Developing Supply Chain Tactical Flexibility

– Supply Chain Management –

Assessing supply chain design and management capabilities and developing recommendations for improvements
Sessions 13 and 14 – Platform Leadership, Eco-system Growth, and Strategic Agility
Supply Chain Management is a Partnership Model Focus
Core question: How do we maximize throughput and shared value creation?
Spring 2021
Version 1

1

Agenda
Review course calendar
10:00 – 10:10 am
break
11:15 – 11:30 am
Discuss the Supply Chain Partnership and the core need and challenges of outsourcing and the scope of Quiz 2
Discuss Platform Leadership, Eco-system Growth, and Strategic Agility and final HW Assignment
11:30 – 12:30 pm
10:10 – 10:30 am
2

Review course calendar
3

Overview of Sessions and Assignments
This is a supply chain ‘consulting methodology’, to help you better ‘see’, design and manage industry and ecosystem partnerships
Each session builds on the other to lead to a comprehensive executive presentation presenting findings, conclusions and recommendations

We are learning a methodology for understanding, defining, improving, innovating and managing a supply system of partnerships

Open after class for 7 days

4

Supply Chain Partnership Alignment
Do we know understand the importance of strategic sourcing to supply chain design and management?
Do we understand the range of partnership/ownership relationships?
Do we understand how to assess make/buy and the implications in both cases for supply chain management?
Focus:
Understand the concept of ‘incentive alignment. Be able to articulate why it is critical to supply chain success. Understand the core challenges of incentive alignment and how to address them.
Understand the how make vs buy decisions are made. Understand the role of transaction costs in making these decisions.
Use our understanding of incentive alignment and transaction costs to better understand the role ‘blockchain’ has in fundamentally rethinking the nature of transactions and contracts and the potentially profound impact this will have on supply chain management and design
Readings:
Read: Aligning Incentives in Supply Chains – HBR 2004
Read: Blockchain for Dummies
Read: Operations Management Readings: Strategic Sourcing
HW – discussion only
Assess strategic outsourcing opportunities for your supply chain
For those activities that are ‘outsourced’ assess the contractual arrangement and determine whether there are opportunities to improve incentive alignment
Session 11 – 4/22

Session 12 – 4/29
5

Supply Chain Growth
Supply Chain Leadership
Supply Chain Technology
Do we know how to drive industry growth?
Do we know how to shape industry direction?
Do we know which technologies are important?
Do we know where to implement technologies to improve performance
HW Assignment 4– Growth and Leadership Assessment
Due 5/6
HW Assignment 4 – Technology Assessment
Due 5/6
Focus:
Understand the industry life cycle and its impact on Supply Chain design and management decisions
Incorporate the Value Disciplines analytical framework to deepen our understanding of life cycle impact on strategy
Understand ‘strategic flexibility’ and how it changes at different stages of the industry life cycle
Understand transaction cost economics and its importance in helping us to understand how to impact the CCR of our customers and suppliers to improve total supply chain Throughput lower total supply chain and Operating Expense and Inventory
Readings:
Read: Value Discipline Models and Competitive Success

Read: What are Transaction Costs

Read: Industry Life Cycle

Read: Your Next Supply Chain – The Sloan Management Review Jan 2010
HW – focus
Identify industry life cycle stage – assess implications for supply chain design and management strategies
Identify opportunities for lowering transaction costs at both supplier and customers.
Identify opportunities to help customers and vendors better assess and manage their respective CCR to improve T, OE and I for the whole supply chain
Focus:
Understand the operations management lifecycle model and the core impact of process and data standardization
Understand the purpose of markets and how market leaders create opportunities for total market growth
Understand the growth of ‘platforms’ and how platform leaders shape conditions for platform participant success
Readings:
Read: Enterprise Architecture as Strategy

Read: Driving Value from IT – HBS 2009
Read: The Supply Chain of the Future – IBM 2009
Read: Pipelines, Platforms, and the New Rules of Strategy – HBS 2016
Read: How to Innovate When Platforms Won’t Stop Moving – SMR 2011
HW – focus
Define market/ platform scope
Based on life cycle assessment define key participants
Identify opportunities for market/platform leadership in either process or data standardization or both
Identify opportunities for brand collaboration
Describe the specific opportunities for process/data/brand standardization and articulate the impact on industry T, OE and I
Assess your market/platform position as either laggard/follower or leader. If leader describe benefits and challenges of maintaining leadership. If laggard/follower describe the benefits and challenges of improving your position
Focus:
Understand the core technology trends and their impact on Supply Chain Management and Industry Growth
Special emphasis will be on Big Data, IoT, 3D Mfg., and Social Media and Collaboration Technologies emphases will be on
Understand how to align these technologies against the framework we have studied to understand best how to implement them to improve T and reduce OE and I
Readings:
Read: Seven traits of successful digital businesses – MQ 2014
Read: Digital transformation – Raising supply chain performance to new levels – MQ 2017
Read: McKinsey_3-D printing takes shape – MQ 2014
Read: Creating a Successful Internet of Things Data Marketplace – MQ 2016
HW – focus
Identify which new technologies are having the biggest impact on your supply chain
Use the frameworks developed to date to assess where to apply these technologies (process/data/standardization; transaction cost economics; CCR capability/speed/protection)
Assess the impact in terms which key metric (i.e. T, OE, I) will be most impacted and why
Session 13 – 5/6

Do we know how to drive industry growth?
Do we know how to shape industry direction?

6

Supply Chain Viable Vision

Do we have a ‘picture’ that can be ‘shared’ of ‘Viable Vision’?
Can we describe the journey in way that it feels achievable and exciting?
Focus:
Understand Goldratt’s view of Viable Vision
Relate cumulative set of recommendations and how they represent a ‘journey map’ to a viable vision
Discuss how we make the journey actionable
Reconnect with SWOT and DICE as frameworks for assessment and communications
Readings:
View: Goldratt on Viable Vision – Theory of Constraints

HW – focus
Summarize HW assignments into a final paper that takes cumulative feedback and refines assessment and recommendations
Link the recommendation into a ‘journey map’ that paints a compelling picture of a future state and presents a road map that feels believable, pragmatic and inspiring
Session 14 – 5/13
Supply Chain Recommendation

Final Paper – SWOT Summary, Viable Vision Journey Map and DICE Assessment
Due 5/13
7

supply chain
Core Concept 8
Understanding Outsourcing through Transaction Costs
performance gap assessment
process design assessment
management agility assessment
market growth assessment
improvement road map
8

M

CCR

C

To ensure we can make and keep commitments should we do everything ourselves?
We want to make sure the customer gets what they want?
How much of the supply chain do we have to control to make sure that happens?
How do we partner with supply chain partners to ensure they fulfill on their commitments?

we make a contract
We should outsource as much as possible (we shouldn’t make everything) but that means we are now reliant on others to help us meet commitments.
Assets
Activities
Assets
Activities
Assets
Activities
Assets
Activities
Assets
Activities
9

Mostly everything should be bought
Only do what you are good at
Supply chain leaders, platform leaders,
market leaders excel at organizing producers to align and deliver a completed good or services that fulfills a need

10

Wikipedia

here

Assess the costs structure of your supply chain and determining what you should make or buy
What is the boundary of the ‘firm’, your company? Your supply chain?
What does it mean to make? What does it mean to own the resources to make?

Shouldn’t we buy everything? Owning is expensive, why?
Why don’t you make your phone or your laptop?

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A contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement.[1] A contract is legally enforceable because it meets the requirements and approval of the law. A contract typically involves the exchange of goods, service, money, or promise of any of those. “Breach of contract”, means that the law will have to award the injured party either the access to legal remedies such as damages or cancellation.[2]

The Heart of Supply Chains: A Contract

Wikipedia

Why are developing ‘complete’ contracts so hard to make and enforce?
Contracts ae at the heart of supply chains just as contracts are at the heart of all relationships, including marriage. And like marriages, they are the start of something that has to evolve, not the end of something that is finished
A complete contract is an important concept from contract theory.
If the parties to an agreement could specify their respective rights and duties for every possible future state of the world, their contract would be complete. There would be no gaps in the terms of the contract.
The Ideal world: ‘A Complete Contract’

Wikipedia

This is an unattainable goal, yet this is the aim of most outsource agreements
The key point to understand, contracts are not ‘one-time’ events, but the starting point for an ongoing relationship

12

Asset specificity mean asset specialization – what does that mean – how does it apply to machines – how does it apply to humans – why does that make both buying and making harder?
What does it mean to be ’bounded’? rational? Why does that making both buying and selling harder? How does that create the risk of ‘opportunism’?
Transacting is hard – Both buying things and making things, like employees.
What does it mean to make an employee? How does that relate to the nature of the good or service and the activity required to make that good or service?
We should only specialize on the activities that we are good at, that are a core competency? That differentiate us in the marketplace?
We should outsource activities that other people are better at? Do we make the coffee cups for your coffee shop? No. Do you grow and roast your own beans? Yes.
13

Why are ‘complete’ and ‘on-going’ contracts hard to make and enforce?
Transactions are the unit of analysis and a ’complete contract’ is the goal

we need to transact with others
that is we need to write a contract that specifies commitments and the consequence failure to meet a commitment
Behavioral characteristics of the contracting parties make obtaining a complete contract difficult to accomplish

Bounded Rationality makes it difficult to get and process information (that we need to transact with others)
Opportunism means that people are self inclined to their own interests and not others, so they ay intentionally or unintentionally hide important information
Transactions characteristics of the service or product being bought/sold obtaining a complete contract difficult to accomplish

Asset specificity makes it difficult to describe the product or service in ways that make the contract enforceable
Uncertainty in the environment make it difficult to describe all possible events that could impact the ability to execute the contract
Contract types
Arms-length – invest in the process – attempts to be complete – get the best price (most mistakenly focus here)
Relationship-based – invest in the outcomes – achieve the right goal (most should, but don’t know how to focus here)
14

Leverage Best Deal
Non-Critical Efficiency
Critical/Strategic: Cooperation
Bottleneck: Supply Continuity
Supply Risk/market Complexity
Impact to
develop strategic partnership
terminate, find new supplier
reduce dependencies and risk, find other solutions
pooling of requirements
high
high
low
Assess the costs structure of your supply chain and determine what you should make or buy
Which activity should someone else do?
Which activity should we now do?
purchased
purchased
purchased
1
2
3
What are your choices?
easy/hard to buy/sell
important/not important to an organization comp adv

Will it improve capacity?
Will it improve lead time?
15

Leverage Best Deal
Non-Critical Efficiency
Critical/Strategic: Cooperation
Bottleneck: Supply Continuity
Supply Risk/market Complexity
Impact to
develop strategic partnership
terminate, find new supplier
reduce dependencies and risk, find other solutions
pooling of requirements
high
high
low
You have made the right decision to ‘buy’, to outsource, now what?
Because of the need for some sort of asset specialization and bounded rationality (our inability to know everything) there is always an opportunity for ‘opportunism’, that is someone trying to take advantage of us
easy/hard to buy/sell
important/not important to an organization comp adv
This is why we need to design supply chain contracts that ensure we have aligned incentives, to make sure no one takes advantage of ‘hidden information’.

Invest in goal alignment and relationship development and not ‘complete’ contracts
More handshakes and dinners, less lawyers!

Contract types
Arms-length – invest in the process – attempts to be complete – get the best price (most mistakenly focus here)
Relationship-based – invest in the outcomes – achieve the right goal (most should, but don’t know how to focus here)

Write a contract…
What type…
16

Understanding how to make contracts easier ensure I picked the right partner, and that partner can be trusted is the key to understanding how to create and grow eco-systems

17

Using technology to lower Transactions Costs and make it easier to create, and manage supply chains – easier to create and manage relationship – and ultimately grow them into industry platforms/marketplaces (e.g. Amazon) – Blockchain as a starting point – larger social networks of connected relationships
18

Blockchain is an enabling technology that facilitates transactions processing

Download the book

here

Transaction Cost Economics helps to explain why transacting is difficult, how markets and technologies like blockchain help and how a focus on transactions unlocks why supply chains are expanding into platforms and ecosystems – this is ‘bridging’ discussion from local supply chains to supply ecosystems and platforms
Go here

Transactions require trust and transparency

Reducing the costs of transactions make supply chain more open (easier to ’buy’ than make) and more scalable (easier to conduct transactions with more customers and suppliers)
Review Chapters 1-3
The focus will be on Ch 3 – ‘Friction-Free Markets’ of Markets with low Transaction Costs
19

‘Buying is expensive’
so is making
How does Blockchain help?
20

Focus on the transaction
Address the cost of transacting
21

Where do we focus our efforts?
22

Where do we focus our efforts?
23

– Supply Chain Management –

Assessing supply chain design and management capabilities and developing recommendations for improvements
Quiz 2 – Supply Chain Management

Spring 2021
Version 3

24

1 – How does lengthening or shortening lead time commitments lead to opportunities to improve capacity utilization and throughput?
Developing Supply Chain Tactical Flexibility
(reflection on HW Assignment 3)
10 points
Opens for 7 days on May 6th
25

2 – What is the difference between ‘out-sourcing’ and ‘off-shoring’? Why do firms ‘out-source’? What are some of the specific issues this raises? Pick one and describe more fully why this is a challenge?
Section 1 – Introduction
Operations Management Readings: Strategic Sourcing
3 – Review the section, ‘An Overview of Strategic Sourcing Decisions’. What are the challenges in determining whether to ‘make’ or ‘buy’? Provide an example to demonstrate pros and cons of each approach.
10 points
10 points
26

Section 2 – Essential Reading
Operations Management Readings: Strategic Sourcing
20 points

4 – Use either the Apple or Crocs case study. Pick one purchased input, that is something that is currently ‘bought’. Assign it to one of the quadrants in the Kraljic Matrix. Justify why it is there. Recommend either keeping it there or moving it to a different quadrant. Justify your recommendation.
27

5 – Review the section, ‘Competing on Core Competencies’. How do core competencies influence the ‘make-or-buy’ decision?
Section 3 – A Primer on Make-or-Buy Research
Operations Management Readings: Strategic Sourcing
6- Review the section, ‘Transaction Cost Economics’. What are transaction costs? How does ‘asset specificity’ relate to an organization’s core competencies? How do ‘bounded rationality’ and ‘opportunism’ influence the decision of whether to make or buy?
7 – Read the article, ‘Aligning Incentives in Supply Chains’. What are some of the incentive problems that firms face? How can they address or prevent incentive problems? Provide a specific example that illustrates the incentive problem and how your recommendation would address it.
10 points
20 points
20 points
28

supply chain
Core Concept 9
Assessing Platform Growth and Market Expansion Opportunities through Transaction Costs
performance gap assessment
process design assessment
management agility assessment
market growth assessment
improvement road map
29

Do you understand the platforms that you are part of?
Do you understand what drives value?
Are you able to evolve and learn when to standardize and when to specialize?
Can we trust our partners?
Do we know which processes to focus on?

Do we have a ‘global’ understanding of our supply chain?
How do we reconcile cost containment, revenue growth and customer intimacy?
Does the value discipline model help us to focus?
30

Do we know which processes to focus on?
Platform businesses bring together producers and consumers in high-value exchanges. Their chief assets are information and interactions, which together are also the source of the value they create and their competitive advantage.

Where do we choose to focus:
offer centralized services
lead data/process standards
follow data/process standards to gain access to markets and capabilities
31

Do we know which processes to focus on?
Understanding how to ‘dis-aggregate’ supply chains and focus on core capabilities and off load or ’sell’ standard capabilities is key

How do we create deeper partnerships to drive innovation-based growth opportunities

32

Starting with local supply chains then migrating to ecosystems expands how we see the opportunities for apply new technologies
How does technology and make data easier to standardize and access
How does technology and make processes easier to understand and leverage
How does technology and make it easier to create shared services so that business partners can focus on their core competencies
33

How can you use what we have learned to make an immediate impact to your (next) company), even at a junior level

How do you start local to propose big ideas that could transform your company and your personal opportunities.

34

Firm Strategy, Structure and Rivalry
Factor
Conditions
Demand Condition
Related and Supporting Industries
Determinants of National (eco-system) Competitive Advantage

Read
Supply Chain Partnership
Subordinated Supply Chain Partnership
Customer Partnership
Government Partnership
Training, Infrastructure,
How do we impact the determinants of eco-system advantage?
Eco-systems sink or swim together
35

Marketplace

Consumers
Producers

Supply Chains, Markets, Eco-systems, Platforms and Pipelines Analysis
Market = a regular gathering of people for the purchase and sale of provisions, livestock, and other commodities.
Eco-systems connect local markets into larger markets
supply chains feed markets
Market lower the transaction costs of selling products and services to consumers
Platforms and pipelines are the infrastructure that make markets and eco-systems possible
(can we help to make them more efficient)

Are there opportunities to either better ‘supply’ markets or to improve the market’s ability to supply
Producers of goods and services have a choice
sell direct to the consumer or
sell through a market place
36

Market Analysis

Producers
Consumers
Market
Exchange

Market
Exchange

market and market maker assessment
we need
markets
Markets lower the cost of ‘trusting’ ‘transacting’
understanding
searching
assessing
contracting
policing
these are market participation/ throughput constraints
‘Makers’ lower market constraints and therefore market throughput by leading standard setting and trust development
infrastructure platforms
data standards
process standards
information transparency and credibility (i.e. partnership on brand collaboration and trust development)
we need
Market ‘makers’
Data
sharing
Infrastructure sharing
Information Transparency and Credibility
Process sharing

paths
paths

Standards
drive
sharing
opportunities
where are the constraints
how do we increase throughput
market assessment options
own/manage the market
join the market as a product
join the market as a minimarket
To either create the standards or exploit the standards

Where are there other suppliers and customers to leverage and grow with – keep the focus on a few opportunities
Value focus

paths
Standardization and Centralization Focus
37

37

Leadership and platform (market, industry) growth
Invest in trust
Counter adverse selection
Counter moral hazard
Invest in value/divest in value
Cost responsive
Experience responsive
Market Responsive
Invest in standards
data
process

Ensure we deliver the value people need/want
Ensure we are able together to work together to maximize the value we deliver
Ensure we are able to focus on what we do best
We have a moral obligation to maximize value and ‘grow the wealth of the village’ so we all prosper
market growth
38

Leadership and platform (market, industry) growth
Invest in trust
Counter adverse selection
Counter moral hazard
Invest in value/divest in value
Cost responsive
Experience responsive
Market Responsive
Invest in standards
data
process

Ensure we deliver the value people need/want
Ensure we are able together to work together to maximize the value we deliver
Ensure we are able to focus on what we do best
We have a moral obligation to maximize value and ‘grow the wealth of the village’ so we all prosper

market growth
39

Invest in trust
Counter adverse selection
Counter moral hazard
Invest in value/divest in value
Cost responsive
Experience responsive
Market Responsive
Invest in standards
data
process

Ensure we deliver the value people need/want
Ensure we are able together to work together to maximize the value we deliver
Ensure we are able to focus on what we do best

market growth
40

Value Disciplines
this is a useful framework for helping to understand how to focus our supply chain – it builds on the market responsive vs cost effective model

Market Responsive

Cost Responsive

Experience Responsive
41

41

focused on market responsiveness
focused on experience responsiveness
focused on cost responsiveness
Customer Value Disciplines define the key supply chain requirements of each stage of the industry life cycle
42

Industry Life Cycle dictates where to invest (make) and where to buy (divest), which assets/activities
Economies of Speed
Economies of Scope
Economies of Scale
Customer Intimacy
Product leadership
Operational Excellence
Company?
Company?
Company?

Where are we?
Where are we going?
How do we need to adapt?
Market Responsive
Customer Responsive
Cost Responsive
Invest in different specialized assets/activities
Divest of others which are no longer desired by your customer

Economies of Speed
Economies of Scope
Economies of Scale
Customer Intimacy
Product leadership
Operational Excellence
Company?
Company?
Company?

Invest in Centralized Services
Invest in Standardized Data
Invest in Standardized Processes
Growth through centralization and standardization

Invest in – Cost responsiveness

invest in less variation

CCR
so you can reduce non-CCR cost without increasing risk on missing commitments
training
activity redesign

Case studies

Lean Transformation and cost-effectiveness across and enterprise

‘Village’ cost effective delivery
across an ‘eco-system’
45

Invest in – Customer responsiveness
Case studies

CCR
invest in capacity at the CCR to enable time to interact and ‘customize’ the output, ensure protection built at non-CCR

A
B
C
Assess process activity configurations
assess potential for different customer segments (segment not just by features but also by price/lead time elasticities)

Life Insurance Redesign
Customer Relationship Management

customized processes focused on differentiated services
46

Invest in – Market responsiveness
Case studies

CCR
Invest in strategic and tactical flexibility (range, performance and mobility)

Global Supply Chain Responsiveness

CCR
CCR

CCR
invest in capacity at the CCR to enable time to innovate and ‘experiment’, ensure protection built at non-CCR

Product Design and Consistency, Responsiveness

47

Invest in trust
Counter adverse selection
Counter moral hazard
Invest in value/divest in value
Cost responsive
Experience responsive
Market Responsive
Invest in standards
data
process

Ensure we deliver the value people need/want
Ensure we are able together to work together to …

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