Ü Reduce costs of Ü detailed monitoring Renegotiations Claims Ü Improve efficiency Ü Ü Ü Ü Encourage mistrust, obfuscation Discourage collaboration Establish/enshrine adversarial relations Create unnecessary transaction costs Duplicate resources Time and cost overruns Reduce efficiency
Conclusions: Lawyers should consider: Ü Delays and cost escalations: unrealistically prescriptive contracts are drafted before detailed specifications known Design, develop, deliver products on-time, without detailed requirements specifications during initial contract negotiations Ü Fairness: Contracts mutually perceived as fair engender good relationships (and vice versa) Mutuality - pre agreement as well as during performance Consensual relations, appropriate incentives and “lean” principles reduce transaction costs Incentives: Contract terms containing perverse incentives yield perverse results Ü Trust: Relationship between contract processes and terms Ü Trust is the missing link in the efficiency chain Mistrust <-> transaction costs <-> inefficiency Ü Risk: joint indentification, understanding and management
Dissemination and Deliverables Ü LOTISS website Case studies Good practice and learning points Ü Ü Route map Publications Internationally refereed academic journals Industry/defence journals Ü Workshops CIRIA US Lean Construction Institution Ü Ü Ü Ü Conferences Academic Ministry of Defence (Mo. D) Industry National Audit Office Mo. D’s Defence Logistics Organisation Legal practices and lawyers’ associations
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SUpply Chain Cost Effectiveness & Swift Service SUCCESS A framework for improving supply- chain visibility and robustness Dr Carlos Mena Cranfield University
Agenda Ü Overview of SUCCESS Project Ü The Supply Chain Time and Cost Mapping Toolkit (SCTCM) Ü Success Findings and Benefits
Supply Chain Costing Issues Ü Need for increased visibility of cost in processes Ü Migration of costs between direct and indirect activities Ü Change in emphasis from asset ownership to 3 rd party providers Ü Need for a holistic approach to costing the entire supply chain operation Ü To identify the many cost trade-offs between business processes
SCM Decisions Ü Cost of serving different customers Ü Product/service cross-subsidisation Ü Supply Chain trade-offs Ü Benchmarking Ü Sourcing decisions e. g. make or buy Ü Supply Chain capital investment decisions
Research Challenge Ü Difficulty in visualising true costs across the supply chain Ü Difficulty in identifying wasteful processes Ü Difficulty in costing waste in the supply chain Ü Difficulty in evaluating cost trade off analysis Ü Lack of ‘simple’ tools to facilitate management decision making
The SUCCESS Project “SUpply Chain Cost Effectiveness and Swift Service”
SUCCESS Objectives The main objectives of the project were: Ü To assess supply chain costs within the Food and Drink industry Ü To develop a methodology to identify waste in processes through a combination of process mapping and activity costing approaches Ü To disseminate the research findings
Project Team & Stakeholders Mc. Cormick Bernard Matthews Masterfoods Project Manager Co-investigator The Core Team Senior Research Fellow Research Director Cranfield University Principal Investigator Senior Research Fellow The Chartered Institute Of Logistics and Transport (UK) Government (EPSRC) Research Director Warwick University
Supply Chain Time & Cost Mapping - SCTCM Ü Supply Chain Time and Cost Mapping (SCTCM) Toolkit is a framework for analysing supply chain processes in terms of time and cost Ü The main objectives of the SCTCM are: to identify areas of waste in the process to provide visibility of time and cost across supply chain processes to analyse the cause-effect relationships between different stages of the supply chain Ü The SCTCM is a project-based approach that should be implemented by a multidisciplinary team of people from the company or companies involved
Supply Chain Time & Cost Mapping Toolkit 3. Cost Collection 5. Translation Cost Matrix 6. Cost-Time Analysis 1. Project Definition 2. Process Mapping 7. Cause-Effect Matrix 4. Time-based analysis 8. Evaluate Scenarios
3 5 1 2 1. Project Definition 4 6 7 Project Terms of Reference Objectives: To identify and cost the areas of waste in the process To provide visibility of cost across the supply chain Scope: Supplier Inbound Warehouse Product Scope: Hde. P Geographical Scope: France Project Team: Sponsor: Leader: Finance: Logistics: Planning: Processing Packaging Distribution Process Scope Timeframe: John Mark Maria George Sarha Planning Workshop 1 Workshop 2 Workshop 3 01/09/02 15/09/02 29/09/02 12/10/02 Retailer 8
3 5 1 2 2. Process Mapping 4 6 7 Decomposition Diagram (Child) Orders Schedule Input A Eggs Farming Turkey Farming 1 By-products 2 Evisceration Processing & Deboning Input B Feed 3 Preparation & Cooking Other inputs 4 Packing Slicing & Packing Packaging Material 5 W/h & Distribution Farms A-0 Equipment F 1 Turkey Ham Product A Labour F 1 Equipment F 2 Labour F 2 Honey Product Roast A Turkey 3 PL Viewpoint: Production 8
3. Cost Collection 3 5 1 2 4 6 7 8 Activity Based Costing (ABC) Ü Products & processes consume activities Ü Activities consume resources Ü This consumption of resources is what drives cost Ü Understanding this relationship is critical to successfully managing overheads
3. Cost Collection 3 5 1 2 4 6 7 Activity Based Costing (ABC) Ü Use activities identified at the process mapping stage Ü Sort costs into direct and indirect Ü Identify resource drivers Ü Trace consumption of resources to activities Ü Identify cost drivers Ü Cost product’s consumption of activities 8
4. Time Based Analysis 3 5 1 2 4 6 7 8 Defining Value is a property of a product or service that the customer cares about and would be willing to pay for. Value is added to products or services when all three criteria are met: 1. Customer cares about the change 2. Physically change the item 3. Right first time Gregory and Rawlings 1997
3 5 1 4. Time Based Analysis 2 4 6 7 8
3 5 1 5. Cost Translation 2 4 6 7 8 Translation of General Ledger Costs to Activity Costs Expense Headings Staff Costs £K Activities 243 £K Evaluate new suppliers 25 N. I. Pension, etc, 54 Develop new purchasing programmes 43 Company Cars 18 Negotiate with suppliers 62 Telephone 16 Process orders Stationery 3 138 Supplier intelligence 18 Accommodation 41 Resolve supplier problems 64 I. T. Support 37 Departmental admin. 64 Staff training 27 Staff Restaurant 4 416 Develin and Bellis-Jones 1999 416
3 5 1 2 5. Cost Translation PROCESS 1 20. 2% Overhead 10. 4 % Labour 0. 1 % Raw Materials 89. 12% PROCESS 2 25. 1% PACKAGE 86. 2% Overhead 14. 8 % DELIVERY 100% Labour 2. 4 % Pack Materials 82. 8 % 3 PL 100% 4 6 7 8 CUSTOMER
3 5 1 6. Cost-Time Profile 2 Distribution Packaging Blending Sourcing 4 Storage Sterilizing 6 7 8
3 5 1 2 6. Cost-Time Grid > 20% % of Total Cost < 20% Cost Opportunities Low Cost and Responsiveness Opportunities < 20% High Cost and Responsiveness Opportunities % of Total Non Value. Adding Time > 20% 4 6 7 8
3 5 1 2 6. Cost-Time Grid Packaging > 20% % of Total Cost < 20% Cost Opportunities Low Cost and Responsiveness Opportunities Blending < 20% High Cost and Responsiveness Opportunities Distribution Sourcing Raw Materials Responsiveness Opportunities Sterilising % of Total Non Value. Adding Time Warehousing > 20% 4 6 7 8
3 5 1 7. Cause - Effect Matrix 2 4 Root Causes Key Activities Affected 6 7 8
3 5 1 8. Evaluate Scenarios 2 4 6 7 Saving of Time Saving of Cost Original Scenario New Scenario 8
Cross Case Analysis
Product Comparison Company A Company B Company C Demand volume High Temperature Regime Ambient (controlled) Ambient Chilled Demand stability Relatively stable Some seasonality Non-promotional Shelf Life + 1 year 21 days
Time Analysis Total Supply Chain Time (%) by Process
Value Analysis Value Adding Analysis Total Time Value Adding Analysis (%)
Product Cost Comparison Source Make Deliver Product A 43% 53% 4% Product B 14% 70% 16% Product C 14% 83% 3%
Cost – Time Comparison Deliver Make Source Product A Product B Product C
Costing Methods Company A Company B Company C Source Standard Costing Apportionment and Absorption Costing Make Standard Costing Apportionment and Absorption Costing Standard Costing Activity Based Costing Apportionment and Absorption Costing Standard Costing Apportionment and Absorption Costing Deliver Negotiated average cost with a third party ABC Negotiated average cost with a third party
Cost Visibility Ü Accounting policies and systems Ü Profit Ü Use of third parties Ü Equivalent units
SUCCESS Contributions The Supply Chain Time and Cost Mapping (SCTCM) provides visibility of both cost and time across supply chain processes Ü The SCTCM can be used to evaluate waste and the associated costs, leading to quantifiable process improvements Ü The SCTCM provides visibility of cause-effect relationships in the supply chain Ü The SCTCM can be implemented ‘in-house’ by medium and large organisations in collaboration with their supply chain partners Ü
SUCCESS Key Findings Ü The relationship between cost and time in processes is non-linear. This challenges the traditional view that reducing non-value adding time implies a proportional reduction in cost Ü Over 80% of supply chain time may be classified as non-value adding Ü Shelf-life has a strong impact on process efficiency Ü Costing information is usually not shared among supply chain partners
Industrial Partner Benefits The Industrial partners involved in the project have claimed the following benefits: Direct financial benefits in excess of £ 1. 5 Million Identification of areas of opportunity for improvement Structure and tools for supply chain analysis and design Ability to analyse the total cost of a product by activity Increased visibility of cost and time in processes
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