Effectiveness framework for supply chain management

CHRISTINE JONES and JEFF CLARK*

Abstract: Modern manufacturing businesses rely heavily on the abilities of their suppliers, who in turn rely on the companies that supply them. This has increased the need for companies to understand and manage chains proactively to ensure all chain members are working to achieve end-customer service objectives. The ESPRIT II CIM for Multi-Supplier Operations (CMSO) project (2277), is researching the I T implications of intercompany operations. Involving academic, industrial and software partners, the pan-European research is innovating methodologies, tools, simulations and architectures. These form a cohesive suite to enable companies to analyse their problems from an interorganizational perspective, design and implement IT solutions to solve these problems and measure their performance in terms of improvements in the service offered to end-customers. This paper describes one of the products of this research - the Effectiveness Framework - a methodology for identifying and analysing supply chain problems that may conflict with end- customer service objectives. This methodology has been desioned primarily for key players in supply chains which can influence the rest of the chain. However, other chain players may benefit by using the methodology to understand their role in a chain and who the key player is. The framework is now being tested in a variety of supply chains in the automotive industry, particularly in the aftermarket; the testing is spearheaded by a collaborative team from Warwick Business School and Lucas Industries.

Keywords: supply chain management, C MSO, methodology

CMSO project overview

E urope is the world's biggest and fastest growing automotive market, with annual sales of over 11 M vehicles and no indication of a slowing of this growth.

Over the last few years, non-European manufacturers have made significant inroads into the European market, During the 1990s, as Europe moves towards becoming a truly integrated market and import quotas are lifted, the competition will grow even stiffer. Recent analysis by the

Warwick Business School, University of Warwick, Coventry CV4 7AL, UK Lucas Engineering and Systems Ltd, PO Box 52, Shirley, Solihull, West Midlands B90 4J J, UK Paper received: 6 August 1990

196

European Commission is has identified five key points necessary to achieve success in the future open market:

• a cohesive and integrated supply chain; • meeting market needs; • improved assembly methods; • research and development; • internationalization.

The CMSO project directly addresses the first two issues. Ultimately, the effectiveness of the supply chain must be measured in terms of customer service, and hence all activities carried out within the supply chain must contribute to improved customer service in its widest sense.

The automotive industry is characterized by a variety of companies involved in manufacturing and distributing vehicles and their component parts. These companies form a complex supply network, as illustrated in Figure 1. Each node in this network supplies parts or vehicles to the next node. From a conceptual point of view two chains or routes through the network can be identified. In the manufacturing chain, each node combines the received parts into a finished product through manufacturing or assembly processes. In the distribution chain nodes work together to move items from the place of manufacture to the place of installation and provide information necessary to enable the servicing/repair of the vehicle.

The operations between the organizations in the network related to the main task of supplying parts are costly and time consuming. Given that, for a single company, the times allotted to processing of orders, acquisition of bought-in parts and despatch and distribution of the parts are often larger than the pure manufacturing time, it is appropriate to investigate ways to improve these interorganizational operations.

The ESPRIT Project 2277 CMSO seeks to study and improve these operations. Its aim is to carry the idea of CIM outside the four walls of the manufacturing plant in order to integrate the different companies in the supply network. This leads to the new term 'interorganizational CIM'.

0951-5240/90/040196-11 © 1990 Butterworth Heinemann Ltd

Computer-Integrated Manufacturing Systems

Customer (of vehicles)

cMhanufact u ring I

Customer (of spare ports)

Raw materials

Fiyure 1. Conceptual model of the supply network

Improving the effectiveness and synergy of the supply chain operations necessitates improvements in the management and communication of information and logistics. A major stumbling block to supply chain synergy is the fact that, by its very nature, the supply chain consists of different organizations which must interact with each other in supporting automotive manufacturing and aftermarket operations. Different organizations have different business objectives, support different internal CIM architectures, different communication architectures, different information systems (IS) strategies, different control and logistical strategies and employ different computer software and hardware.

This is the focus of the CMSO project. It concentrates upon the development of IT (information technology) architectures to support the different requirements of each link in the supply chain. Methods, tools, interfaces, architectures and applications are being developed to address these particular needs. This demands the development of an interorganizational CIM reference model which, if adopted by organizations, will allow existing CIM elements to be integrated.

The objectives of CMSO in supporting the activities of the supply chain can be summarized as follows:

• to provide an environment for fast and timely communication of managed, integrated and synchronized information across the total supply chain;

• to provide systems, facilities and models to assist in the structuring and investigation of the supply chain to provide appropriate levels of customer service at affordable cost through the balancing of inventory and transportation costs;

• to provide an IT infrastructure and systems to support the management and operation of the supply chain and

facilitate the separation of information flows and physical distribution; to provide an environment for J-I-T delivery in the supply chain through the application of electronic data interchange (EDI) and common, international standards for communications; to facilitate and accelerate the design of products by transferring and integrating technical product information (e.g. computer-aided design (CAD) data and parts list data) between nodes in the supply chain.

CMSO aims to utilize existing ESPRIT I, ISO, European/worldwide communications standards wherever possible. During the investigation of interorganizational activities CMSO may, however, identify a lack of standards for specific processes and will seek to influence the development of the standards required. CMSO is related to several other ESPRIT projects:

• CIM-OSA (Project 688) aims to develop an open systems architecture for Intraorganizational processes. This includes the definition of requirements and building blocks and a method for migration to CIM- OSA.

• CIM-Alive (Project 2032) is building and implementing open CIM systems based on the CIM- OSA reference model, the areas addressed are open architecture, implementation, strategy, methods and tools.

• CAD*I (Project 322) addresses the exchange of CAD data and also the interface between CAD and finite element analysis for mechanical engineering applications.

The current work programme for CMSO is organized in five distinct levels:

• business, • strategic, • tactical, • operational, • technology.

The business, strategic and tactical levels are concerned with identifying the information systems requirements of companies within a chain whilst the operational and technology levels are concerned with enabling companies to communicate effectively. The internal systems within a company (represented by the CIM-OSA reference architecture) are deliberately excluded, except at the application boundaries.

Based on this organization, CMSO is seeking to provide the following integrated suite of deliverables.

• At the business problem level, a global analysis of industry trends and interorganizational problems.

• At the strategic level, a methodology for converting supply and distribution chain problems into systems requirements for each company in that chain. The

Vol 3 No 4 November 1990 197

methodology highlights problems, identifies causes and locations within chains and provides performance measures to ensure that chain performance in meeting end-customer needs can be subsequently monitored and controlled.

• At the tactical level, a logistics planning and control simulator to facilitate the selection of forecasting, scheduling and planning systems to improve chain performance in terms of product delivery/availability.

• At the operational level, a general communications architecture to enable multiple applications in one company to communicate with equivalent applications in other organizations in a controllable and effective manner. To validate the architecture, a number of specific applications are to be developed to support the three primary interorganizational business processes, i.e. product development, logistics and product/ technical support.

• At the technology level, a series of feasibility studies to evaluate the current/planned communications infrastructure and standards in different European countries.

The core deliverables from CMSO will consist of requirement specifications for the necessary IS chain components which will then be implemented and integrated in a CMSO prototype demonstrator. Exploitation of the results of CMSO will consist of a number of different aspects:

• implementation of new methods and supporting software products;

• business and strategic guidance; • business cases in support of further research; • identification of business cases for further

implementations; • technical guidance for implementation; • training and education; • input to standards organizations.

Initial exploitation of results will occur at project partner sites and will be related to the automotive industry. It is expected that many of the results will be of a generic nature, applicable in other supply-based industries.

The CMSO project began in December 1988 and is due to end in December 1991. The consortium is formed by 14 institutions:

• ACTIS (Angewandte Computertechnik fur Informationssysteme in Stuttgart), Germany (main contractor)

• ADIST (Associacao para o Desenvolvimento do Instituto Superior Tecnico), Portugal (partner)

• AFIA (Associacao de Fabricantes para a lndustria Automovel), Portugal (partner)

• AlcatelflSR, France (partner) • BIBA (Bremer Institute fur Betriebstechnik, und

angewandte Arbeitswissenschaften an der Universitat Bremen), Germany (partner)

• DAF BV (holding of DAF Trucks and Leyland DAF), Netherlands (partner)

• HUT (Helsinki University of Technology), Finland (partner)

• Wilhelm Karmann GmbH, Germany (partner) • Lucas, UK (partner) • NTUA (National Technical University of Athens),

Greece (partner) • OY Saab-Valmet, AB, Finland (partner) • TUD (Technische Universiteit Delft), Netherlands

(partner) • Vegla (Vereinigte Glaswerke GmbH), Germany

(partner) • Warwick Business School, University of Warwick, UK

(associate partner)

Methodologies for supply chain management

It is only recently that the phrase 'supply chain management' has come into frequent use by academics, consultants and practitioners as interest in this area has increased. It is used here to describe the management of flows across boundaries1; these may be interdepartmental (within a company), intercompany or intercountry boundaries.

The need to understand supply chains has increased for a variety of reasons, including the focusing and globalization of business, the coming of the single European market, the reduction in supplier bases, enabling information technologies and changing product technologies 2. All these factors have caused or enabled changes in supply networks from raw material source to end-customer.

Many companies are now appreciating the dynamics and complexities of the networks and chains within which they operate. However, to date little has been provided methodologically to help analyse chains of supply, identify where problems lie and examine possible causes of those problems, to help design and implement improvements.

Using examples from the automotive aftermarket, this paper describes research which assessed the requirements of a methodology to help in this area. It then checked available methods from various subject areas including information systems, operations management and marketing. Having identified that no single available method would perform the required tasks, the research led to the formation of a hybrid methodology drawing together a variety of methods into one conceptual framework. Because this framework focused on the effectiveness of businesses in satisfying customers, rather than just internal efficiency, it became known as the Effectiveness Framework.

Effectiveness Framework

The Effectiveness Framework is a methodology for analysing the requirements of external supply chains and highlighting problems in internal supply chains in meeting those requirements. It is therefore an 'outside-in'

198 Computer-Integrated Manufacturing Systems

[ Understand the network

I Identify strategic chains

I Examine players in each strategic chain

J Trace back end- customer requirements

J Identify causes of satisfaction and dissatisfaction of

end-customers

I Analyze causes

I - -

Design and implement improvements

J Measure performance

Figure 2. Main stages of the Effectiveness Framework

planning approach 3. That the identification of strategic options is strengthened by an assessment of external opportunities and internal capability is widely accepted 4.

The framework identifies areas of business activity critical to end-customer service. End-customer service is defined in terms of:

• quality • delivery • service • price • product range • innovation

This list is based on the criteria for customer selection defined by HilP and the criteria for evaluating supplier performance defined by Smith et al. 5 and Weiters 6.

The framework highlights problems and possible causes; it is then necessary to design and implement solutions to those causes. The main strength of the Effectiveness Framework lies in its tracing of causality of end-customer requirements back through supply chains, identifying and analysing critical activities at each link in the chain. The framework was not intended to be strong in design methods as there are already many available. Rather it provides focused analysis, the results of which can be used with existing design methods.

By tracing back up the supply chain, across organizational boundaries, problems which previously may not have been evident are highlighted. This differs from approaches which react to known problems. With the exception of Proter's value chain analysis 7, no other methodology explicitly focuses on end-customers and supply chains.

Figure 2 shows the main stages in the framework. Each of these stages is described below.

Understanding the network

Before looking at flows of goods and services, it is useful to gain an understanding of the wider picture of the industry and what in particular may affect supply chains. Describing the macro-environment, including any influential physical, technological, legislative, social and economic issues, helps to develop a backcloth against which to examine supply chains within that environment. For example, in the UK automotive aftermarket, supply chains are influenced by UK legislation on MOT testing and by the mix of motor vehicle models in use at any one time (the car parc). This is in sharp contrast to the relaxed approach to testing in Greece and to the mix of cars (which tend to be older and cheaper models). It was also found useful to understand the micro-environment of competition. Some territories such as Germany have a dominant player in the network (Robert Bosch) whereas others have few key players.

To describe the network it is useful to draw a simple network reference diagram. This identifies the main types of company in the network through which goods and services flow en route to end-customers and the influential environmental factors. The objectives of this initial network reference diagram are to:

• provide a starting point for understanding; • encourage communication; • help validate subsequent models; • identify the scope of the network to be considered; • identify the major players in the network.

An example of an initial network reference diagram is shown in Figure 3.

Having gained this initial orientation, it is useful to enrich the understanding gained by examining in more detail the end-customers of the supply network. Different end-customers may have different service requirements of

Resource markets

CornponentJ C~o sub- H;u suppiers I I--

Climate Technology Car parc

Ports Vehicles

Vehicle HVehicle HVehicle J monufacturersl (dietributorsl [purchaeersJ

Economies Consumer Government spending legislation patterns

Figure 3. Initial network reference diagram

Vol 3 No 4 November 1990 199

the network, possibly for the same products. This is clearly the case in the network shown in Figure 3; the component manufacturer in this network supplies both vehicle manufacturers and the spares market. The spares market is, primarily, a distress purchase market with priority placed by customers on availability of parts. In most groups of end-customers there appears to be little emphasis on price. This is in contrast to the supply of parts to vehicle manufacturers which, whilst increasingly interested in short delivery lead times with the move to just-in-time (JIT), still send price-conscious signals back to the component suppliers.

To understand end-customer requirements it is necessary to define the end-customer set, and group them according to their needs (as opposed to other criteria such as similarity of product). Strictly speaking, the end- customer is the ultimate consumer. Without the payment of the ultimate consumer, the rest of the supply chain does not receive payment. However, in supply chain management, focusing on the ultimate consumer as end- customer is not always as meaningful as focusing on the last person who makes a product differentiation decision. Therefore, in Figure 3, the installer is considered to be the end-customer, the installer being the person or organization that installs a spare part on a vehicle.

To group end-customers, a segmentation variable should be chosen. A natural segmentation variable for the automotive aftermarket appeared to be type of installer, where the type of installer varied with product and with age of vehicle being serviced or repaired. The objectives of segmentation are to:

• facilitate the analysis of smaller numbers of customer types, where types can become a group;

• consider shared features other than just product; • identify and group customers, possibly for different

products, in different territories, according to their performance demands from the network;

• increase the chances of spotting market opportunities; • adapt decision-making and system design better to suit

important customer groups.

Samples of each group can then be surveyed to determine their service requirements. Information on the requirements of each group for service should be obtained (using mail or telephone questionnaires, interviews or a specialist market research agency).

The groups may be profiled to identify any relationships between the type of end-customer and requirements for goods and services. For example, one group of customers including high street retailers of DIY automotive parts may value adherence to tight delivery windows because of limited receiving bay access. Another group of customers including specialist electronic repairers may value the technical information provided with parts and the ease of accessing additional information as required.

To help with the grouping of end-customer requirements, some standard definitions were required to help end-customers describe their requirements. Various

work was drawn upon to build these standard definitions. For example, the dimensions of quality used by Garvin 9 to describe various facets of quality including reliability, durability, aesthetics and performance, were used. Hill's 5 definitions of delivery speed and delivery reliability were extended to included delivery flexibility, such as the ability to deliver in a half-hour window at a high street location. Price was broken down from the purchasing literature (e.g. Baily 1°) to include material price, discounts, transportation charges, minimum order charges, and postage and packing etc.

Having understood the current groups of end- customers according to their requirements using the above standard definitions, these groups must be prioritized by strategic importance to the company performing the exercise. Strategic importance may be determined to be profitability, revenue, product range enhacement, image, or any factor that the company considers to be significantly related to its success. For example, segments that are currently relatively small, such as the specialist installer or the menu service installer segments in the automotive aftermarket, may be predicted to be of strategic importance in the future. Other historically important sectors, such as the DIY sector, may be predicted to be in decline and of less strategic importance in the future.

This enables the identification of strategic chains.

Identification of strategic chains

Strategic chains may not only be material flow chains. Other service aspects valued by end-customers, such as supporting technical information or excellent service in the form of rapid order promising, may take a different route to the materials. For example, end-customers may receive better quality technical information faster if they have a direct teletex link with the component manufacturer rather than the distributor.

It is valuable to draw the strategic chains; this improves the understanding of the network gained in the first stage. Figure 4 shows a more detailed picture which identifies strategic routes to end-customers in the automotive aftermarket.

Having identified a small number no more than five - strategic chains, these can become the focus of analysis. The next step is to understand more about the players in each strategic supply chain.

Examinin9 players in the strategic chains

By understanding more about the players in each chain, the analyst is better placed to evaluate subsequent findings. It is useful therefore to interview strategic managers in each link and where possible, to gain access to strategic statements and plans to aid an understanding of their business strategy, immediate customer markets and supply markets, and their internal environment - including organizational structure and measures of performance.

A chain may be important to some links but insignificant to others; these potentially weak links can

200 Computer-Integrated Manufacturing Systems

J VM service dept I

VM franchised garage

I otiono'- o'e o'e I central distribution

Motor factors I Wholesale distributors J I t

l ~ J J Autocentre and I J P flFleet garagel / menu service I

] tndepende!t ~- I- ---~r ' '

Service market J

JParts and service I

I National retailers I

Figure 4. Detailed network diayram

=iCash and carry I

I Local parts shop J

I National retail outlet J

I DIY market I

J Scrap yards J

only be identified by examining the business and finding out where each chain fits in the network. An example of this is evident in many engineering supply networks where a large steel supplier and a large manufacturer sandwich small component suppliers. This chain may be critical to the small suppliers but of less importance to the manufacturer, and almost insignificant to the raw material supplier.

This examination of each chain player enables a mini case study to be recorded. This aids more detailed and informed probing when tracing back the satisfaction of end-customer requirements through the chain and determining the causes of problems in improving or maintaining required service levels. It also improves the understanding of the network.

Tracing end-customer requirements

The value chain has been analysed in various ways. Houlihan 11 described the tracing back of cost in a supply chain to identify scope for cost reduction. The Effectiveness Framework traces back the aspects of goods and services valued by strategic end-customer segments, one of which may be price in a price-sensitive segment. Other aspects are product quality, delivery, service quality, product range and innovation, as described above.

The value chain analysis performed here identifies, for each link, which aspect of value it is providing; any link may provide more than one aspect of value and any one aspect of value may be provided by more than one link. From the list of end-customer requirements in the strategic segment at the end of the chain, an initial view of which links in the chain are likely to provide that value can be formed intuitively as a starting point. For example, in automotive aftermarket supply chains, most product quality valued by end customers is provided by the manufacturer and its suppliers, whereas half-hour delivery can usually only be provided by a local distributor. The tracing back of end-customer

requirements can then be pursued by interviewing key managers in the links most likely to add that value. For example, if product and packaging design aesthetics were the key reason customers in a strategic segment bought from the strategic chains that supplied them, design engineering and packaging engineering at the manufacturer and packaging plant would be good places to start interviews to proceed with the next step in identifying causes of satisfaction and dissatisfaction.

The tracing back of end-customer requirements results in a set of factors of each link in the chain which are critical for the success of the chain for some time into the future. The timescale to be considered in critical success factor (CSF) analysis is usually no more than 18-24 months 12. The CSFs identified here may be different to those existing in the business, simply because they have been derived from an understanding of end-customer requirements rather than immediate customer requirements. This again highlights the need for the prior steps in the methodology to understand the links in the chain and their environment to identify why a conflict, if any, exists between chain CSFs and firm CSFs.

This stage in the methodology involves closer examination of the players in the chain and adds to the case study description. It also improves knowledge of the network and the important influences, therefore feedback loops are shown in Figure 2.

Identifying causes of end-customer satisfaction and dissatisfaction

Three subprocesses are involved in identifying causes of end-user satisfaction or otherwise:

• causal links must be established to highlight in greater detail those activities that cause the success of the critical activity;

• having identified the causal links, they must be investigated to identify constraints on the activity being performed successfully;

Vol 3 No 4 November 1990 201

Financial Human causes causes

Materials causes

Information Equipment/ system facilities causes causes

Figure 5. Example cause and effect template

Reliable delivery promises

• the controllability of the activity must be ascertained, to allow development of the required control.

Identification of causal links can be performed using cause and effect analysis (also known as Ishikawa analysis ~3 or fishbone analysis). Interviews to find causes of the success of a particular critical activity can be enhanced by some form of diagram template. Templates act as useful prompts and, if sufficiently generic, do not constrain the analyst. An example template is shown in Figure 5.

The Effectiveness Framework requires the user to trace the cause of critical success factors to activities which can be investigated. In practice it is not easy to determine when to stop pursuing causes of causes and to start investigating each possible cause with a less focused but more comprehensive analysis. To some extent this process can be iterative, but to enable the design of solutions to occur, there must be a stage of more detailed analysis. Another problem encountered is that once cause and effect diagrams reach more than about five levels of causes, they become unreadable. It is useful to represent them in the form of an indented bill of causes instead, as shown in Figure 6. This is the form used in materials requirements planning systems to present product structures and is known in these systems as a bill of materials.

To help the user of the cause and effect technique pursue the most important causes, it is useful to prioritize the causes at each level; the priority at each level is shown in Figure 6.

In the example in Figure 6, tracing the highest priority causes down through the indented bill shows that excessive customer lead time is the most important contributor to poor delivery performance. Idle time, i.e. time when no action is being taken by the firm to satisfy the order, is the most important cause of excessive customer lead time. The main cause of idle time is attributed to waiting for parts replenishment, which is thought to be caused mostly by inadequate order coverage. Ineffective ordering is seen to be a significant cause and is worth analysing in more detail.

Analysis o f causes

Having identified important activities in the previous stage, these can be investigated to understand further how they are performed, how improvements may be made and how control can be implemented. Previous research* investigated various techniques for describing and analysing activities. IDEF0 functional modelling ~4 was highlighted by Godwin, Gleeson and Gwilliam ~5 as having advantages over other methods such as input/ output analysis.

Functional modelling using IDEF0 requires detail on inputs, constraints, outputs and mechanisms (ICOM)

POOR CUSTOMER DELIVERY PERFORMANCE 1 . EXCESSIVE CUSTOMER LEAD TIME

3 .. SALES ORDER PROCESSING

... ORDER PROMISING

.... TELESALES STAFF

..... AVAILABILITY

..... CAPABILITY

.... SALES ORDER PROCESSING SYSTEM ... ORDER ACCEPTANCE

.... TELESALES STAFF ..... AVAILABILITY

..... CAPABILITY

.... SALES ORDER PROCESSING SYSTEM 1 .. IDLE TIME

1 ... WAITING FOR PARTS REPLENISHMENT I .... INADEQUATE ORDER COVERAGE

..... UNANTICIPATED DEMAND

1 ..... INEFFECTIVE ORDERING 2 .... POOR SUPPLIER PERFORMANCE

..... DELIVERY RELIABILITY

..... DELIVERY LEAD TIME

3 ... WAITING FOR STOREMEN 2 ... WAITING FOR TRANSPORT

.... DRIVER AVAILABILITY

.... VEHICLE AVAILABILITY

2 .. DISTRIBUTION TIME ... PICKING TIME .... STOREMEN ..... CAPABILITY

.... INFORMATION QUALITY

..... STORES MANAGEMENT SYSTEM .... PICKING EQUIPMENT .... PRODUCT

..... EASE OF HANDLING

... M~SHALLING TIME .... STORES SUPERVISION

..... CAPABILITY

... LOADING TIME

.... STOREMEN ..... AVAILABILITY

..... CAPABILITY

.... SIZE OF VEHICLE

.... PRODUCT

..... EASE OF HANDLING

... TRANSPORTING TIME .... HAULAGE METHOD

... UNLOADING TIME

4 .. PERCEPTION OF LEAD TIME

... PROXIMITY

• DELIVERY RELIABILITY

.. CONFORMANCE TO PROMISED TIME

.. CONFORMANCE TO PROMISED ORDER CONTENT ... VOLUME ACCURACY OF ORDER ... ACCURACY OF LINE ITEMS

.. ACCEPTABILITY

.. COMPLETENESS OF INTERDEPENDENT ORDERS • DELIVERY FLEXIBILITY

... DELIVERY WINDOWS

... EASE OF HANDLING

... DELIVERY TO SITES

Figure 6. Indented bill of causes

* SERC ACME Grant GR/E 04776 'Management of the Supply Chain A systems Approach'

202 Computer-Integrated Manufacturing Systems

system /

I Implement J system to do X

Do X AO

I Measure performance of system

IFeedback I corrective action

A1

Figure 7. IDEFO functional model template

Ability Budget Advice / from ~ , head office~..J ues.lgn Inventory control procedures ~_I orderin i-- r ~ Ability Available time

nt Branch manager I p eme ..,er ̂ omdlering JO,u ~ system | Inventory data------= t A2 loA~ ailabilitystockout a;gdt:uality

Storeman Measure Recommendation • I to review perrormancej ~rocedure Stockout data---=, of ordering t-- system J Available

l A3 ~time Storeman Feedback I

Stockout data - ~ corrective[ action J

A4 Procedure revision

Figure 8. Example functional model

Branch manager

guidance as a starting point for modelling. This template should be used as guidance only, to encourage the modeller to find out which activities do not take place, as well as to discover which activities do take place. This is an unconventional use of the IDEF0 method, which is normally used to represent activities which the modeller sees are occurring. Experience of using these templates has shown them to be a useful prompt to the modeller, but they do lead to incomplete functional models when activities do not occur. Areas of inadequacy serve as a focus for designers of solutions.

An example of a functional model generated using a template is shown in Figure 8. Further decomposition of each of the activities shown may be required; e.g. activity A2, Implement ordering system, could be decomposed into the activities performed by the storeman to implement the system.

The results of functional modelling using templates such as these highlight areas of concern related to the system. In the example in Figure 8, the lack of measurement of system performance should be explored. The areas of concern are those which have a significant causal link to the success of the important activity. These are designated potentially controllable factors, control of which would enhance the system performance in the firm and the chain, contributing to the satisfaction of end- customers. In theory, control can be exercised over any activity. However, in a firm or a chain of firms, control may not be feasible or desirable. Some of the inputs, constraints and mechanisms will obviously not be controllable by the firm or by the chain, e.g. climate or national interest rates. These are designated uncontrollable factors. The remaining factors may be controllable to some extent by the firm or by the chain.

The inputs, constraints and mechanisms associated with important activities should be prioritized to signify their effect on the success of the activity in question, as shown in Figure 9. Taking the highest priority first, each potentially controllable input, constraint and mechanism should be discussed with the relevant personnel in the firm to identify alternative ways of influencing them. This can be represented as shown in Table 1.

around each activity box. The ability to control the success of an activity (the quality of its outputs) is determined by the ability to control the inputs, constraints and mechanisms. Information about factors that aid the occurrence of an activity and factors that limit it can help to identify which activities are controllable and how this may be achieved. Work on controllability engineering 16 has identified the significance of causal links between controllable activities and goals but has yet to be extended down supply chains or into the development of methodologies for analysis.

Selective modelling (one or two A4 paper size models) provides an understanding of the activities which are causally linked in a business to the chain critical success factors. Again it is useful to enter an analysis interview with a generic template to help data capture. Figure 7 shows an IDEF0 functional model template to use as

l'nventory control procedures

C1

®

® T1 Inventory data

Ability Available of time storeman

C2 C5

®1 ® Implement Orders ordering system

A2

M1 Storeman

Figure 9. Example prioritization within IDEFO model (circled numbers indicate priority)

Vol 3 No 4 November 1990 203

Table 1. Controllable constraints and mechanisms

Factor Means of influence

Ability of storeman C2, storeman M1

Inventory control procedures C I

Available time

Revise entry qualifications, educate and train, reduce influence by automating process, incentives

Review procedures, employ consultant to review procedures

Review capacity, review load, review work schedule, reprioritize work schedule

Designing and implementing improvements

The information gained in the previous stages should lead to the definition of a problem highlighting the inadequacy of the current system. If the solution is to be in the form of an information system, the functional models used in the application of the Effectiveness Framework may be used as a starting point for developing a complete set of functional models. This can form part of the systems analysis and design process, leading to the development of data models, database design, etc.

The Effectiveness Framework does not attempt to contribute to the design and implementation process; many established methods are available for this. However, it does attempt to contribute to the performance measurement process.

Measuring performance

The justification for the design of the solution can be traced back through the causal links of the firm and through the chain to the requirements of important groups of end-customers. The measurement of performance should also be traced in this way. Performance measurement of the solution should not only be related to its functional performance or efficiency, but should show:

• improved performance of the activity in the IDEF0 model;

• improved performance of the levels above the activity in the bill of causes;

• improved firm performance of the important activity in the value chain analysis;

• improved chain performance in terms of satisfying end- customer requirements.

Because of the dynamic nature of firms, chains and networks, it is not always possible to isolate causes and effects relating to each improvement. If many solutions are designed and implemented in different firms in the supply chain, the measures of firm and chain performance will not be attributable to the performance of any one solution. A pragmatic approach should be taken at the chain level to observe general improvement trends in terms of improvement in customer service.

To assess performance in these terms requires a set of

chain and firm performance measures linked to end- customer requirements. Research is underway at Warwick Business School to design performance measures to allow this process to take place.

Effectiveness Framework application results

The methodology has been applied in various supply chains in the automotive industry. The results of applying it to two example supply chains are provided here.

Example supply chains

Two supply chains in the UK automotive aftermarket were selected for investigation. Both chains traced the route of supply of remanufactured starters and alternators and ancilliary services through the following chain links:

Installer L

Local distributor I

Prime distributor I

Remanufacturer I

Component supplier

The two chains shared the same route for the same product range through the prime distributor. One chain, for heavy goods vehicle starters and alternators passed through a specialist local distributor to a heavy goods auto repair breakdown service installer. The other chain, for passenger car vehicle repair, passed through a general wholesaler to a menu service outlet.

The HGV auto repair installer is a Midlands based 24- hour repair service for auto electrical problems on heavy goods vehicles. The firm uses a fleet of transit vans loaded with a core range of commonly required parts to answer distress calls from drivers of lorries that have broken down and suspect an electrical fault. Most call-outs occur early in the morning, particularly on Monday mornings when drivers try to start their lorries after the weekend. Replacement and repair is performed, as far as possible, at the scene of the breakdown.

The menu service installer is one of a network of 57 UK trading centres, which specialize in 'while you wait' and same-day service, repair and replacement of brakes, steering and suspension, tuning and MOT testing. The emphasis is on guaranteed, fixed-price repairs and service to avoid the '5 o'clock surprise' for customers receiving larger than anticipated bills. To ensure quality, the installer uses parts by leading manufacturers only. Customer retention is of strategic importance and is reflected in the incentive schemes used by each trading centre.

The local distributor to the menu service outlet is an independent local distributor that supplies retailers, fleet operators, garages and the public with a range of parts

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including electrical and in car equipment. The local distributor operates an 'over the counter' service, a van delivery service and representative sales, supplying ex- stock when possible.

The local distributor to the HGV auto electrical repairer is a specialist supplier of branded electrical, diesel and braking products. In addition to supplying parts, a workshop facility is available for installers to bring parts in for repair or technical advice.

The prime distributor is an auto electrical specialist based in the West Midlands, whose major target markets are European original equipment and independent garages. This firm has a dominant position in the UK and is seeking to replicate this in the other European countries. Customers receive a weekly delivery for which they can input their requirements via a Teletex system.

The purchase lead time for many of the items is significant - three- to four-month schedules are provided for European parts manufacturers for regular items and up to six months for Japanese manufacturers.

The remanufacturer buys in used rotating machines (starters and alternators), strips them down and rebuilds them. The supply of the used parts is difficult to predict, therefore the production plan for remanufacture is highly speculative. This in turn means the demand for the kit of parts required to refurbish the used parts is also difficult to predict.

The component supplier is based in Glamorgan, UK and manufactures brushes for industrial traction, automotive and consumer durable applications. The company is part of an international group with manufacturing facilities in the USA, Australia, Japan and Korea. The auto consumer division supplies the brushes required in remanufacturing and manufacturing starters and alternators as well as other auto brushes, including those for wipers, windows and horns.

Research Findinys

Analysis of the supply chains revealed the following points of interest.

Lack of strategy synchronization The purchasing strategy for both installers was focused primarily on achieving good delivery performance from a local distributor who stocked a sufficiently broad range of items. Both installers stated that they required delivery within one hour for items that they did not carry in stock. Neither installer was placing orders primarily on the basis of price, quality or innovative ability. The HGV repair installer placed significant value on the prompt provision of technical information.

These strategic requirements of installers were traced back up the chain to identify whether the strategies of other chain players were in tune. All the way back to the manufacturer, the stated marketing and purchasing strategies claimed to value delivery performance as the primary business objective. However, the component supplier's stated marketing strategy was focused on being a low-cost supplier, with no business emphasis on delivery performance. This was investigated

further with reference to particular components and led to the following finding.

Lack of synchronization of performance measures It transpired that, despite having a stated purchasing strategy that placed emphasis on delivery performance, the remanufacturing business measured the performance of its purchasing department predominantly on cost savings. The component supplier was therefore left with no doubt that, to continue as a supplier, it had to maintain low prices. The component supplier had little awareness that the remanufacturer required good delivery performance.

Lack of knowledge of other links' activities Both the prime distributor and the installer commissioned market research of the public to identify their requirements for a similar range of products and services. Both companies were owned by the same group, but were run as autonomous profit centres. Each were unaware of the others' market research activities and results.

Lack of appreciation of end-customers jurther upstream Smaller players in the chain, such as the independent wholesaler, did not appear to have segmented the end- customer market or attempted to identify the differing requirements of different groups of end-customers.

Supply chain noise The replenishment policies and cycles of links in the chain caused increasing deviation from end-customer demand the further upstream the demand travelled. This amplification, originally observed by Forrester aT, was also evident in data collected for the project in Greece and Portugal.

Same routes for all aspects of value Other aspects of value, such as technical information, tended to follow the same demand and supply route as the materials, i.e. the installer requested the information from the local distributor which, unless it knew the answer, requested it from the prime distributor, and so on. Once accessed, the technical information was delivered, in the form of printed documentation, back downstream*.

One of the reasons for passing products and information through well-defined channels is to maintain the role of marketing and purchasing as a commercial filter. However, new forms of transactions in networks, such as JIT, require greater understanding and communication up and down the supply chain between engineering, quality, production and materials management as well as marketing and purchasing 18. This weakens the existence of a single chain to manage all value adding and non-value adding transaction types and encourages the development of different chains for supplying value, each designed to suit the provision of a particular type of value.

* One project within CMSO is investigating the direct connection of installers with technical information via an expert system and a CD ROM-based database.

Vol 3 No 4 November 1990 205

Conclusions

The findings from chain investigations suggest that the Effectiveness Framework can provide useful insight into the tracing of certain activities in the supply chain which, if improved, could lead to improved service to end- customers. They suggest that improvement of a part of the system may not provide an improvement in the system as a whole. This phenomenon has been observed within company boundaries in CIM and has been labelled 'islands of automation' (i.e. automation of a few processes without improvement to surrounding processes may simply create more 'slack' in the system). However, to date it has not been adequately explored at a strategic level and traced down supply chains. The methodology described here is intended to allow such consideration of the whole.

Significant further work is required in this area and is taking place within the ESPRIT II CMSO project and other research. Within ESPRIT the methodology for understanding supply chains - the Effectiveness Framework - is being developed and tested. Outside ESPRIT other industries are being considered as test beds for the methodology.

In the above example, the most important criterion for selection of the supply chains was ease of access to chain members. Further research will involve characterizing chains and selecting appropriate chains on the basis of their characteristics as well as availability of access.

References

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