Evolution Of Production In Supply Chain management

Intrafirm ProductionInterfirm ProductionDispersed Production

Evolution Of Production

• Early part of the 20th century, Focus was on quality, production methods and craft production.

• 1930s and 1940s-Cost and mass production were overriding factors.

• 1980s – Quality, low cost, lean production and supplier partnership were in vogue.

• 1990s- Flexibility, and supply chain production became the norm.

Production Supply Chain Model

IntrafirmProduction

Craft productionMass productionLean production

InterfirmProduction

JIT productionTiered production

Supply Chain ProductionDispersed production

Build to order production

Postponement

Intrafirm production• Production has occurred within a single structure• Purchase raw material and produce product entirely within

the firm.• Craft production (build to order) created product from start

to finish. Ex.-sports cars,custom made suits, handicraft items.

• In mass production, workers developed some part of the final product.

• Lean production- Inventory was minimized and flexible workers assembled parts of a final product.

• Companies engaged in intrafirm production use any one of the three crafts, mass or lean.

Lean Production

• Lean production developed by Eiji Toyoda and Taichi Ohno of Toyota in 1960s.

• Uses multi skilled, highly skilled work force.• When automobile market became unpredictable and unstable, lean

production could rapidly adapt to it.• Ford,GM had trouble to adopt to changing market because of large

inventory, adversarial supplier relations,and mass production.• Quality improves, defects are detected at every stage of production.• Low cost of production as no rework.• In this lean manufacturing environment JIT methods of production

developed.

Inter Firm Production

• As companies expand to size, they can vertically integrate and own every step of process or to rely on other firms to become suppliers.

• During 1930s Ford Co. owned the entire supply chain from iron mining to dealership where the car was sold.

• It reduced overall efficiency, capital required was tremendous• As companies start to consider processes outside the firm, the

importance of suppliers in the production process increases.• In this suppliers are selected on the basis of bids and past relationships

(Lean Production).• Suppliers are assured cooperative relationships in lean production• While mass production manufacturers focus on cost and price to

encourage competition.

Tiered Production

Tier 3 supplier

Tier 3 supplier

Tier 3 supplier

Tier 3 supplier

Tier 3 supplier

Tier 3 supplier

Tier 3 supplier

Tier 3 supplier

Tier 1Supplier

ElectricalSystem

Tier 2 Supplier

Alternator

Tier 2 Supplier

Regulator

Tier 2 Supplier Drums

Tier 2 Suppliers

Shoes

Tier 1 Supplier

BrakeSystem

FocalFirm

Tiered Production

• In tiered production, the buying company deals primarily with the top- tier suppliers, while lower tier suppliers are managed by those above them in the pyramid.

• A tiered production system reduces the need for a single company to manage the entire supply chain.

• Close working relations are developed above and below.• Tighter integration with suppliers is achieved by using tiered

production model.• Tier production permits the focal firm to manage the new product

development process more effectively.• Using expertise and knowledge of primary suppliers, can prevent

problems,speed up development, can meet cost target.• Drawback is that it focuses on focal firm.

Supply Chain Production• In 1980s focus was on supplier partnership to improve cost and

quality.• Today in faster paced markets, focus has shifted to innovation ,

flexibility, and speed.• Strategy has changed from low cost producer to rapid product

development with minimum resources.• Lean production companies focus on product variety, to reduce

manufacturing cost, cross functional teams and delegation.• Supply chain plays two roles: physical function,market mediation

function.• Physical function covers raw materials in to finished production while

market mediation ensures that variety of products reaching market place matches customers wants.

Dispersed Production

• Example of dispersed production is yarn . It is produced in Korea, fabric woven in Taiwan, zippers manufactured in Japan, Fabric and zippers shipped to Thailand for final garment assembly.

• In dispersed production, supply chain is broken for best location and firm for each activity.

• It requires excellent logistics and transportation and supply chain orientation.• Production is brought closure to the market.• By developing relationships,buying cycle can be reduced.• Supply chain oriented companies are two times faster as compared to non sc

companies• Non sc companies require several months to increase production even by 20%

where as sc companies can do in two weeks• A well coordinated sc production are very responsive to changes in market place.

Conclusion• Supply chain activities have a major impact on the capabilities and

profitability of the supply chain.• Functional products in stable markets need a supply chain production

system that focuses on reducing volume cost and increasing production efficiency.

• Highly innovative products in uncertain, constantly changing environments need a supply chain production system that focuses on strategic flexibility and speed to market.

• Dispersed production is a supply chain production system of great value in a globally competitive market that focuses on cost efficiency.

• Build- to- order production and postponement are useful supply chain production systems in markets that quickly obsolete existing products, that have rapidly changing customer requirements, and that experience shrinking product life cycles.

Industry trend

So how does a company get good at this new game called “Satisfy the customer”? The past few years have seen a proliferation of strategic approaches that could help make the difference- among them JIT production, TQM, TEI, concurrent engineering for product design, and total productive maintenance. But as challenges as it is to implement these strategies, it is not enough just to apply them in house. Any effective strategy for competitiveness today must include a company’s suppliers, in a brand new way.

A new kind of partnerships required to make world-class manufacturing strategies work. If they are to attain their goals, manufacturers must view vendors as an extension of their own business, not as adversaries. The new business reality is that the most competitive company is actually a series of companies, each one producing its product for the next one with the highest efficiency. The traditional barriers represent only waste- they must be removed.

The smartest manufacturers bring their key vendors into the product design process. Communication is the story. When you’re racing to be first to market, it help to have the party who knows most about making the components and limits of the materials as a teammates rather than an adversary. The bottom line is a long term approach, a commitment to working together from the beginning. This strategic partnership is co-makership.

Co-makership

• The fact that some companies are drastically reducing the number of their suppliers make this evolution seem like a revolution. The trends of such a revolution, and the operational model that they approach, are beginning to be clearly defined. Such a model is described today by the term co-makership.

Few facts of co-makership

• Why is the development of co-makership strategically appropriate?

• How must things be organized for supplier-client relations to evolve in this direction?

• How should organisational revision be approached?

• Which techniques should be adopted?• What has been the experience to date?

Companies and clients demand

• Higher quality in the product• Higher reliability in deliveries• Higher flexibility and speed in replying• More fragmented and frequent deliveries• Qualifying measures• Self-certification• Guaranteed improvement• Price reduction

ISSUES IN SUPPLY MANAGEMENT

• Purchases constitute the largest portion of industrial costs.

• The subject of supplies is addressed in very limited and sectoral terms.

• If supplies is essential to business then find how should we manage problems relating to quality, JIT, design – from the point of view of supplies.

• Supplier-client relations are undergoing rapid pervasive changes.

• Strategic development now taking place in industry is affecting relations.

• TQM and JIT are now giving way to new model of comakership.

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Co-Makership

• Why is the development of co-makership strategically appropriate?

• How must things be organised for supplier client relations to evolve in this direction?

• How should organizational revision be approached?

• Which techniques should be adopted?

• What has been the experience to date?

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Common Statements

• “Price is only one of the components of the total purchase price, and the best prices often become the worst costs”.

• “The process of change begins with the supplier and ends with the final customer”.

• “The quality and reliability of the end product are the result of what is contributed by the entire supplier-client chain of business”.

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Companies, Market & Client Demand

• Higher quality in the finished product.

• Higher reliability in deliveries.

• Higher flexibility and speed in replying.

• More fragmented and frequent deliveries.

• Qualifying measures.

• Self-certification.

• Guaranteed improvements.

• Price reductions.

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Strategic Justification for Comakership

• Group wide quality control (TQM)

• Value Chains (a Western business strategical approach)

• Total manufacturing management/JIT (a new manufacturing strategy)

• Product process development (an emerging engineering strategy).

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Important Factors for Corporation

• The time to research and develop new products (time to market).

• Startup time for new production (startup time).

• Production time (lead time)

• Production change time (machines, supplies/setup time)

• Distribution time

• Information time

• Costs, service and deliveries, quality, innovation suppliers can contribute to competitive advantages.

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Four Models of Corporations

A. The Western functional – Tayloristic company of the 1950s and 1960s.

B. The marketing-oriented company of the 1960 and 1970s.

C. The Japanese company of the 1970s and 1980s.

D. The World class company of the 1980 and 1990s.

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Internal organizationBureaucratic

Dynamics (Product Oriented )

Croup Dynamics (Process

Oriented)

Relationship with the Market

Operations Oriented

ABureaucracy/ Product-out

CInvolvement/

Process improvement

Market Oriented (Market-in)

BMarketing/ Product-

in

D Venture/ Market-

in

Company Organization Strategy: The four Alternatives

Business Models

Operations Oriented

• Improvements or innovations in company processes

• Improvements or innovations in products.

Market Oriented

• Constantly search for business opportunity based on market analysis .

• Seize market opportunity, new initiatives

Bureaucratic Dynamics

• Product focused, authority responsibility etc. clearly defined.

• Ensures methodical and impersonal actions.

• Promotes efficient and logical activity.RWL/LV/PII-36

Group Dynamics (Process Oriented)

• Allows autonomous responses to situations by all levels of the organization.

• Makes use of information from all organization units.

• Develops a high level of motivation among members of the company.

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Business Models contd.

• Relationship with the marketplace.

• Managerial organization and culture.

• Winning scenario.

• Manufacturing strategies.

• Supply Strategy and organization

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Model – Characteristics analysis

• Technology and product know how are most important factors in business

• Supply is lower than demand is assumed.

• Specialised technical managers and not entrepreneurs.

• Maximise production, efficiency and innovation

• Limit recourse to outside supplies only for commercial materials and the simplest manufacturing.

• Purchase at the lowest possible price and implement pricing policy based on the strength of contractual relations.

• Exploit each supplier to maximum extent

• Prefer easily controllable suppliers

• Limit information provided to suppliers to delivery dates and technical data.

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Bureaucracy/Product–out company

• Do not accept any binding agreement with suppliers concerning assurances in volume price etc.

• Purchase by single order.

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Bureaucracy/Product–out company contd.

• Maximum decentralization.

• Large number of alternative suppliers.

• Feeding price competition.

• Single order purchases.

• No guarantee of further consignments.

• Short term relationships.

• Free competition with regard to prices

• A minimum amount of information to suppliers.

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Marketing/Product-in Company

• Customer satisfaction

• Quality as a priority

• Continual improvement

• Maximum employment/maximum volume

• Solid turnover as a priority.

• Process management,quality assurances based on participation.

• Waste reduction, use of equipment

• Rapid manufacturing development of products with quality.

• Highly decentralised production and close integration with suppliers.

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The involvement/Process Improvement Company

• Creating exclusive ties with a limited number of suppliers.

• Research on economies of purchasing over the long term.

• Operational co-makership.

• Long term relationship, suppliers are assisted, JIT supplies.

• Overall responsibility for cost, quality & service.

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Basic Characteristics

• Priority management, using long term policies to guide short term actions.

• Focus on a few strategic priorities.

• Cross-Functional management

• Involvement of a large number of employees.

• Management by process

• Use of policy deployment methodologies.

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The Venture / Market-in Company

Winning Scenario

• A mature and affluent market

• Globalized business

• A high level of competition

• Economic turbulence

• The need for personalization of products

• The need for rapid adaptation and change

• Time-to-market as a competitive advantage.

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Relationship

• Long term relationship

• Integrated companies from operational point of view

• Complete mutual trust, as between partners in the same business

• The normal use of open orders, with synchronized supplies.

• A common information network, used both for operational procedures and for management functions.

• Widespread use of joint improvement Programmes

• Involvement of suppliers in quality

• Use of QFD

• A strong contribution to the planning & development of strategic components & technologies, designing together (co-design).

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• Establishing long term, stable relationships.

• Limiting the number of active suppliers.

• Not changing suppliers frequently.

• Establishing a global qualification system.

• Rating suppliers based on total cost rather than price.

• Cooperating with suppliers to make their processes more reliable and less expensive.

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Policy on Suppliers

• Class III : The conventional supplier

• Class I : The Partner supplier (global comakership/business partnership)

• Class II : The associated supplier (Operational comakership)

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Three Operational Level