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Globally Dispersed Manufacturing Networks

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Evolution & Governance

N. ViswanadhamINAE Distinguished Professor

Computer Science and AutomationIndian Institute of Science

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Indian Institute of ScienceBangalore- 560012

n.viswanadham@gmail.comIIT Madras Jan 31, 2013

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ContentsContents

History of manufacturing– Mass & Lean production

Automation Sensor Networks & Software: Integrated

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xcel – Automation, Sensor Networks & Software: Integrated

Manufacturing Networks– Modularity, Outsourcing :Global Supply Chain Networks

The Global Trade CollapseThe Ecosystem ModelG S l ti C di ti & E ti

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Governance: Selection, Coordination & ExecutionThe Orchestration ModelConclusions

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History of ManufacturingHistory of Manufacturing

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Phase I: Mass & Lean ProductionPhase I: Mass & Lean Production

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The Assembly Line The Assembly Line Henry Ford & Alfred Sloan Henry Ford & Alfred Sloan

Model T introduced in 1908. (Ford’s 20th design)Di i i d S i li i f W kf

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xcel Division and Specialization of Workforce.

– Each worker had only one task to perform. – Indirect- workers (repair men , quality inspectors) resident in factory.

Vertical Integration provided cost advantage & better control – Owned steel mills, a glass factory, a rubber plantation (in Brazil), iron

mines (in Minnesota), a fleet of ships and a rail road.Alfred Sloan developed the Centralized Mass Production

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pSystem by applying division of labour to management– Created decentralized divisions for Each car model : Chevrolet,

Pontiac, Buick, Oldsmobile & Cadillac

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Lean Manufacturing Lean Manufacturing ----Toyota (1950s)Toyota (1950s)

Japanese customers demand variety (Luxury & small cars, large & small trucks): Mass production did not work Lean is a process innovation to serve disparate customer

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xcel Lean is a process innovation to serve disparate customer

demands at low cost– Quick change-over of dies from 24hrs to 3 minutes thus reducing

the cost of producing small batches. – Process control not Product control– Fault Diagnosis Methodologies.– Kanban and Just-in-Time inventory management strategies.– Team-based work and management culture

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Team-based work and management culture. These innovations resulted in the Lean Manufacturing & make-to-order manufacturing

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Phase II: Automation: Machines, Phase II: Automation: Machines, Systems and NetworksSystems and Networks

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Automated Machines and Systems

NC Machine Controller Factory Floor Control System

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eDistributed Manufacturing System

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ERPFinance HR MRP Global

TMS

Customer Orders

Customer Orders

Pick

POD POD

Duty

Integrated Information Systems

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xcel Finance HR MRP

SUPPLIERS

Global Logistics

Manufacturing

WMSDemand

Sales History

Manufacturing Schedule

Completed Inter-site Transfers

Production Picks

Purchase Orders

Orders for

Routing

Customer Orders

EDI

Vehicle Routes

Exceptions

Detail

Receipt Detail

Carrier Discrepancy

POD

POD

Customers

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Manufacturing Scheduling

Demand Planning Production Planning

Demand Forecasting YMS

CarriersInter-Site Transfers

ASNs Inventory Summary

ASNs

Bidding

ASNs

ASNs

Load & Dock Detail

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Integrated Manufacturing-Service Networks

Manufacturer

Information Network

Enterprise System or Web-site

Supply Network Demand Network

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Supplier Distributor

Supplier Retailer

Logistics Network

Logistics Hub

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Service Provider

Financial Network

Banks

Service Network

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Phase III: Modularity, Connecting Technologies, Outsourcing & Globalization

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eProduct & Process Modularity and Outsourcing

Modular Products and Standardized Production Processes, lead to Outsourcing

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xcel lead to Outsourcing .

Standardized component manufacturers have become IP monopolies and wield global market power (Intel chips, Windows OS, Auto components)Products have become commodities.The strategic competitive advantage for assemblers ( Dell,

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GM, Nokia) moves from factory to managing the global manufacturing.

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Product Modularity in AutomobilesProduct Modularity in Automobiles

Different Modules in

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Source:

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DashboardModule

Shimokawa, K., Jurgens, U., and Fujimoto, T. (Eds), 1997, Transforming Automobile Assembly, Springer, New York.

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Process Modularity

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Shimokawa, K., Jurgens, U., and Fujimoto, T. (Eds), 1997, Transforming Automobile Assembly, Springer, New York.

China assembles all iPods, but it only gets about $4 per unit – or just over 1% of the US retail price of $300

451 parts that go into the iPodHard Drive by Toshiba Japanese company, most of its hard drives made in the Philippines and China; it costs about $73 - $54 in parts and labor -- so the value that Toshiba added to the hard drive was $19 plus its own direct labor costs

Video/multimedia processor chip by Broadcom American company with manufactures facilities in Taiwan This component costs $8

The retail value of the 30‐gigabyte 

video iPod that the authors 

examined was $299 in

June, 2007

with manufactures facilities in Taiwan. This component costs $8.

Controller chip by Portal Player American company with manufactures .This component costs $5 .

-Final assembly done in China, costs only about $4 a unit

The unaccounted-for parts and labor costs involved in making the iPod came to about $110

The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain. Apple figured out how to combine 451 mostly generic parts into a valuable product.

The largest share of the value added in the iPod goes to enterprises in the United States $163 of the iPod’s $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers.

Source: Varian,  Hal R. The New York Times, June  28, 2007. An iPod Has Global Value. Ask the (Many) Countries That Make It. 

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Global Global Manufacturing NetworkManufacturing Network

Inventory hub

ChinaManufacturing

hub

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USA

USA

Europe

Demand

India

InBoundLogistics

China

Korea

OutboundLogistics

EasternEurope

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Distribution

Europe

Retail

Suppliers

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The Global Trade CollapseThe Global Trade Collapse

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eLast Two Decades Companies were Last Two Decades Companies were

Proud of Their Supply ChainsProud of Their Supply Chains

Q O i C ll b i

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VisibilitySupply-Demand matchingSoftware Providers, Consultants & Implementation Experts flourished

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Global trade grown exponentiallyThe Asian Century Began

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The great Trade CollapseThe great Trade CollapseGLOBAL

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• Globalization & Highly Connected Supply Chains amplified &

L

TRADE

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g y pp y ptransmitted market collapse across the globe.

• Governments turned protectionist . Resources became expensive.• High concentration Clusters became vulnerable. • Shortage of Talent to deal with new realties.

The Great Trade Collapse: Causes, Consequences and Prospects A VoxEU.org Publication Edited by Richard Baldwin page 3

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eShift in Resource LandscapeShift in Resource Landscape

During last century, the prices of natural resources: energy, food, water, and materials (steel) all fell

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xcel The past ten years have wiped out all of the price declines

that occurred over a centuryToday demand is soaring. New sources are scarce, extraction is expensive.Shortages of one resource is rapidly impacting others.– The energy intensity of water is rising due to the lowering of the

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The world could be entering an era of high and volatile resource prices. No solution in sight for now.

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The Current StatusThe Current Status

• The three major revolutions have transformed the vertically integrated hierarchical enterprise into a

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market driven globally dispersed network• Organizations extraneous to Supply Chain:

Governments, Traders, Energy, .. Social, Political factors influence the performanceGovernance is Missing

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The Ecosystem FrameworkThe Ecosystem Framework

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The Ecosystem Model

A framework to visualize all

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Management & Execution Issues

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N. Viswanadham and S. Kameshwaran, Ecosystem Aware Global Supply Chain Management, World Scientific Publishing, 2013

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De

Institutions

The Basic EcosystemThe Basic Ecosystempl

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Resources

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Supply Chain Network

ure

Investment ClimateCo-Evolution, Conflict, Risk Propagation

Legal & Regulatory Systems

Industry Associations & Labor Unions

Institutions

Govt. Investments in Innovation, SEZS, Trade laws,  Tax systems

Quality Control & Environmental laws

Se

Logistics  Transportation , & Trade Facilitation Infrastructure 

Equipment  Manufacturers

Supply ChainEcosystem

ervice Delivery Technolog

& M

echanisms

Freight corridors, Logistics Parks, Trade facilitation

Cloud :Data records and Execution

Delivery Planning  &  IT service providers

Distribution Networks with GPS and Sensor Networks

Resources

Water  & Power Resources

Supplier ClustersCollaboration

Skill Training ,Labor Productivity

Roads, Ports, Airports

Banks, Micro Finance 

gies Supply Chain Dash Board 

Supply  Chain

Suppliers ConsumerDistributionAssembly & 

ManufacturingRetailers

Education Institutions R&D Labs , Innovation

MRO for Factories, Vehicle Fleet, etc

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Transaction CostsTransaction Costs

Delivery Shipping, Inventory,

Hard & Soft Infrastructure

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Institutions Taxes, Tariffs, SEZs, FTAs,

Social groups

Transaction Cost

Resource Clusters, Human, Financial, Power

Water

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Supply ChainProduction,

Quality, Transport

Coordination Costs Broker fees

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Multilayer Governance:Partner selection, Coordination & Execution

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eGovernance: Partner Selection,

Coordination & Control

A h i i f d f h d

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xcel A separate chain is formed for each order

Partner selection based on– Structural features (asset specificity, capabilities)– Relational ties (with govt., social organizations, cluster mangmts, etc.)

Coordination : Determining who does what and when and communicating to everyone

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Execution: Monitor order status so that processes work as per plan & control exceptional events

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Network Governance: Network Governance: Partner Selection Coordination and ExecutionPartner Selection Coordination and Execution

OtherAgencies

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Partner Selection

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eThree Types of Network Governance Three Types of Network Governance

The Network Governance model – Highly Centralized External Broker (Li & Fung, Olam Intl.)

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– Participant Shared Governance by Elected Board (Healthcare , Dairies, Cooperatives)

– Participant Shared Governance with a Lead PlayerProducer-driven (Cisco, Nike)Buyer-driven (Wal-Mart, Carrefour, Levi)

All th f i ti & N

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proved superior.

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The Orchestration ModelThe Orchestration Model

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Managing the Global Network- Own Nothing

Li & Fung orchestrates a

Li & Fung has developed deep knowledge & internal systems to identify quality suppliers in emerging markets, help them design & manufacture for Western customers and make on time delivery despite poor infrastructure

Li & Fung has set up a global video conference

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highly-customized delivery path through the supply chain

global video conference network. Clients can monitor details of every stage of an order such as color of a material or the stitching on a garment.

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Suppliers DistributionManufacturers

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OrchestratorOrchestrator Business ModelBusiness Model

End Customer

Planning, Coordination and Overall Responsibility

OrdersOrchestrator

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Material FlowOperationalStatus

Plans

Payment

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Supplier Contract Mfg 3PL

Execution

Supplier Contract Mfg 3PL

3PL

3PL

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eConclusions

Manufacturing has undergone structural changes from human intensive to fully automated; vertically integrated to globally dispersed; fully owned to orchestrating owning none; Strong ties with Trusted suppliers to Order

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xcel Configured SCNs; Managing Immediate Suppliers to Managing the

Entire Network and Reactive Expediting to Proactive Multi-tier Risk Management .Identifying and managing relations with government, trade, social groups, labour, resources and B2B and B2C delivery mechanisms are required capabilities.The principles can be applied in agriculture and services such as health

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Theory development needs Integration of Social networks, Inter-organizational theory, Machine learning, Optimization, Game theory with SCNs.

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What Business Can Learn from Organized Crime

When 10 men attacked the Taj Mahal Palace hotel in Mumbai, in November 2008, they executed one of the best-orchestrated, most technologically advanced terrorist strikes in history.

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xcel – Before the assault they had used Google Earth to explore 3-D models of the target

and determine optimal entry and exit routes, defensive positions, and security posts.

– During the melee they used Blackberry's, satellite phones, and GSM handsets to coordinate with their command center, which monitored broadcast news and the internet to provide real-time information and tactical direction.

– When a bystander tweeted a photo of commandos rappelling from a helicopter onto the roof of one of the buildings, the center alerted the attackers, who set up a trap in a stairwell.

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It took three days for authorities to kill nine of the terrorists and arrest the tenth; which had resulted in 163 deaths and hundreds of injuries.There were resources that could have addressed the problem, but they weren't in the right place, not under the right authority. Governance is missing

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