School of Business
Course Code: D1UA303T
Course Name: Supply chain management
Module V
Supply Chain Restructuring
Need
In the current era of globalization, firms are under relentless pressure to
continuously improve their supply chain performance so as to minimize cost and
maintain high levels of customer service. In the last decade, several leading firms
have reaped substantial benefits by working on initiatives involving supply chain
integration and supply chain optimization.
Supply Chain Restructuring
Restructuring of supply chains helps a firm in moving the entire efficiency frontier
in the downward direction. Supply chain restructuring involves significant changes
in the supply chain structure in terms of the way material and information flows
are managed in the chain. Some ways in which supply chains can be restructured
include the following:
• Moving from the make to order (MTS) model to the configure to order (CTO)
model. (Remember Push and Pull systems)
• Reducing the number of stock points in distribution.
Cont.
• Differentiating fast-moving and slow-moving items in terms of material flow in
chain.
• Product and process redesign.
.
Cont.
Supply chain restructuring focuses on the innovative practices that separate leaders
from the “also-ran” companies. It goes beyond supply chain function and requires
integrating product and process engineering with supply chain function.
• It may also involve closer integration between marketing and supply chain
function
• It focuses on questioning the existing processes and architecture of a chain.
• It essentially involves supply chain innovation involving one or all of the
following measures so as to improve customer service and reduce costs:
product redesign, process redesign, network design restructure and value
offering to customer.
Supply Chain Mapping
Before a firm sets out to restructure its supply chain, it has to find a method to
successfully capture and evaluate the existing supply chain processes. The method
used to capture current supply chain processes is termed supply chain mapping.
Cont.
• Shape of the value-addition curve
• Point of differentiation
• Customer entry point in the supply chain
Value Addition Curve
The supply chain encompasses all the activities/processes associated with the
transformation of goods from the raw material stage to the final stage when the goods
and services reach the end customer.
• A typical supply chain starts with some input material and information, which are
transformed into the end product and delivered to the customer.
• This transformation involves a number of activities, with each activity taking time,
incurring cost and adding value.
• It is assumed that organization has removed all the non value added activity from the
chain.
Steps in making Value Addition Curve
On the x-axis we have
the total time in a chain
or the average flow time
in the chain and on the
y-axis we have the total
cost (cumulative) in the
chain
Cont.
To map this value-addition
curve, we work backward
from the time at which
goods and services are
delivered to the end
customer and trace back all
activities that were carried
out to make the finished
goods and service
available.
Cont.
All the activities on two
dimensions: time and cost.
So the value-addition curve
essentially captures the
way organization add cost
over a period of time in
supply chain processes..
Example
Customer Entry Point in the Supply Chain
The point at which a customer places an order is shown as a dotted line in the figure.
In several industries customers expect material off the shelf in the neighborhood retail
store. In such a case, the customer entry point is at the end of chain and is the same as
the delivery time.
Cont.
But in several industries it is not uncommon for customers to give some amount of
delivery lead time and in such a case obviously the customer entry point will be ahead
of the delivery time. (CTO)
Production according to Lead Time
Forecast As per the order received
Point of Differentiation
The concept of the point of differentiation is valid for any organization that is offering a
variety of end products to customers. As the product moves in the chain, progressively,
the product assumes an identity that is closer to the end product. The point of
differentiation is a stage where the product gets identified as a specific variant of the
end product.
Supply chain differentiation means running at least two supply chains with modularized
settings for one market, where the different supply chains are distinguished concerning
the degree of customer value-of-availability, value-in-use and value-of co-production.
Customer value of Availability
This means that the customer needs to accept the value proposition before value is
created, thereby acting as co-creator of value. From the view point of SCM, acceptance
of the value proposition by the customer leads to the customer’s effort to gain
accessibility to the offered value proposition. Thus, value creation emerges by
delivering goods or services to the customer, or in other words by making value
available. Value creation through availability of goods or services is the main added
value of logistics services.
Customer value of Availability
The differentiation can thought of as:
Distribution channel differentiation
• Direct or Indirect shipment
Delivery flexibility differentiation
• A company for a certain customer segment focus on general delivery flexibility
(GDF) that stands for flexibility in terms of order lead time, ordering
administration and delivery volume. GDF represents the highest possible amount
of customisation options with respect to the delivery flexibility determinants.
• (The company can focus on transport flexibility (TSF) and offer customers
flexible choice in terms of transportation means;
Customer value of Availability
• In case of information flexibility the company offers its customers access to
different distribution-specific information through different information channels
all the time. When a company does not execute a clear differentiation in terms of
the delivery flexibility for respective customers segment it chooses the last
option, called standard delivery flexibility (STF).
Delivery service differentiation: Here the model offers options to further
differentiate standard delivery or distribution services (SDS) in order to optimise the
lead time (LTO), the delivery readiness (DRO) as well as the delivery quality (DQO).
Value in Use
• In case of information flexibility the company offers its customers access to
different distribution-specific information through different information channels
all the time. When a company does not execute a clear differentiation in terms of
the delivery flexibility for respective customers segment it chooses the last
option, called standard delivery flexibility (STF).
Delivery service differentiation: Here the model offers options to further
differentiate standard delivery or distribution services (SDS) in order to optimise the
lead time (LTO), the delivery readiness (DRO) as well as the delivery quality (DQO).