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Managing Customer Managing Customer SatisfactionSatisfaction
Week 4Week 4
Managing Supply RelationshipsManaging Supply Relationships
Unit objectivesUnit objectives
Identify the main types of supply relationshipsIdentify the main types of supply relationships Define supply chains, explore service Define supply chains, explore service
applications & discuss main issues in supply applications & discuss main issues in supply chain management (SCM)chain management (SCM)
Identify the use and management of Identify the use and management of intermediariesintermediaries
Identify the main types of supply partnerships Identify the main types of supply partnerships and how they can be managed effectivelyand how they can be managed effectively
Evaluate the role of service level agreementsEvaluate the role of service level agreements
IntroductionIntroduction
Purpose: describe the Management of the Purpose: describe the Management of the relationships involved in delivering service relationships involved in delivering service to the end customerto the end customer
SCM grew out of manufacturers’ need to SCM grew out of manufacturers’ need to synchronize all the elements in the SC:synchronize all the elements in the SC: Increase product availability Increase product availability Respond quickly to changes in consumer Respond quickly to changes in consumer
demanddemand Maintain or reduce inventory levelsMaintain or reduce inventory levels
A simple supply chainA simple supply chain
Types of supply relationshipsTypes of supply relationships
Service supply chains or networksService supply chains or networks Management through intermediariesManagement through intermediaries Management through supply Management through supply
partnershipspartnerships
Service supply chainsService supply chains
Service provider’s concerns: cost & qualityService provider’s concerns: cost & quality Service providers have several supply chains, Service providers have several supply chains,
e.g., supermarket:e.g., supermarket: Cleaning serviceCleaning service Legal services and auditingLegal services and auditing Food items through wholesalers, distributors, Food items through wholesalers, distributors,
producer (direct)producer (direct) Supplier and customer levels are called “tiers”: Supplier and customer levels are called “tiers”:
first-tier (direct contact with service provider), first-tier (direct contact with service provider), second-tier, etc.second-tier, etc.
Multi tiered supply chain
Management through Management through intermediariesintermediaries
‘‘Middlemen’ or distributers, agents, Middlemen’ or distributers, agents, dealers who manage part of the SCdealers who manage part of the SC E.g., car manufacturers have dealersE.g., car manufacturers have dealers
Disintermediation—reducing the number Disintermediation—reducing the number of intermediariesof intermediaries The Internet and disintermediationThe Internet and disintermediation Outsourcing—increasing the number of Outsourcing—increasing the number of
intermediariesintermediaries
Holiday supply chains and disintermediation
Managing service supply chainsManaging service supply chains
A supply chain is a network that joins A supply chain is a network that joins together internal and external suppliers together internal and external suppliers with internal and external customerswith internal and external customers
Supply chain management (SCM) is Supply chain management (SCM) is concerned with managing the network and concerned with managing the network and flow of information, materials, services, & flow of information, materials, services, & customers through the networkcustomers through the network
Managing service supply chainsManaging service supply chains
Information is essential to anticipate and meet Information is essential to anticipate and meet demanddemand
In practice, information is not always shared In practice, information is not always shared (supplier power, producer power)(supplier power, producer power)
Reasons why there is always inventory in the SCReasons why there is always inventory in the SC Processes require work in progress (cannot produce Processes require work in progress (cannot produce
one item at a time)one item at a time) Inventory must be available to meet demand with Inventory must be available to meet demand with
100% accuracy (processes are inflexible & unreliable)100% accuracy (processes are inflexible & unreliable) SCM is targeted at reducing inventorySCM is targeted at reducing inventory Figure 5.2, pg. 144Figure 5.2, pg. 144
The value of SCMThe value of SCM
The value of SCMThe value of SCM Provides the benefits of vertical integrationProvides the benefits of vertical integration Eliminates long-term overhead & inflexibility of Eliminates long-term overhead & inflexibility of
managing all the activities of SCM within one managing all the activities of SCM within one organizationorganization
SCM approachesSCM approaches
The basis of SCM lies in the development The basis of SCM lies in the development of strong buyer-supplier partnerships of strong buyer-supplier partnerships
Helper (1991), ten year study of US auto Helper (1991), ten year study of US auto industry: industry: weak suppliers weak suppliers powerful buyers powerful buyers Increasing use of JIT manufacturing process Increasing use of JIT manufacturing process
Information exchange in supply Information exchange in supply partnershipspartnerships
Categories (4)Categories (4) Voice—partnership, collaboration, long-term, joint Voice—partnership, collaboration, long-term, joint
R&DR&D Exit—traditional (adversarial), competitive pricing, Exit—traditional (adversarial), competitive pricing,
short term, buyer still searching for lowest priceshort term, buyer still searching for lowest price Unlikely—unlikely that a long-term relationship is Unlikely—unlikely that a long-term relationship is
possible, buyer may not want to become dependent possible, buyer may not want to become dependent on one supplieron one supplier
Stagnant—sense of commitment but relationship Stagnant—sense of commitment but relationship has not developedhas not developed
Figure 5.4, pg. 148Figure 5.4, pg. 148
Key elements of SCMKey elements of SCM
Management of the SC in its entirety using Management of the SC in its entirety using measures to assess performancemeasures to assess performance
Buyer/supplier partnerships to share Buyer/supplier partnerships to share benefitsbenefits
Reduction of the number of suppliers Reduction of the number of suppliers Increased exchange of informationIncreased exchange of information Possibility of redirecting activities to the Possibility of redirecting activities to the
most effective position in the SCmost effective position in the SC
Benefits of SCMBenefits of SCM
Reduction in the total cost of inventoryReduction in the total cost of inventory Reduced administration overheads Reduced administration overheads
involved in managing multiple involved in managing multiple relationshipsrelationships
Collaboration in scheduling & process Collaboration in scheduling & process improvementimprovement
Faster response to changes in market Faster response to changes in market demanddemand
Purchasing functionPurchasing function
Procurement/purchasing responsible for Procurement/purchasing responsible for managing the SCmanaging the SC
Identify internal customer’s needsIdentify internal customer’s needs Translate needs into specificationsTranslate needs into specifications Manage the delivery of goods & servicesManage the delivery of goods & services Assess customer satisfactionAssess customer satisfaction Communication with suppliersCommunication with suppliers
Sourcing through invoicingSourcing through invoicing ‘‘Cinderella’ operationCinderella’ operation
PWC study: 10% reduction of costs = 50% PWC study: 10% reduction of costs = 50% increase in profit marginincrease in profit margin
E-procurementE-procurement
Disintermediation—desktop procurementDisintermediation—desktop procurement Benefits:Benefits:
Customer satisfaction (more work but greater Customer satisfaction (more work but greater control)control)
Process compliance (more reliable since Process compliance (more reliable since easier for individuals to use—transparency)easier for individuals to use—transparency)
Cost reduction (reduced ‘just in case’ Cost reduction (reduced ‘just in case’ purchasing)purchasing)
Lean manufacturingLean manufacturing
Toyota production system to eliminate waste Toyota production system to eliminate waste (muda): anything that creates no value for the (muda): anything that creates no value for the customer (Toyoda & Ohno)customer (Toyoda & Ohno)
Value must be defined by the customerValue must be defined by the customer Remove non-value producing activities from the Remove non-value producing activities from the
value streamvalue stream Create flow – pipeline vs. batched workCreate flow – pipeline vs. batched work Pull vs. push – demand drivenPull vs. push – demand driven
McD replenishes burgers as customers buys themMcD replenishes burgers as customers buys them Strive for perfection – developing a culture of Strive for perfection – developing a culture of
continuous improvementcontinuous improvement
Applying lean thinking to Applying lean thinking to service operationsservice operations
Ohno’s 7 sources of Ohno’s 7 sources of mudamuda Over-production ahead of demandOver-production ahead of demand Waiting for the next process stepWaiting for the next process step Unnecessary transport of materialsUnnecessary transport of materials Over-processing or parts due to poor process Over-processing or parts due to poor process
design or technologydesign or technology Excessive inventoriesExcessive inventories Unnecessary movement of employeesUnnecessary movement of employees Defective productionDefective production
Barriers to SCM improvementBarriers to SCM improvement
Lack of systems capability—inability to Lack of systems capability—inability to pass information about demand along the pass information about demand along the SCSC
Complacency (Toyota?)Complacency (Toyota?) Information used for conflicting purposesInformation used for conflicting purposes
—sales forecasts—sales forecasts MistrustMistrust Power games—fear of being overwhelmed Power games—fear of being overwhelmed
by a more powerful partnerby a more powerful partner
Managing through intermediariesManaging through intermediaries
Why use intermediaries?Why use intermediaries? Closeness to customerCloseness to customer Local knowledgeLocal knowledge Focused expertise Focused expertise (Microsoft, 5.3, pg. 155)(Microsoft, 5.3, pg. 155)
Poor service marginsPoor service margins Insufficient capacity (subcontracting)Insufficient capacity (subcontracting)
Forms of service: Forms of service: Military modelMilitary model
The Commandos—highly trained, self-directed, The Commandos—highly trained, self-directed, complex projects (software)complex projects (software)
The Regulars—less comprehensively skilledThe Regulars—less comprehensively skilled Part-timers—provided by the customersPart-timers—provided by the customers Mercenaries—not part of the parent Mercenaries—not part of the parent
organization, may not share its cultureorganization, may not share its culture Enemies—not on the same side, parent Enemies—not on the same side, parent
company may have decided not to provide company may have decided not to provide serviceservice
The military model
Motivating mercenariesMotivating mercenaries
Financial incentivesFinancial incentives PunishmentsPunishments Providing expertiseProviding expertise Training—McDonald’s Hamburger Training—McDonald’s Hamburger
UniversityUniversity IS & IT supportIS & IT support
AlliancesAlliances
TypesTypes Focused or complex—level of involvementFocused or complex—level of involvement Joint venture—forming a new companyJoint venture—forming a new company Partnership—forming a strategic alliance Partnership—forming a strategic alliance
Service level agreementsService level agreements
SLAs are contracts between the service supplier SLAs are contracts between the service supplier and purchaser (B2B) considered to be an and purchaser (B2B) considered to be an integral part of the developing relationship integral part of the developing relationship between the twobetween the two
Activities:Activities: Setting a service specificationSetting a service specification Dealing with routine issuesDealing with routine issues Development of the relationship—on-going review Development of the relationship—on-going review
and revision and revision SLAs are tailor madeSLAs are tailor made
Strategic alliance success factorsStrategic alliance success factors