Over the last decade, companies began to focus their attention on the direct impact of cash flow and value of the core processes - supply chain management (SCM) on. Supply chain management companies in the developed world, the rise of China is now increasingly show its importance. With globalization, outsourcing and information technology is the development of SCM in turn causes the same time promote its development, also created opportunities for enterprises in developing countries.
As the impact of globalization, transnational competition increases the pressure and also to promote business enterprise become more efficient. Taking into account the increasing labor costs, companies in developed countries began to gradually replace low-cost manufacturing countries in the original production labor costs. Direct labor costs (measured by the percentage of total sales) has begun to rapidly lower, more highlights the other major cost components, such as (non-labor) cost of manufacturing, procurement, materials, warehousing, transportation and inventory of capital investment.
To meet this challenge, many companies are starting to strengthen the operational forces, focusing on areas with unique advantages, outsourcing some non-core processes and services to third parties and other measures. These outsourcing arrangements as Nike, Dell and other companies the major part of supply chain management. The two companies are not directly engaged in production, but more focus on product design, market operations (Nike), and effective assembly and logistics (Dell) and so on.
These large-scale outsourcing requires good tools and organizational structure to monitor and coordinate the operational activities that involve in different geographic locations and different time zones of many companies. Advances in communication technology, software application development involve the supply chain becomes more fine. For many companies, the challenge is to adjust the internal organizational culture and organizational structure to achieve effective collaboration to ensure the effective operation of the supply chain. Many companies focus too much short-term profit margins, leading to supply chain partners into a hostile relationship, each firm is to grab the last one U.S. dollar per transaction profits. Trust and collaboration (for example, the development of the market space, new technological breakthroughs such as information sharing) the absence of the entire supply chain is more a lack of efficiency and lower long-term competitiveness.
The efficiency of the supply chain companies in the developed world not only concerned about the issue. In China, the concern of supply chain management must also increasing. When the market continued driving on the track of high growth, many industry profit margins were shrinking. From 2005, the first 9 months of view, National Bureau of Statistics data, the top 15 vehicle manufacturers, sales increased by 4%, but profits decreased by 51%. Other industries can also see the same trend. In the strategy must follow the changes in the domestic environment, adjust the time, the supply chain for local companies to increase profits and cash flow opportunities.
The following discussion will explain the success of supply chain initiatives can bring benefits, the need to take the action exist in the change management process in the trap, and Chinese enterprises Ruhe began transforming their own supply chain.
A measure of the value of supply chain management approach
Because many benefits of supply chain management is not through the traditional performance measurement methods (such as profit and earnings per share, etc.) reflected, so the enterprises to adopt these measures, by using a more accurate, more widely accepted "economic value added," that is to better assess the effectiveness of EVA. EVA is defined as operating costs in addition to the traditional but also after deducting the cost of capital gains. Capital, including the fixed assets owned by the company and the business operating assets needed to carry out. The capital cost of distribution, many companies can be more clear understanding of the capital is a scarce resource, the need for wise investment, that investment in more attractive will give investors a return of the project.
Supply chain management reform by reducing inventory, storage and other assets to help companies increase the number of EVA. For example, if a company's cost of capital is 10%, then reduced for each million dollars of assets will increase by 10 million EVA. Moreover, the company will get more cash flow to re-invest in the business or return to investors. From the perspective of operating profit, operating profit of the company does not decrease as assets increase, has led the leadership to reform the supply chain is not the driving force.
While most companies and financial magazines continue to focus on accounting profits, the more rigorous analyst began to EVA as a corporate performance standards. For example, an analyst at Morgan Stanley research report on the differences of using EVA. Siemens also used in the business concept, and Temasek, the Singapore-based multinational companies, put the EVA as a key performance measurement. With the continued growth of China's regional operations, more and more companies are concerned about how to use EVA to help managers to better resource allocation decisions to achieve a higher value.
Supply chain dysfunction
Many companies supply chain management as cost reduction initiatives. In this model, purchasing departments and external suppliers to deal with the relationship as "zero-sum game", one side lost profit. The efficiency of the supply chain itself does not benefit from - the profit is simply the redistribution of the parties. In many cases, material buyers, or part of the materials used on the parts procurement leverage, to suppress the price of compromise suppliers. General Motors and Ford, the two biggest U.S. car manufacturers in the last 90 years such an approach. They wantonly require suppliers to discount rather than through mutual discussions or negotiations. The short term, both part of the proceeds obtained, but the whole, the relationship with suppliers to find the damage. Moreover, the long term, both in competition with Toyota, have not been competitive change in status. Toyota remains the industry leader in profitability, and, soon, the sales also more than GM.
Purchasing managers in the world-class, J. Agnacio Lopez (1992 年 4 took office), led by General Motors has taken the initiative to promote supplier initiatives. They focus almost exclusively on price and productivity. At the beginning, Lopez withdrew the existing supplier contract, and asked them to focus on the tender. He asked immediately lower the price (often double-digit price decrease), and 50% within the next three years to increase productivity. GM engineers in-depth supplier of production plants, to help find opportunities for cost reduction to achieve the price target. Then, General Motors has left after all the cost reduction benefits, the supplier is not from their efforts to profit.
In others, General Motors developed by suppliers of industrial design, and other suppliers to share design results, and invite them to tender for the contract. In response, suppliers have to take short-term behavior. They no longer, and General Motors, Ford shared innovation. Further, they are no longer beneficial to car manufacturers to invest in the technology, because they can not guarantee that GM and Ford through and long-term co-operation to recover the investment.
This car manufacturers to take the opposite approach supplier relationships lead to retrogression. A more hostile after the failure of suppliers, said: "Ford looks to people who send" hate school "learned, they learned how to hate suppliers. Do business in and Ford, I decided not to buy Ford the car. "
The pursuit of short-term interest has also led to reduced efficiency of the other hidden. For example, when the purchasing department to focus on a single contract, the orders given to low bidders, the result must be a large number of enterprises of different transactions. The implementation of these contracts and cooperative relations between the monitor further requests more human input. Unit cost may be lower, but the manufacturing costs (ie labor costs) has increased rapidly. Of course, if the procurement department of the assessment is based on unit cost, then the worst result is that both sides won awards and is likely to continue. Slowly, these companies will find that they actually can be adjusted by the number of suppliers to reduce costs (as Ford recently announced the results, see below).
Other companies went to the other extreme: to all business entrusted to a single supplier, to obtain leverage and price. However, if the supplier went wrong - a strike, fire or other accident - paralysis of the entire supply chain. Therefore, a similar number of suppliers to the risk of diversion, while also encouraging healthy competition among suppliers. Similarly, if each plant has a local supplier, although the short term will lead to higher prices, but Queshi company to unpredictable events in the face of rapid adjustment.
Now suppliers and customers to communicate between the rate of technological progress is lagging behind and brought in to upgrade. The reason is: the past, companies tend to market forecasting, product research and development programs, technology R & D and other closely guarded secret. But this has led to inefficient supply chain: as suppliers of new product design is the last received message, and it leads to market delay. Suppliers to understand the lack of customer demand forecast channel, so the number of components produced, components are integrated to error. Finally, costs across the supply chain of high efficiency ground.
Caused by inefficient supply chain, different members of the other problem is the inequality between the incentive. Each company to maximize its own profit (zero-sum game) to work. GM supplier of the stick may reduce costs and increase efficiency, but common to all of the profit appropriation. Toyota is different, it set up ahead of cost-cutting goals, but at least a certain period of time and suppliers together to share interests. In return for guaranteed access to a certain premise, suppliers have an incentive to put their money into investments in technology to improve on. Unlike zero-sum game, then the customer - supplier relationship is more a partner. Improve the efficiency of the supply chain to achieve a win-win situation - each participant received an adequate return to ensure the long-term interests of the supply chain itself has become more efficient.
Coordination within the supply chain
The supply chain activities such as manufacturing and logistics into a separate company which reduced the need for negotiations between the company and also reduce the corresponding costs, but it still has management problems. Before the arrival of the Lopez, GM own 70% of the parts are produced, most car companies are so. Of course, this is uncompetitive.
Even if the participants from different departments within the company became, incentive inconsistencies and simple indicator system also leads to inefficient co-ordination. Hewlett-Packard printer sector and integrated peripherals contradictions between the Department of the point of the (integrated peripherals is a printer, a division of the Department of internal suppliers). In order to achieve company requirements, the Department of peripheral equipment, inventory levels, management set an internal target. Unfortunately, this goal has led to the printer's components business unit delivery delay. To compensate, the printer sector increased finished goods inventory to avoid stock-outs, missed sales opportunities. Each department, when it did for himself the "right thing" may on the HP has not contributed to it. A better solution would be to maintain low-cost integration of peripheral equipment, not high-value inventory printer. The second best strategy is adopted, the error is not a department manager, on the contrary, a simple set of indicators and simple incentives (and incentives leading to the error response) is the culprit.
Another example is from the downstream logistics and distribution activities in the relationship between the imbalance. Logistics managers concerned about reducing the number of regional distribution warehouse, this can reduce fuel consumption and other transportation costs. A company to take measures required to be filled before it can begin shipping. Therefore, demand for such freight accumulated enough to fill the container, the shipment also delayed. The operators of the region, the delivery delays led to lower quality of services to customers and ultimately lost sales. Or to obtain products, order more than the number of actual needs, the result is that inventory is too large. Logistics Group, more than offset by lower transportation costs can not lower transportation costs due to high inventory and selling the excess inventory that must be the price discount.
Supply chain and a company's profitability may also be because of too many products to provide customers with the choice of damage received. For example, a blanket blankets produced too many colors. On people who are not professionally trained, most are difficult to distinguish, however, insisted that each salesperson has a potential demand for a product. But the fact is the sales incentives are distorted. They can profit from the sale, but do not take into account the cost of manufacturing costs or inventory loss. Analysis of sales data can be found that most types of color put in a warehouse for a very long time. Companies can even recognize the color from the reduction of many products, adjusting the number of colors to profit.
Many supply chain management problem stems from the lack of demand information (leading to the increase in inventory buffer); supply chain failure of communication between the internal links; participants in mutual distrust led to the parties to promote "zero-sum game"; mutually contradictory or exacerbated by short-sighted motivation of these issues. Whether companies or internal departments tend to hide that information, such as sales forecasting, design and new product time to market. Late communication of such information often lead to very inefficient operation. Are as part of the need to discuss the strengthening of the supply chain must pay attention to information sharing, the company and inter-sectoral collaboration within, most importantly, make the supply chain side of the excitation direction of the participating coordinated together.
Supply chain key to success
Supply chain management success, we must first recognize that all participants share a common interest. In addition to "zero-sum game", which can change to help all companies to increase profit margins. Dell Computer, Toyota auto industry has been at the forefront. Dell scattered through the integration of component manufacturers and their assembly operations to construct a virtual BTO (Build-to-order, single-Production Depends) mode, the inventory turnover decreased to a few days, and form their own competitive advantage. It is adhering to the concept of cooperation, integration of information technology, focusing on the whole supply chain efficiency. Dell to ensure supply chain partners to receive real-time information on sales forecasts and actual orders; guarantee each manufacturer's production and demand are consistent. Stock was distributed to the total supply chain so that the whole process more efficient, reliable, low cost.
Erection of a Toyota and General Motors, Ford completely the opposite of a typical supply chain management strategies. Toyota is not hard to squeeze profit margins of suppliers, but with all partners to find cost reduction opportunities, the whole production process in the implementation of reduction measures. It will also allow suppliers a certain period of time, at least in part to keep the remaining profits. In this way, the supplier's incentive target and Toyota consistent. All supply chain companies have the opportunity to profit from the collaboration.
But Toyota is far more than the meaning of coordination incentive goals. Toyota spent a lot of time in the assessment of many potential suppliers to consider besides the price of many other factors; goal is to establish long-term cooperative relations of mutual trust. Assessment, Toyota and key components of the key suppliers to establish long term supply agreement (for at least the entire period of the model car, about 4 years). This does not mean that suppliers can sit back and relax. On the contrary, Toyota continued assessment from the many dimensions of each supplier's performance, including quality, reliability, creativity made, and other suppliers of collaboration, of course, including cost. 30% also set up the whole supply chain cost reduction objectives and requirements. Toyota production experts and manufacturers, to find ways to achieve objectives. Once up, I begin to profit sharing; providers to retain half of the profits, while the cost of setting up a new level of cost reduction as a goal the next stage. If performance can not be reached, Toyota will be the end of the contract amount to be allocated to more competitive procurement suppliers. Ultimately, the goal to achieve bonus and forfeit.
Excellent performance for Toyota suppliers to provide long-term agreements, so they are willing to invest a lot of money to meet the special needs of Toyota.
Toyota will advance to its new product plans and specifications to inform suppliers; supplier to Toyota's design work will also help. Toyota not to seek short-term interests of the supplier's design to its competitors to get a lower purchase price, because it can not make up short-term interests of the partnership for long-term interests of the damage. Moreover, other suppliers would know Toyota's operations, thereby compromising these important relationships.
Taken by the Toyota supply chain model and GM and Ford's supply chain is through a different point of signing long-term contracts with suppliers, monitoring and management to maintain the desired number of suppliers stability. To large orders to a limited number of suppliers manufacturers can achieve economies of scale, and the resulting cost reduction obtained by the suppliers and Toyota to share.
Now, Ford has learned a number of Toyota's success. In September 2005, Ford announced a major reform of its supply chain, as follows:
Ford is committed to halving the supplier. The initial steps involved in 20 parts, including seats, tires, and buffers, etc.; long-term goal is to present the 2500 suppliers reduced to no more than 1,000.
* The existing suppliers will receive more orders, and their capacity utilization from 70% to 85%; This is beneficial to the entire supply chain cost savings, both Ford and suppliers can achieve higher profits.
* Ford to suppliers to provide 7 years of product planning and sales forecasting. Suppliers must provide timely financial information to prove that Ford financial stability.
* Ford said: Innovation is the new supplier as part of partnership. (New York Times, 2005.9.29) Ford will be funded in the early development of suppliers, management and testing. In exchange, the supplier of technological change must be made available to Ford first.
Ford estimated that the cost of this initiative in the warranty and service cost savings would be billions of units do. However, when the company's credit rating falls below investment grade, investors began to generate revenues of these reforms can have real doubts. In fact, Ford has begun to implement this initiative, and it announced the closure of some factories and will soon be laid off.
Comparison of Toyota and the U.S. experience of the manufacturer, can be clearly found in the supply chain reform measures focused on three key areas:
Toyota suppliers in new products when planning involved, it can ensure an early solution to engineering problems, to shorten the time to update and introduction of equipment. Suppliers can understand Toyota's production scheduling program, so they adjusted their production plans. To reduce excess inventory throughout the supply chain is also a return to both sides.
The practice of communication with the GM and Ford's corporate culture, in sharp contrast. The company does not open some of the information provider is a unique design and prediction of fear of information being competitors to know. These companies account for data suppliers withheld for fear that GM and Ford to profit by changing price.
Toyota also offers a comprehensive and timely performance feedback to suppliers. Every month to a major supplier of pre-established according to the quality and cost benchmarks, and indicators to assess the expected improvement of their performance and progress reports. These reports provide data on the performance assessment determines the reward and punishment under a standard contract.
Toyota adopted the model is an integrated system of various factors. It includes potential suppliers to assess and build confidence, a lot of front-end work. The contract itself is not complicated; it just made the commitment contract, established a basis for mutual cooperation. However, a long-term commitment to ensure that the suppliers for the Toyota can get a reasonable return on investment. Toyota to benefit from the results of technical improvements. Toyota's long-term plan to establish benchmarks for more than the annual cost reduction of the supply chain can continue to improve efficiency. Toyota and suppliers, through to suppliers of production experts to the factory to help them identify and implement the new plant initiatives, to achieve improvement goals. Suppliers get the OK from the improved profitability of half time. Reduce the cost of a further improvement after the target benchmark.
Toyota can not follow the adoption of some of the expense of others. Each part of the impact the outcome of the whole system; part of the success will not reduce the overall supply chain benefits. Therefore, it is difficult to follow the example of Toyota's supply chain organization, but it is Toyota's competitive advantage.
Case Study: Whirlpool Corporation
Whirlpool Corporation is a large multinational manufacturing company, it has successfully carried out supply chain reform. Headquartered in the United States, total revenue reached 12 billion U.S. dollars. It focuses on white goods - such as stoves, refrigerators, washing machines, dryers, dishwashers and so on. Its main competitors include General Electric and Haier. Because Whirlpool Corporation has production bases in 13 countries, products sold in 100 countries, it faced a complex challenge. Company to sell products to retailers, builders and developers. Only in the United States, Whirlpool distribution center in eight factories, 10 regional distribution centers, 60 local distribution centers, and 20,000 retail and contract customers.
By 2001, Whirlpool's supply chain became a headache and unreliable, and even became a sales force of drag. It places excessive inventories of finished products, and often there is no customer needs. Production dropped to about 87% utilization. In the previous year, Whirlpool launched ERP solution in the supply chain problems encountered serious problems. The company had 70,000 units daily delivery of the goods, but after using the SAP system, because the ERP issue 2,000 units a day can only transport the goods. Within the company, sales ridiculed the supply chain is "sales Tuoyou Ping." In 2001, the senior agreed to launch a project to make the supply chain from a burden into a competitive advantage.
Whirlpool Corporation's approach.
Whirlpool early in the project to establish a set of principles, including:
Any proposal should be fact-oriented, have the facts do support. Early in the project to enhance research work, to identify the needs of customers and end users.
Supply chain design should start from the consumer's preferences pushed down. Whirlpool's survey found that suspicion is the reliability of the largest consumers. Therefore, the commitment becomes critical during the delivery.
Second, the Whirlpool Corporation started their investigation directly to user needs, including large retail stores (in the U.S. Sears, Best Buy, and Lowes, etc.). Whirlpool also learned that these customers through the 27 different dimensions of evaluation of the performance of Whirlpool Corporation.
Whirlpool Corporation and then their performance compared with the closest competitor, or is "standard" to determine their development of 27 kinds of performance types on the degree of importance in terms of direct customers. They also identify the leading global provider of performance standards and evaluate performance to achieve this significant cost.
Whirlpool Corporation set up the reform of the supply chain of full-time project team. Group is familiar with the production lines, manufacturing processes and logistics challenges of the experts. There is also a large-scale project management experts across the responsibilities between different functions. External consultants also presented their supply chain management expertise and experience. In order to achieve effective results, Whirlpool's project team has established a strict project management process. Strict performance indicators - including a clear timetable, milestones and ongoing review of projects - to ensure that the required time, according to the project budget, the expected revenue.
Communication have become key issues the project team. They set up internal management and to demonstrate a quantifiable business case. This case illustrates the working capital through spending cuts and increased access to high return on investment. In addition, the company's senior executives from a number of comments received. This ensures that the final response from a different perspective; It also helps to achieve consensus within, including the company's influential management support.
Based on economic, industry and technology trends, the formation of a long-term understanding of the supply chain, and put forward corresponding measures. Whirlpool's goal is to have to ensure sufficient flexibility to adapt to future circumstances that may arise in different unexpected challenges. Project team performance within the context of targeting most of the top performance. Paying particular attention to how companies can maximize the minimum price improvement.
Key initiatives and results
Project team began to develop from the improved demand forecasting initiatives. Whirlpool Corporation with cooperation instead of independent forecasts, forecast the supply chain involving various companies, internal sales, marketing and other departments. In this process, different sectors have emerged the great differences between the forecasts, through the discussion later in the final consensus achieved. In the collaborative process within one month after the implementation, Whirlpool Corporation 50% forecast error reduction. They estimated forecast error reduction due to reduced inventories of finished products can save millions of dollars.
Like many companies, Whirlpool has implemented an Internet-based exchange of invoices and payment information. Personnel costs, time, cost and errors of the loss of further cost savings.
Concern about the supply chain led to the finished product provided by the audit and inventory adjustment category. For non-core, low-demand product, Whirlpool Corporation will not reserve stock. On the contrary, they received the order after the production of such products. But the core of the high-demand products, should be prepared to ensure the strategic product inventory must always meet the supply. Reduction of inventory of non-strategic products offset high demand, increased inventory cost. This initiative has just begun production capacity to meet the rate from 87% to 95%, but the working capital has decreased.
In taking these initiatives and other initiatives within two years, Whirlpool supply chain to recover investment costs. Operating cost savings of 20 million U.S. dollars each year, inventory turnover days decreased from 32 to 28 individuals individual.
Whirlpool's success can largely be said that company-wide policy and cultural change results, not just the leading supplier of technology implementation and restructuring. For example, new communication technologies can enable collaborative forecasting and planning as possible, but no company within the cultural and behavioral changes in these improvements can not succeed. Similarly, the product portfolio of strategic initiatives to meet customer needs, more focused. Strategic and non-strategic products and services to ensure the company the distinction between the level of resource use in high-value customers on. These decisions are not directly associated with the supply chain, supply chain management initiatives, but makes the portfolio more efficient.
Renewed emphasis on human resources is an important part of this reform. Located on special skills development and training plans to change the pay grade of the supply chain have become part of the reform. May 2002 customer survey Whirlpool is "improved." "Manageable" and the "most advanced" suppliers, which fully proved, Whirlpool supply chain relationship management a far-reaching impact.
The first step to enhance the supply chain is to recognize that the current process defects, and through research to identify and eventually quantify the supply chain reform of the investment of financial income. Once management has accepted the proposal to form a special team, and authorized the development and implementation of the plan. Supply chain management group should include all sectors of corporate executives and even representatives of key partners. Supply chain and procurement team is not only relevant; it affects the whole company, the main changes will include the efforts of different management team and professional skills.
A detailed project plan of any complex project is a key factor in the success. This plan should include a timetable, specific milestones and performance evaluation methods to ensure the project organized and carried out the system. The team must establish clear goals to ensure the management and the board members expect to receive benefits of supply chain management reform efforts. Finally, participation in the management of personnel and supply chain management bonuses not only the implementation of changes linked to, but also whether the project implementation and financial benefits related to prior expectations.
Global supply chains become increasingly complex. On the one hand, making them more dangerous - even more easily damaged. 2003 outbreak of SARS in Asia has sounded the alarm to our species, reminds us that bird flu could have devastating impact of global trade, as well as terrorist attacks. Consider these uncertainties, companies are willing to pay extra costs, rather than scattered throughout the upstream supply of a limited company and regional.
Supply chain operations to bring the benefits of an unexpected is that they can often find some neglected other important operational issues. Such as Whirlpool Corporation's core products increased inventory and upgrade the level of customer service strategies for change. But low demand for their products by reducing inventory, reducing the level of non-strategic customer service to make up additional costs. Systematic analysis of the company's key processes to enable enterprises to better understanding and guide the business operations for valuable improvements.
Value chain improvement initiatives are often over-reliance on new technology. But technology is only a tool, ultimately depend on how companies in the business of enabling the use of such powerful tools to be successful. No attitude change - Automatic and other supply chain companies and internal departments - technology can only fix existing problems. Finally companies must put their acts and corporate culture change and new technology combine to make the supply chain to become the company's strategic advantage.