Rolf G. Poluha, The Quintessence of Supply Chain Management, Springer, 2016

Quintessence Series

Rolf G. Poluha

The Quintessence Quintessence of Supply Chain Management What You Really Really Need to Know to Manage Your Your Processes in Procurement Procur ement,, Manufact Manufacturing uring,, Warehousing and Logistics

Quintessence Series

Series editor Nils Bickhoff Quintessential Strategies Hamburg, Hamburg, Germany Germany

More information about this series at http://www.springer.com/series/10376

Rolf G. Poluha

The Quintessence of Supply Chain Management What You Really Need to Know to Mana Manage ge Your Your Proc Proce esse sses in Proc Procur urem eme ent, nt, Manufacturing, Warehousing and Logistics

Rolf G. Poluha Paris France

ISSN 2195-4941 Quintessence Series ISB ISBN 978978-33-66 6622-48 4851 5133-2 2 DOI 10.1007/978-3-662-48515-6

ISSN 2195-495X

(electronic)

ISB ISBN 978978-33-66 6622-48 4851 5155-6 6

(eBoo eBook) k)

Library of Congress Control Number: 2015960188 Springer Heidelberg New York Dordrecht London # Springer-Verlag Berlin Heidelberg 2016 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the materi material al is concer concerned ned,, specifi specifical cally ly the rights rights of transl translati ation on,, reprin reprintin ting, g, reuse reuse of illust illustrat ration ions, s, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or inform informati ation on storag storagee and retrie retrieval val,, electr electroni onicc adapta adaptatio tion, n, comput computer er softwa software, re, or by simila similarr or dissimilar methodology now known or hereafter developed. The use of gener general al descri descripti ptive ve names, names, regist registere ered d names, names, tradem trademark arks, s, servic servicee marks marks,, etc. etc. in this this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the author authorss or the editor editorss give give a warran warranty, ty, expres expresss or implie implied, d, with with respec respectt to the mater material ial contai contained ned herein or for any errors or omissions that may have been made. Cover design: eStudio Calamar, Berlin/Figueres Graphic design: Birgitt Faelchle, Oberkochen English editorial: Derek Hardy, Paderborn Printed on acid-free paper Spri Spring nger er-V -Ver erla lag g GmbH GmbH (www.springer.com)

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Appraisal

A key factor for the success of companies today is the competence to manufacture and bring to the market innovative products with high quality and competitive prices faster than the competition. In addition, tion, compan companies ies need need to contin continuo uousl usly y improv improvee and optimi optimise se their their processes through the integration of new, innovative ideas. The goal is to achieve more effective and efficient processes which are required in order to stay competitive. It is of paramount importance that companies learn how to adapt and be ready for flexible and fast changing collaboration with various partners and to view this as an opportunity, not as a threat. In the future, this will be the only way to remain engaged and be successful as a value-adding cooperation partner. This book presents, in a crisp and plain way, how Supply Chain Management can help companies to cope with those challenges and manage them properly in order to ensure long-term business success. Prof. Dr. Dietrich Seibt University of Cologne Cologne, Germany

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Appraisal

We ar aree expe experi rien enci cing ng an inte intere rest stin ing g chan change ge in the the comp compet etit itio ion n betw betwee een n comp compan anie ies: s: they they ar aree no long longer er comp compet etin ing g amon amongs gstt ea each ch other, but rather in a federated way. For instance, Coca-Cola, Nike and and Targ Target et have have buil builtt netw networ orks ks with with supp suppli lier ers, s, whol wholes esal aler erss and and retailers. Due to the sheer amount of literature on this subject, it is often difficult to understand the essential facts and concepts of such fundamental changes and their effects. Thus, there is a real need for a concise book in handy format that can put things right. This book gives a compact review of Supply Chain Management and includes a clear overview of the most recent developments. There are many references with additional literature to go deeper into topics of interest if desired. Readers who are looking for advice on the right balance between between standardisation and and adaptation to a given corporate strategy will not be disappointed. Dr. Paul Hofmann Space-Time Insight San Mateo, CA USA

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Abbreviations

ABC AMR APICS APS AST& AST&L L ASUG b BPML BPR BSC CEO CFO CIP CISC CISCM M CLM CPFR CPFR CSCM CSCM CSCMP P CSCO CSF DEA E-Bu E-Busi sine ness ss E-Comm E-Commerc ercee ed. E-Le E-Lear arni ning ng EPM ERP E-SCM et al.

Activity-based costing Advanced manufacturing research Association for operations management Advanced planning system Amer Americ ican an soci societ ety y of tran transp spor orta tati tion on and and logi logist stic icss Americas’ SAP Users’ group billion Business process modelling language Business process reengineering Balanced scorecard Chief Executive Officer Chief Financial Officer Continuous improvement process Chart harter ered ed Inst Instiitute tute of Sup Supply ply Chai Chain n Man Managem agemen entt Council of logistics management Coll Collab abor orat ativ ivee plan plann ning, ing, for forec ecas asti ting ng and and re rep pleni lenish shme men nt Certified Supply Chain Manager Coun Counci cill of supp supply ly chai chain n mana manage geme ment nt prof profes essi sion onal al Chief Supply Chain Officer Critical success factor Data envelopment analysis Elec Electr tron onic ic busi busine ness ss Electr Electron onic ic commer commerce ce editor Elec Electr tron onic ic lear learni ning ng Enterprise performance management Enterprise resource planning Electronic sup supply chain manageme ement et alia (and others) xi

xii

EVA IIPMR IOSC IOSCM M IPSC IPSCMI MI ISCE ISCEA A ISM IT KLU KM KPI LMS m no. OEM OMG p. PBC pp. PRTM RFID SC SCC SCDM SCEM SCM SCMP SCOR SMI TQM VMI WfMC WIP

Abbreviations

Economic value added criteria International Institute for Procurement ent and Market Research Inst Instiitut tute of Supp upply Chai Chain n Man Managem agemen entt Inte Intern rnat atio iona nall Purc Purcha hasi sing ng and and Supp Supply ly Chai Chain n Mana Manage ge-ment Institute Int Inter ern nati ational onal sup supply ply chai chain n edu educa cattion ion alli allian ance ce Institute for Supply Management Information technology Ku¨ hne Logistics University Knowledge management Key performance indicator Learning management system million number Original equipment manufacturer Object management group page Process-based costing pages Pittiglio, Rabin, Todd & McGrath Radio frequency identification Supply chain Supply chain council Supply chain design management Supply chain event management Supply chain management Supply chain management professio sional Supply chain operations reference model Supplier managed inventory Total quality management Vendor managed inventory Workflow management coalition Work in process

Contents

1

Introdu Introducti ction: on: The Real Real Competi Competitio tion n Will Will Be Be Betwee Between n Supply Chains in the Future . . . . . . . . . . . . . . . . . . . . . . . . 1.1 1.1 The Co Compet mpetiitio tion of of Su Supply pply Chai hains . . . . . . . . . . . . . . . Refer ereences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 7

2

Strateg Strategic ic Import Importanc ancee of the Supply Supply Chain Chain . . . . . . . . . . . . 9 2.1 2.1 The Ref Refer eren ence ce Syst System em of the the Busi Busin ness ess . . . . . . . . . . . . 9 2.2 2.2 What Is a Sup Supp ply Chai Chain? n? . . . . . . . . . . . . . . . . . . . . . . . 12 2.2. 2.2.1 1 Mean Meanin ing g of of Sup Suppl ply y Cha Chain in . . . . . . . . . . . . . . . . . 14 2.2. 2.2.2 2 Type Typess an and Char Charac actter eris isti tics cs of Sup Supply ply Chai Chains ns . . . 26 2.3 2.3 How How Did Did Supp Supply ly Chai Chain n Mana Manage geme ment nt Evol Evolve ve?? . . . . . . 30 2.3.1 2.3.1 From From Logis Logistic ticss to Advan Advanced ced Plann Planning ing Syst System emss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.3. 2.3.2 2 Valu Valuee-Or Orie ient ntat ated ed Supp Supply ly Chai Chain n Stra Strate tegi gies es . . . . 41 2.3. 2.3.3 3 Inte Integr grat atio ion n vs. vs. Fra Fragm gmen enta tati tion on . . . . . . . . . . . . . . 43 2.4 Practical Practical Examples: Examples: Consequen Consequences ces of Supply Supply Chain Chain Misma ismana nag gemen ementt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 2.4.1 2.4.1 Lack Lack of Adap Adapta tabi bili lity ty at Luce Lucent nt Tech Techno nolo logi gies es . . 47 2.4.2 2.4.2 Lack Lack of Consi Consider derati ation on Show Shown n for the the Inter Interest estss of Sup Suppl ply y Chai Chain n Part Partne ners rs at at Cisc Cisco o . . . . . . . . . . 48 2.4.3 2.4.3 Insuffi Insufficien cientt Respo Responsi nsiven veness ess at Hewl Hewlet ettt-Pa Pack ckar ard d . . . . . . . . . . . . . . . . . . . . . . . . 50 Refe Referrence encess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3

Plannin Planning, g, Manag Manageme ement nt and and Cont Control rol of Proc Processe essess in Procurement, Manufacturing, Warehousing and Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 3.1 Work Work,, Mate Materi rial al and and Inf Infor orma mati tion on Flo Flows ws . . . . . . . . . . . .

55 55

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Contents

3.2

Why Why and and How How Is Suppl Supply y Chain Chain Perfor Performan mance ce Mea easu surred? ed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 3.2.1 3.2.1 Measur Measuremen ementt of of Cost Cost and Perfor Performan mance ce of Sup Suppl ply y Chai Chains ns . . . . . . . . . . . . . . . . . . . . . . . . 61 3.2.2 3.2.2 Balanc Balanced ed Scor Scorecar ecard d and and Supp Supply ly Chai Chain n Sco Score reca card rd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 3.3 3.3 What What Is a Sup Suppl ply y Cha Chain in Refe Refere renc ncee Mod Model el?? . . . . . . . . . 71 3.3. 3.3.1 1 Orig Origin in and and Evo Evolu luti tion on of the the SCO SCOR R Mod Model el . . . . 74 3.3. 3.3.2 2 Obje Object ctiv ives es and and Stru Struct ctur uree of of SCO SCOR R . . . . . . . . . . 76 3.3.3 .3.3 Pra Practi ctica call Ap Applic plicat atiion . . . . . . . . . . . . . . . . . . . . 82 3.4 Practical Practical Examples: Examples: Analysis Analysis and Optimisat Optimisation ion of Mat Mater eria iall Flow Flowss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 3.4.1 3.4.1 Creati Creating ng an Invent Inventory ory of of Exist Existing ing Mate Materia riall Flow Flowss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 3.4.2 3.4.2 Perfor Performin ming g a Mate Materia riall Flow Flow Bot Bottle tlenec neck k Analy alysis sis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 3.4. 3.4.3 3 Crea Creati ting ng Caus Causee and and Effe Effect ct Diag Diagra rams ms . . . . . . . . 93 3.4.4 3.4.4 Develo Developin ping g Conc Concret retee Impr Improve ovemen mentt Pro Proposal osalss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Refe Refere renc nces es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 100

4

Innovat Innovative ive Concep Concepts ts for for Suppl Supply y Chain Chain Design Design and Optimisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Flexible Flexible Business Business Processes Processes Using Using Adapt Adaptive ive Supply Supply Chai Chains ns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.1 4.1.1 Combining Combining Planning, Planning, Procuremen Procurement, t, Manufacturing and Distribution Processes into into an Integr Integrate ated d Business Business Process Process . . . . . . . . . 4.1.2 4.1.2 Practical Practical Implement Implementation ation of Adaptive Adaptive Supp Supply ly Netw Networ orks ks . . . . . . . . . . . . . . . . . . . . . . . . 4.1.3 4.1.3 State-of-th State-of-the-Art e-Art Solution Solutionss for Supply Supply Chain Chain Desi Design gn Mana Manage geme ment nt . . . . . . . . . . . . . . . . . . . . . 4.2 Busine Business ss Proce Process ss Optim Optimisa isatio tion n in Supp Supply ly Chai Chain n Management: Reducing Cost and Improving Qual Qualit ity y. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 4.2.1 Business Business Process Process Reengineer Reengineering ing vs. Continuo Continuous us Impr Improv ovem emen entt . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.2 4.2.2 Managing Managing Change Change Successful Successfully: ly: Change Change Mana Manage geme ment nt and and the Hum Human an Fact Factor or . . . . . . . .

103 103 103

104 106 109

113 114 118

Contents

The The Supply Supply Chai Chain n Integr Integrati ation on Conce Concept pt and Adap Adaptiv tivee Busi Busine ness sses es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Practical Practical Examples: Examples: Applicat Application ion of Trendsett Trendsetting ing Supp Supply ly Chai Chain n Conce Concept ptss . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.1 4.4.1 ASUG ASUG Study Study for Perfor Performan mance ce Bench Benchmar markin king g and and Best Best Pract Practic ices es . . . . . . . . . . . . . . . . . . . . . . . 4.4.2 4.4.2 Correl Correlati ation on Betw Between een Busine Business ss Succ Success ess and and Perf Perfor orma manc ncee Indica Indicato tors rs . . . . . . . . . . . . . . . . . . . 4.4.3 4.4.3 Adopt Adoption ion of Supp Supply ly Chain Chain Appli Applicat cation ionss in Lead Leadin ing g Busine Business sses es . . . . . . . . . . . . . . . . . . . . . . Refe Refere renc nces es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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4.3

5

122 122 128 128 129 129 132 132 137 137 139 139

Conclu Conclusio sion: n: What What Matte Matters rs Is Is the the Righ Rightt Balan Balance ce . . . . . . . 143 5.1 5.1 The The Winn Winner erss in the the Comp Compet etit itio ion n of Supp Supply ly Cha Chain inss . . . 143 143 Refe Refere renc nces es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 146

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 147 About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 157 About the Series Editor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 159


List of Figures

Fig. 2.1 Fig. Fig. 2.2 2.2 Fig. 2.3 Fig Fig. 2.4 Fig. Fig. 2.5 2.5 Fig. 2.6 Fig. 2.7 Fig. 2.8 Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. Fig. 3.4 Fig. Fig. 3.5 3.5 Fig. Fig Fig. Fig. Fig Fig.

3.6 3.7 3.8 3.9

Fig. Fig. 4.1 4.1 Fig. Fig. 4.2 Fig Fig. 4.3 4.3 Fig. Fig. 4.4

Simplified Simplified representa representation tion of funct functiona ionall vs. vs. process process views ............ ............. .............. ............. ..... Consol Consolida idatio tion n framew framework ork for busi busines nesss process design ....... ...... ...... ....... ...... ...... ....... .. Typical elements of supply chain .. .. .. .. .. .. .. .. .. .. .. .. Exam Examp ple of a sup supply ply cha chain organ rganiisati satio on . . . . . . . . . . . . . . . . Deve Develo lopm pmen entt of virt virtua uall ente enterp rpri rise se stru struct ctur ures es . . . . . . . . . . . Example Example of the practical practical implement implementatio ation n of electronic electronic busi busine ness ss con conce cept ptss in supp supply ly chai chain n man manag agem emen entt . . . . . . . Internal and external sup supply chain .. .. .. .. .. .. .. .. .. .. .. . Integrated supply chain .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..

10 11 13 18 24 27 36 43

Example of a process chain .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 57 Supply chain scorecard ... ... ... ... ... ... ... .. ... ... ... ... . 70 Structure of the SCOR Model .. .. .. .. .. .. .. .. .. .. .. .. .. .. 78 SCOR SCOR as a hierarc hierarchic hical al busine business ss proces processs referen reference ce model ................................................... ...... 81 Exampl Examplee of a geog geograp raphic hical al chart chart base based d upon upon material flow types ... ... ... ... ... ... ... ... ... ... ... ... ... .. 87 Performance overview of material flows . . . . . . . . . . . . . . . 90 Temp Templlate ate for sum summary mary of bottl ottlen enec ecks ks .. .. .. . .. .. .. .. .. .. 92 Template for cause and effect diagrams . . .. . . .. . . .. . . . . 95 Exam Examp ple of bott bottllenec eneckk-p poten tential tial-m -mat atri rix x . . . . . . . . . . . . . . . . 99 Char Charac acte teri rist stic icss of of an an ada adapt ptiv ivee sup suppl ply y cha chain in . . . . . . . . . . . . 106 106 Develo Developme pment nt stage stagess of elect electron ronic ic busin business ess networks..................................................... 108 Grap Graph hica call ex examp ample of of ARI ARIS S Ea EasySC sySCO OR . . . .. . .. . . .. . . .. 112 Requir Required ed change change manag manageme ement nt suppo support rt in suppl supply y chain management projects............................... 121 xvii

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Fig. 4.5 Fig. Fig. 4.6 Fig. Fig. 4.7 4.7 Fig. Fig. 4.8

List of Figures

Integratio Integration n concept concept for the busine business ss processprocess-orien orientated tated design of of su supply ch chains .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 124 Supply Supply chai chain n proces processes ses in the the ASUG ASUG stud study y for performance benchmarking............................... 130 Correl Correlati ation on betw between een busi busines nesss succes successs and perf perfor orma manc ncee indi indica cato tors rs of of the the suppl supply y chai chain n . . . . . . . . . . . . 135 135 Suppor Supportt of suppl supply y chain chain manag manageme ement nt by IT IT system systemss in leading businesses .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 138

1

Introduction: The Real Competition Will Be Between Supply Chains in the Future

The cutting-edge businesses seek to make the supply chain competitive as a whole by means of the value it adds and the overall costs that it reduces. They have realised that the real competition is not business against business, but rather supply chain against supply chain. (cp. Christopher 2005, 2005, pp. 13)

1.1 1.1

The The Comp Compet etit itio ion n of Su Supp pply ly Chai Chains ns

In order to improve the market position of a business, factors that spring to mind are e.g. the price and quality of its products. However, a major factor for market success is the way in which a business plans, procures, manufactures, stores and sells its products. In today’s business environment transparency, efficiency and speed are key success factor factors. s. The efficie efficient nt manage managemen mentt of proces processes ses and workflo workflows ws is meant to allow businesses to gain advantages across all functional areas: from unleashing potentials in procurement for profit improvement and reduction and outsourcing of inventories, to winning over the customer by means of better delivery service. The continuing globalisation of procurement and sales markets, as well as the world-wide distribution of production facilities require a holist holistic ic plann planning ing and optim optimisa isatio tion n of valuevalue-add added ed proces processes ses and logistics networks. Furthermore, customer management needs to be developed and integrated accordingly. This leads to new challenges for for exec execu utives ives and and mana anager gers as they they ar aree forc orced to imp implemen ementt

# Springer-Verlag Berlin Heidelberg 2016

R.G. Poluha, The Poluha, The Quintessence of Supply Chain Management , Quintessence Series, DOI 10.1007/978-3-662-48515-6_1

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Intr Introd oduc ucti tion on:: The The Re Real al Comp Compet etit itio ion n Will Will Be Be Betw twee een n Supp Supply ly. . .

operational improvements and, at the same time, reduce cost without affecting customer service. To manage the trade-offs between the conflicting goals involved, the activities need to be well-balanced and take all relevant aspects into consideration. Paramount for businesses involved in a supply chain is the understanding that metaphorically speaking, the weakest link in the chain determines the market success. This means that the compensation the compensation law of planning which was originally only focused internally upon an ente enterp rpri rise se has has been been exte extend nded ed to the the comp compre rehe hens nsiv ive, e, inte intern rnal al and and external supply chains. It is obvious that this requires an increased collaboration between the enterprises involved in order to move the bottleneck to a higher level within the supply chain. According to the compensation the compensation law of planning, planning , a coordinated flow of activities in an enterprise requires the continuous interdepe depend nden entt coor coordi dina nati tion on of sale saless pote potent ntia ial, l, manu manufa fact ctur urin ing g capacities, purchasing conditions, etc. etc. Over time, this results in constraints in alternating functional areas which impede the full quantitative and qualitative development of the other function tional al ar area eass due due to inte interd rdep epen ende denc ncie ies. s. This This re requ quir ires es that that the the functional plans of the other areas are aligned with this constraint or bottleneck by means of adequate activities (cp. Albach et al. 2011 al. 2011,, pp. 261). For the topics of bottleneck and bottleneck management see e.g. Goldrath e.g. Goldrath and Cox (2012), (2012) , and Heinrich and Betts (2003 (2003). ). The result is that many businesses face the challenge of consistently and efficiently planning their material and information flows and controls to the letter—from procurement onwards and continuing through to production. Sales plans, however, are often carried out in practice using an inadequate forecasting accuracy and with the omission of a feasibility study, so that businesses are increasingly forced into the formation of excess inventory and costly bottleneck control. Prod Produc ucti tion on and and proc procur urem emen entt ca can n ofte often n not not re resp spon ond d flexi flexibl bly y to fluct fluctua uati tion onss in dema demand nd.. The The re resu sult ltss ar are, e, to an incr increa easi sing ng exte extent nt,, poor delivery and an often costly accrual of excess capacity. As a result, businesses are now faced with the following questions:

1.1

The Competition of Supply Chains

3

• Taking Taking into into accoun accountt the schedu schedules les,, costs costs and servic servicee levels levels,, how can we create a consistent balance between the supply side (stock, production and transportation capacity, etc.), and the demand side? • In what what way way and and to which which point point in time must must the the supp supply ly side side be enlarged or reduced? Leading businesses proactively deal with these issues and integrate their partners more effectively into the planning. The goal is a continuous and simultaneous increase in consistency and transparency of the entire business processes in order to punctually detect and resolve bottlenecks and postponements. The main challenge in this context is to ec econ onom omic ical ally ly and and flexi flexibl bly y inte integr grat atee the the data data of the the part partne ners rs (sup (suppl plie iers rs,, logi logist stic icss prov provid ider ers, s, sale saless offic offices es,, etc. etc.), ), into into thei theirr own own procurement, production, sales, distribution and transport planning and to create uniform, consensus-based plans. In summary it can be stated that: in view of the intensified competition as a result of increasing globalisation, economic crises, etc., businesses must make use of every potential in order to increase their economic viability and thus optimise their value creation. However, this results in an inherent problem: the optimisation in a single area (e.g. through the reduction of stock), has only a limited effect if the upstream or downstream processes (e.g. in procurement and production), are not simultaneously coordinated or adapted. As a consequen quence ce,, the the entir ntiree flow flows of mat mater eriial and inform format atiion must ust be considered in order to make real improvements in efficiency. This virtually determines the weakest link in the supply chain efficiency. Two difficulties arise from these findings: firstly, inter-divisional measur measures es are requir required— ed—th thee isolat isolated ed analys analysis is and optim optimisa isatio tion n of individual processes is not effective, but must be coordinated. Secondly, operational improvements and cost reductions are associated with with conflic conflictin ting g object objective ivess and theref therefore ore must must be simult simultane aneou ously sly considered. These and related issues are examined more closely in further course. This makes it clear that the ultimate goal is a balance of stock, production and transportation capacity, etc.—i.e. the supply side— with the customer needs—i.e. the demand side. In other words: the primary objective is to recognise where and when the supply side must be reduced or enlarged in order to cover the demand side as

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precisely and promptly as possible. The associated control and coordina dinati tion on of the the supp supply ly chai chain n in the the form form of work work,, mate materi rial al and and information flows can be simplified and referred to as Supply Chain Management , which should help a business to compete successfully with the supply chains of competitors. The various definitions will be discussed in more detail in the following Chapter. It was debated a few years ago whether this is simply a temporary “fad” or the presentation of known content in various other forms (“new wine in old bottles”). In the meantime, however, the knowledge has become accepted that there indeed exists a serious discipline of business administration, which has its own raison d’eˆ tre in scientific tific lite litera ratu ture re.. The The re resu sult lt is that that supp supply ly chai chain n mana manage geme ment nt has has become a recognised business discipline. Toda Today, y, ther theree ar aree a numb number er of ac acad adem emic ic inst instit itut utio ions ns whic which h ar aree offe offeri ring ng Supp Supply ly Chai Chain n Mana Manage geme ment nt Mast Master er’s ’s Degr Degree ee Prog Program rams, s, including: • Erasmu Erasmuss Univer Universit sity y Rotter Rotterdam dam and Maastr Maastrich ichtt Unive Universi rsity ty in the Netherlands. • Vienna Vienna Universi University ty of Economi Economics cs & Business Business in Austria Austria ´ cole • KEDG EDGE Busi Busin ness ess Scho chool and and E cole Supe Supe´ rieu rieure re des des Scie Scienc nces es ´ cono E conomi miqu ques es et Comm Commer erci cial ales es (ESS (ESSEC EC)) Busi Busine ness ss Scho School ol in France. • Copenhage Copenhagen n Business Business Schoo Schooll in Denmark. Denmark. • Univ Univer ersi sita ta` Bocconi in Italy. ´ cole des Hautes E ´ tudes commerciales (HEC) de Montre´ al and • E University of British Columbia in Canada. • Mass Massac achu huse sett ttss Inst Instit itut utee of Tech Techno nolo logy gy and and Flor Florid idaa Inst Instit itut utee of Technology in the United States. The only university with a primary focus on Logistics and SCM is the Ku¨ hne Logistics University (KLU) in Hamburg, Germany. It is sponsored by the non-profit Ku¨ hne Foundation of the Logistics entrepreneur Klaus-Michael Ku¨ hne. KLU offers B.Sc., M.Sc. and Ph.D. programs, as well as an Executive MBA program, a seminar series and international summer and autumn schools for professionals to expand their know-how.

1.1

The Competition of Supply Chains

5

For examples of academic research on Supply Chain Management, please refer to Ayers (2006 ( 2006). ). In addition, there are several professional certification programs for SCM staff development, such as: • Inte Intern rnat atio iona nall Inst Instit itut utee for for Proc Procur urem emen entt and and Mark Market et Rese Resear arch ch (IIPMR (IIPMR)) bestow bestowing ing Certifi Certified ed Supply Supply Chain Chain Associ Associate ate (CSCA (CSCA), ), Certified Supply Chain Specialist (CSCS) and Certified Procurement Professional (CPP). • Asso Associ ciat atio ion n for for Oper Operat atio ions ns Mana Manage geme ment nt (API (APICS CS)) best bestow owin ing g Certified Supply Chain Professional (CSCP) and Certified Production and Inventory Management (CPIM). • Institute Institute for Supply Supply Managemen Managementt (ISM) bestowing bestowing Certified Certified PurPurchas chasin ing g Mana Manage gerr (CPM (CPM)) and and Cert Certifi ified ed Prof Profes essi sion onal al in Supp Supply ly Management (CPSM). • International Supply Chain Education Alliance (ISCEA) bestowing Certified Supply Chain Manager (CSCM) and Certified Supply Chain Analyst (CSCA). • Char Charte terred Inst Instit itut utee of Supp Supply ly Chai Chain n Mana anageme gement nt (CIS (CISC CM) bestow bestowing ing Charte Chartered red Supply Supply Chain Chain Manage Managemen mentt Profes Professio sional nal (CSCMP). • Amer Americ ican an Soci Societ ety y of Tran Transp spor orta tati tion on and and Logi Logist stic icss (AST (AST&L &L)) bestowing Certification in Transportation and Logistics (CTL). • Internati International onal Purchasin Purchasing g and Supply Chain Chain Management Management Institute Institute (IPSCMI) bestowing Certified International Supply Chain Profession sional al (CIS (CISCP CP,, Leve Levell 1), 1), Cert Certifi ified ed Inte Intern rnat atio iona nall Supp Supply ly Chai Chain n Manage Managerr (CISCM (CISCM,, Level Level 2) and Certifi Certified ed Intern Internati ationa onall Supply Supply Chain Consultant (CISCC, Level 3). • Institute Institute of Supply Supply Chain Manageme Management nt (IOSCM) (IOSCM) bestowing bestowing Supply Chain Certificate Qualification Level 1–6. • The Purchas Purchasing ing Managem Management ent Associa Associatio tion n of Canada Canada is the main main Canadian certifying body; its main designation is the Supply Chain Management Professional (SCMP), with several others progressing towards it.

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In practice the picture is similar: in the past 10 years and on the one hand, hand, the import importanc ancee of logist logistics ics proces processes ses has greatl greatly y increa increased sed within businesses. On the other hand, however, a cross-functional and integrated view of the supply chain has come to the fore, whilst in the past a vertical perspective of the associated processes in procurement, manufacturing, warehousing and logistics was dominant. As a result this has assisted in firmly embedding supply chain management into businesses. Martin Christopher is right when he says that it is only in the recent past that businesses have come to recognise the vital impact that supply chain management can have in the achievement of competitive advantage (cp. Christopher 2005 Christopher 2005,, p. 1). This has lead to a wide range of activities and initiatives within businesses which will be highlighted in this book. In conjunction with this fact, an increasing number of businesses has introduced a new position in the recent past, the Chief Supply Chain Officer (CSCO), or Supply Chain President, who often reports directly to the Chief Executive Officer (CEO) or the Chairman. There is also also a spec specia iall webs websit itee and and a re rela late ted d maga magazi zine ne spec specifi ifica call lly y for for exec execut utiv ives es in the the field field of supp supply ly chai chain n mana manage geme ment nt titl titled ed Chief Supply Chain Officer (CSCO) Insights—The Knowledge Source for Supply Chain and Logistics Executives ( Executives (www.cscoinsights.com www.cscoinsights.com). ). Fur Further recommendable magazines and journals focusing on Logistics and SCM are e.g. Supply Chain Technology News, Logistics Today and Material Handling Management and Industry Week . There is even an annual conference known as the Chief Supply Chain Officer which h is orga organi nised sed by eyef eyefor ortr tran ansp spor ort— t— Supp Forum, Forum, whic Supply ly Chai Chain n & Logistics Business Intelligence (www.eft.com www.eft.com). ). In the meantime, another consequence is that there are a large number of publications on this subject. However, there is as yet no book that has provided a concise and easily understandable overview for both practitioners and academics. The Quinte Quintesse ssence nce of Suppl Supplyy Chain Management Management is designed to remedy this situation. Within it the essential concepts and basic principles are represented in a compact form and illustrated with numerous diagrams and examples. The book will assist the reader to better understand how the supply chain may be analysed, evaluated, and based upon one’s individual goals, may also be structured and optimised. In addition, a number of further

References

7

references and reading hints are included in order to study a certain aspect in depth if desired. A good overview of Supply Chain Management may be found, for example, at at Hugos (2011), (2011), and Cohen and Roussel (2013 (2013). ). For very current aspects of the topic, see e.g. Chopra and Meindl (2015 2015), ), and Lambert (2014 (2014). ). For the connection of Operations Management and Supply Chain Management, Jacobs Management, Jacobs and Chase (2013),, and Heizer and Render (2013 (2013) 2013), ), ar aree part partic icul ular arly ly recommended. The The book book has has serv served ed its its purp purpos osee if the the re read ader er ca can n ulti ultima mate tely ly unde unders rsta tand nd whic which h comp compet etit itiv ive, e, cr crit itic ical al role role is play played ed by supp supply ly chain management in ensuring the long-term success of the business. And, as a result, how it can enable businesses to emerge as winners from the competition the competition of supply chains. chains .

References Albach, H., Brockhoff, K., Eymann, E., Jungen, P., Steven, M., & Luhmer, A. (2011). Theory of the firm: Erich Gutenberg’s foundations and further developments (Softcover developments (Softcover reprint of the original First Edition 2000). Berlin: Springer. management (2nd ed.). Boca Ayers, J. B. (2006). Handbook of supply chain management Raton, FL: Auerbach. Chopra, S., & Meindl, P. (2015). Supply (2015). Supply chain management: Strategy, planning & operations (6th operations (6th ed.). London. Logistics cs and supply supply chain chain manage managemen ment: t: Creati Creating ng Christophe Christopher, r, M. (2005). (2005). Logisti value-adding networks (4th networks (4th ed.). London: Prentice Hall. Cohen, S., & Roussel, J. (2013). Strategic supply chain management: The five core disciplines for top performance (2nd performance (2nd ed.). New York: McGraw-Hill. Goetsch, D. L., & Davis, S. (2014). Quality management for organisational excellence: excellence: Introduction Introduction to total quality (7th quality (7th ed.). Harlow, Essex: Pearson. Heinrich, C., & Betts, B. (2003). Adapt (2003). Adapt or die – Transforming your supply chain into an adaptive business network . Hoboken, NJ: Wiley. Heizer, J., & Render, B. (2013). Operations management (11th management (11th ed.). Upper Saddle River, NJ: Prentice Hall. Hugh Hughes es,, J., J., Ralf Ralf,, M., M., & Mich Michel els, s, B. (199 (1998) 8).. Transfo Transform rm your your supply supply chain. chain. Releasing value in business. business. Andover: Andover: Cengage Learning EMEA.

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Intel, Intel, Inform Informati ation on Techno Technolog logy y (Ed.). (Ed.). (2002) (2002).. SCOR SCOR ex expe peri rien ence ce at Inte Intell. Meth Method odss and and tool toolss for for supp supply ly chain chain mana manage geme ment nt (Whi (White te Pape Paper) r),, Sant Santaa Clara, CA. Supply ly chai chain n mana manage geme ment nt:: Proce Processe sses, s, Lamb Lamber ert, t, D. M. (Ed.) Ed.).. (201 (2014 4). Supp partnerships, performance performance (4th ed.). Sarasota, FL: Supply Chain Management Institute.

2

Strategic Importance of the Supply Chain

The performance of the supply chain directly impacts the performance of a business. (cp. Plattner and Leukert 2015 Leukert 2015,, p. 129).

2.1 2.1

The Refer Referenc ence e Syst System em of the Busine Business ss

In order to develop an understanding of the special importance of the supply chain, the initial necessity to divert from the often widespread functional, to a process-oriented way of thinking and perspective, is essential. The figure below clearly shows the difference in graphical form (Fig. 2.1 2.1). ). The influence of the process view of the business’s success may not be detected other than in operational practice. Even scientific studies to investigate factors that have a significant impact on the company’s success show that the market success largely depends on the observation and improvement of key business processes. The process view with reference to the supply chain is very well € represented in the work of Schonsleben onsleben (2012 (2012). ). Let us examine an example of a concept of integration in which the business processes are at the centre, described in more detail, and are presented as the operational reference system. The graph summarises the integration concept, developed as part-funded by the European


R.G. Poluha, The Quintessence of Supply Chain Management , Quintessence Series, DOI 10.1007/978-3-662-48515-6_2

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Fig. 2.1 Simplified representation of functional vs. process views

Commission project CEBUSNET and involving the research groups of six European universities (Fig. 2.2 2.2). ). As can be seen from the diagram the corporate strategy, goals and policies are paramount. These directly determine the business processes depicted by the thick arrows. Above and beyond this, they also determine the influencing factors, i.e. employees, organisation, and information technology as well as the results (depicted by the dotted arrows). Input variables such as e.g. raw material, labour and data, and and outp output ut vari variab able less such such as prod produc ucts ts and and serv servic ices es,, as well well as activities and process steps, are not explicitly shown in the diagram, but do represent an inherent part of business processes. The complete working paper with the CEBUSNET study can be obta obtain ined ed at no char charge ge from from the the foll follow owin ing g webs websit itee (c (cp. p. Seib Seibtt 1997): 1997 ): http://www.islp.uni-koeln.de/fileadmin/wiso_fak/islp/ pdf/WP_97_01.pdf .. pdf/WP_97_01.pdf The centra centrall elemen elementt visual visually ly represe represents nts the busine business ss proces processes ses resulting from the corporate strategy and objectives. It is strongly affected by the influential factors and the business’s specific context (rep (repre rese sent nted ed by thic thick k ar arro rows ws). ). The The deta detail iled ed influ influen enci cing ng fa fact ctor orss include the human resources (employees), information technology, and organi organisat sation ion.. The influen influentia tiall factor factor ‘emplo ‘employee yees’ s’ inclu includes des all process-related aspects that play a role in improving the skills and

2.1

The Reference System of the Business

11

process design (cp. Seibt 1997 Seibt 1997,, Fig. 2.2 Consolidation framework for business process p. 6)

the motivation of employees. Information technology has been considered for quite some time now to be a relevant factor for enabling optimum process handling. It includes the application solutions and information systems, and related procedures and processes. Also, in addition to the organisation as a factor influencing its own structure, the rules and operations are summarised in so far as they are related to the business processes. The business-specific context (environment), is influenced by factors such as the industry, the individual competition, import and export restrictions, and so on. Depicted on the right hand side are the results of operations or the handling of business processes. These are, for example, the products and services that arise from the business processes. Further results are the key performance indicators, such as customer satisfaction and cycle time which are defined as business targets. A very compact and outstanding overview of the strategic management and the definition of corporate strategy and objectives can be found at Kotler at Kotler et al. (2010). (2010) .

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These will be discussed in more detail in further course, as they play an important role in the context of supply chain management. Result Resultss may be either either intent intention ional al or unint unintent ention ional. al. An intent intention ional al resu re sult lt coul could d be to ac achi hiev evee high higher er profi profits ts;; an unin uninte tent ntio iona nall re resu sult lt could be the disclosure of losses as opposed to profits. The risk of unwanted results arises partially due to the definition of corporate goals and strategy. Over and above this and with regard to the four main areas shown which are important for the execution of business processes—namely busine business, ss, influen influencin cing g factor factors, s, the corpor corporate ate contex contextt and result resultss of operations—feedback processes are of course in existence that are not explicitly shown in the diagram. Since the concept of integration as a comprehensive framework for businesses and the supply chain runs through all the relevant business process areas, reference to this will be made on several occasions in further course. It is used, in a sense, as a kind of “continuous thread” that runs through the book and will help to keep the focus on the essential—or, in other words, on the actual and required knowledge levels of management and employees with regards to the processes in proc procur urem emen ent, t, manu manufa fact ctur urin ing, g, stor storag agee and and logi logist stic ics. s. But But first first,, clarification is necessary as to what actually lies hidden beneath the concept of the supply chain.

2.2 2.2

What What Is a Su Supp pply ly Chai Chain? n?

To view the supply chain in the further course of working closer therewith, we will first attempt to establish a definition of the term. Syno Synony nymo mous usly ly,, the the term term logi logist stic icss chai chain n is somet sometim imes es used used.. The The difference is that the logistics chain focuses on the physical activities of the logistics in the narrower sense. In addition to this, the supply chain covers the accompanying monetary and information flows and extends much further. In literature we find a large number of definitions, some of which are listed below by way of example. Because the term has been mainly developed in the United States and advanced from there, the definition has been heavily influenced by writers from the Englishspeaking world (Fig. 2.3 2.3). ).

2.2

What Is a Supply Chain?

13

Fig. 2.3 Typical elements of supply chain (cp. Myerson (cp. Myerson 2015, 2015, pp. 4)

Understanding the supply chain is of particular importance to those who who ar aree invo involv lved ed in meas measur ures es to impl implem emen entt proc proces esss and and syst system em improvements. The definition of a supply chain can vary greatly, dependent upon the perspective from which the definition is made. The current trend leans more towards a broader definition. For example, ple, the the ar area ea in focu focuss has has been been exte extend nded ed and and adde added d to the the view view expressed in the CSCMP definition as part of a conference conducted by the Council of Supply Chain Management Professionals (CSCMP) in 2002. In accordance with this, the supply chain can be described as the total of all activities, processes, etc., which are applied to the product from the beginning to the end. The The Coun Counci cill of Supp Supply ly Chai Chain n Mana Manage geme ment nt Prof Profes essi sion onal alss (CSC (CSCMP MP)) was founded in 1963 in the United States under the original name National Council of Physical Distribution Management (NCPDM). The name was later changed in Council of Logistics Management (CLM (CLM)) and and the the ac acro rony nym m final finally ly rena rename med d CSCM CSCMP. P. Furt Furthe herr info inform rmaation can be found on the following website: www.CMP.org website: www.CMP.org In this this sens sense, e, a supp supply ly chai chain n appr approx oxim imat atel ely y begi begins ns with with the the extr extrac acti tion on of mining ores and the planting of seeds, i.e. acquiring raw materials

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from the earth. The chain flows through a variety of conversion and distribution processes that deliver the product to the end user. It ends with with the the final final disp dispo osal sal of the the prod produc uctt and and its its re resi sid dues. ues. In ac acco cord rdan ance ce with with this this under understa standi nding, ng, howeve however, r, the supply supply chain chain is more more than than the physi physical cal movement of the goods: It also includes information, financial movement and the creation and distribution of human resources. The product lifecycle includes the essential stages of the product development through the production and right up to recycling. Changes and improvements must constantly be carried out above and beyond the lifecycle, which will only then create a lasting success in the market (cp. Stark (2015 (2015), ), pp. 5). In summary this suggests that the supply chain covers all processes throug throughou houtt the produc productt lifecy lifecycle cle,, inclu includin ding g the physi physical cal,, inform informaational, financial and knowledge-based processes for moving products and services (from suppliers through to end users). With the inclusion of the process side, it follows that this results in a supply chain being composed of all people and businesses involved in the development, production and supply of a product or service to the market.

2.2.1 2.2.1 Meaning Meaning of of Supply Supply Chain Chain The definitions to be found in the scientific and application-oriented literature include a whole range of perspectives—from a very narrow to very very broa broad d conc concep eptt deli deline neat atio ion. n. Alth Althou ough gh the the spec spectr trum um of the the supply chain has expanded considerably in recent years, even today narr narrow ower er or bary baryce cent ntri ricc defin definit itio ions ns ca can n be foun found. d. The The foll follow owin ing g explanations represent an overview of the various approaches to the definition given to the supply chain. Their comprehension is a prerequisite for also understanding the approaches to the management of the supply chain. Init Initia iall lly, y, the the diff differ eren ence ce betw betwee een n the the defin definit itio ions ns ca can n be dist distin in-guished by studying from which side the supply chain is approached, i.e. the customer or supplier side. In the supplier-centric approach, the supply chain is a network of suppliers which manufactures goods. These goods are exchanged both mutually and with other parties. The

2.2


15

goods come from the original supplier, and finally reach the target cust custom omer ers. s. In betw betwee een, n, they they ofte often n pass pass thro throug ugh h midd middle leme men n and and processing businesses. In contrast, the customer-centric approach assumes that a supply chain consists of all stages that are, directly or indirectly, involved in and required in order to fulfill a customer request. The focus in this case lies specifically upon the transportation businesses, warehouses, reta re tail iler ers, s, and and the the ac actu tual al cust custom omer er.. The The comb combin inat atio ion n of the the two two appr approa oach ches es lead leadss to a high higher er-l -lev evel el defin definit itio ion n of that that,, for for whic which h a supply chain is recognised, namely the coordination of organisations in order to provide the market with products and services. A good good over overvi view ew of the the cust custom omer er-- and and supp suppli lier er-c -cen entr tric ic appr approa oach ches es can be found, for example, at Chopra and Meindl (2015 (2015). ). This comprehensive view can still be raised to a global level and placed into the context of a global organisation network. A supply chain is, in this sense, a global network of organisations which work toge togeth ther er to impr improv ovee the the mate materi rial al and and info inform rmat atio ion n flow flow betw betwee een n suppliers and customers. The operational objectives are the lowest possible cost and the highest possible speed. The ultimate goal is the satisfaction of customer requirements. The material flow runs, so to speak, in a forward direction (i.e. from suppliers to customers). The flow of payments, however, runs backwards (i.e. from customers to suppliers). To observe the supply chain from the viewpoint of the material and inform informati ation on flows, flows, Bolsto Bolstorff rff and Rosenb Rosenbaum aum (2011 2011)) and Govil and Proth (2002), (2002) , are highly recommended. In addition to this, information flows from customers to retailers, manu manufa fact ctur urin ing g busi busine ness sses es,, logi logist stic icss busi busine nesse ssess and and ra raw w mate materi rial al suppliers. Material flows from the original raw material or component suppliers to customers. It is imperative for both material and informati mation on flows flows,, that that the the proc proces esss amon amongs gstt supp supply ly chai chain n part partne ners rs is carefully coordinated. This implies that a close coordination, both forward- and backward-facing, is necessary.

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This This appr approa oach ch ca can n be furt furthe herr diff differ eren enti tiat ated ed by the the supp supply ly and and dema demand nd aspe aspect ct.. A supp supply ly chai chain n then then has has the the prim primar ary y purp purpos osee of delivering products and services from the suppliers to the consumers (e.g. organisations, businesses, and individuals). The activities within the supply chain change, depending upon the product and the nature of the demand. However, a number of generally applicable valueadding activities allow themselves to be identified: • • • • •

Producing Producing:: manufacturi manufacturing ng materials, materials, componen components, ts, etc. Combining Combining:: assembli assembling, ng, packag packaging, ing, etc. Moving: Moving: distri distributi buting, ng, collect collecting, ing, etc. etc. Storing: Storing: movemen movementt into storag storage, e, out of storag storage, e, etc. Customisin Customising: g: installat installation, ion, configur configuration ation,, etc.

The demand-side supply chain, which is also called the demand chain, focuses on the market demand to suppliers. The specific observance of the demand element accentuates the fact that the role of such a supply chain is virtually governed by the requirements and actions of the customer. This is sometimes called “The Concept of Control by Demand Pull” (as opposed to “The Concept of Supply Push”). In the the ca case se of the the prev preval alen entt supply-push semi-completed leted supply-push approach, semi-comp and and comp comple lete ted d prod produc ucts ts are manu manufa fact ctur ured ed and and stor stored ed unti untill they they ca can n be sold and delivered due to customer orders and within the next stage of the supply chain. This often results in long lead times and high inventory levels. In contrast, the demand-pull approach is characterised by the customer’s decision to purchase a particular product for which he specifies his exact requirements in terms of type and delivery time. Based upon this, the required quantity of resour resources ces is procur procured. ed. The The produc productio tion n and distr distribu ibutio tion n proce process ss should lead, as far as possible, to a close correspondence with the customised delivery, as requested by the customer (quality, time, location, etc.), (cp. e.g. e.g. Poluha Poluha 2007, 2007, pp. 8 and pp. 25).

2.2


17

Just as a supplier can have a variety of supply chains which he must cont contro rol, l, the the supp suppli lier er’s ’s cust custom omer er has has his his own own part partic icul ular ar dema demand nd chains, which can be separately analysed. The demand chain enables the conversion of the customer’s goals into information, which can be used as a working guideline by the supplier. It is governed in this sense by a decision-making process, which in turn is characterised by four generally-accepted stages: the first stage is the definition of the purpose of the demand chain. In the second stage the planning takes place, for example, in the form of a categorised plan. The third stage can then include the monitoring, control and management of usage and requirements within the inventory. Finally, the focal point of the fourth and last stage deals with the purchase transactions, e.g. the call order within a framework agreement. Another approach is the organisation-specific observation of the supply chain. In accordance with this, the supply chain is a series of processes within the business as well as with other businesses (intraand inter-business processes), which produce goods and services for customers and also deliver to them. It includes activities such as the material procurement, production planning, and distribution. The organisation-related perspective is well represented by Bovet and Martha (2000 (2000). ). These activities are supported by the necessary information flows. Purchasing, manufacturing, inventory management, warehousing and transportation are usually considered to be a part of the supply chain organi organisat sation ion,, wherea whereass market marketing ing,, sales, sales, financi financial al accoun accountin ting, g, and strate strategic gic planni planning, ng, are not. not. Produc Productt develo developme pment, nt, sales sales plann planning ing,, order order entry, entry, custom customer er servic servicee and cost cost accoun accountin ting g are not clearl clearly y classified: although they clearly belong to the supply chain processes, they are rarely a part of supply chain organisation (see Fig. 2.4 2.4). ). If the process- and organisational-side perspectives are combined, the supply chain includes all the organisations and processes that are required for the procurement, storage and disposal of raw materials, and semi-completed and completed products. The material flow is connected by physical, monetary and information-side processes.

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Fig. 2.4 Example of a supply chain organisation (cp. Cohen and Roussel 2013 Roussel 2013,, pp. 91)

The approaches already discussed arise from a one-dimensional method of observing the supply chain. A further-reaching distinction can be made on the basis of stratification into different levels. Thus, a supply chain is a sequence of suppliers and customers that starts at one end with a raw material and provides a finished product to the end customer at the other end. The supply chain can then be broken down into several levels. A single-stage supply chain only represents the direct customers and suppliers, whereas a multi-stage supply chain can be extended to encompass the suppliers of raw materials on the one hand and the remo re mova vall of worn worn-o -out ut end end prod produc ucts ts on the the othe other. r. The The comp comple lexi xity ty increases disproportionately with an incremental number of levels. Therefore, most businesses have neither the means nor the resources to monitor the entire supply chain network, and are therefore limited to one or two levels. In addition to the levels, consideration must be given to the components flowing through the supply chain, and these must also be included into the illustration: goods and services in one direction, payments in the other, and information in both directions. The understanding of a bi-directional flow of information reflected herein represents the reality far better than the one-directional flow of

2.2


19

inform informati ation on previo previousl usly y descri described bed.. Curren Currentt approa approache chess such such as the concept of Collaborative Planning, Forecasting and Replenishment (CPFR), are based upon an information flow in both directions. The concept of Collaborative Collaborative Planning, Forecasting and Replenishment ishment (CPFR) provides both suppliers and customers with a cross cross-b -busi usine ness ss coop coopera erati tion on for for deman demand d and sales sales forec forecast asts, s, as well as a regular update of plans based upon a dynamic exchange of info inform rmat atio ion, n, and and has has opti optima mall inven invento tory ry leve levels ls for for cust custom omer erss and and a reduced inventory for the suppliers as its goal (see e.g. Handfield and Nichols 2002 Nichols 2002,, pp. 298). Another criterion that can be included and flow into the description of supply chains exists in the form of the decision aspect. Within a supply chain that includes a relatively large number of supply chain part partne ners rs,, a numb number er of deci decisi sion onss must must be made made.. Thes Thesee deci decisi sion onss usually apply to investments, strategies for coordination and cooperatio ation n with with part partne ners rs,, cust custom omer er serv servic ice, e, and and profi profitt maxi maximi misa sati tion on strate strategie gies, s, etc. etc. Some Some of these these decisi decisions ons have have far-re far-reach aching ing effect effectss upon the supply chain and are of a complex nature, because an ever increasing degree of uncertainty pertaining to the impact and variety of variables must be taken into consideration due to increasing market dynamics. The resulting supply chain is sometimes referred to as a market-driven supply chain. If one integrates the corporate functional areas and the associated core activities, this leads to a functional description of the supply chain. The following five core activities can then be identified within a supply chain:

activity ty, whic • Sales activi which h incl includ udes es all all mark market et-o -ori rien enta tate ted d ac acti tivi viti ties es,, including marketing and retail. • Purchasing activity, which includes those tasks required in order to purchase raw materials, components, resources and services.

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• Manufacturing activity , which involves the creation of products or services as well as the required guarantee for maintenance and repa re pair ir of the the re reso sour urce ces, s, and and the the trai traini ning ng of empl employ oyee ees— s—in in its its entirety therefore, the implementation of all tasks that are necessary for production. • Movement activity , which includes the transport of materials and personnel, both inside and outside the supply chain. • Warehouse activity , which involves the products currently under development (Work in Progress, or WIP), as well as raw materials, whilst they await transportation or alteration, and the end-products before they are sent to the customer. The inco incorp rpo ora rattion ion of the funct unctiional nal ar area ea--re rela latted ac acti tiv vitie itiess highlights the transition from a static to a dynamic perspective of the supply chain. For the “penetration” of the supply chains due to the Internet and its implications for the supply chains, cp. for example Gottorna (2012/1 and 2012/2), and Ross (2011 ( 2011). ). The flows of material, payments and information previously mentioned have hitherto been regarded as linear and coupled. The introduction of the Internet and the related acceleration of the flow of information mean that these flows have been, to a certain extent, uncoupled from each other, and the information flow occurs largely independently from the material and payment flows. Thus, the supply chains have, in the traditional sense, further evolved into networked supply chains, which link the partners within the network to the most suitab suitable le compon component ents, s, techno technolo logie giess and custom customer er servi services. ces. These These networks are also dynamic in nature, allowing supply chain partners to be subjected to inclusion or exclusion in accordance with certain criteria (such as customer preferences, technological advantages or product lifecycle).

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21

The value generation in the sense of profit gained by corporate activity constitutes the initial aim of the productive activities of busi busine nesse sses. s. It is meas measur ured ed usin using g the the diff differ eren ence ce betw betwee een n the the performance of a business entity and the intermediate performanc mancee re rend nder ered ed in orde orderr to secu secure re the the prov provisi ision on of the the said said perf perfor orma manc nce. e. Ther Theree is usua usuall lly y an expe expect ctat atio ion n that that the the adde added d value created (value-add), will lead to higher business revenue (non-profit organisations are the exception). The generation of valu valuee embr embrac aces es the the incr increa ease se in not not only only mone moneta tary ry,, but but also also nonnon-mo mone neta tary ry valu values, es, whic which h is re rega gard rded ed as desi desira rabl blee by the the business’s management, its employees, and its shareholders. In this this re resp spec ect, t, a gene genera rati tion on of valu valuee re resu sult ltss not not only only from from an improved and increased profitability (of income in relation to expenditure or performance in relation to costs), but also from the improved effectiveness and greater efficiency of operational processes (see e.g. Thurow 2008 Thurow 2008,, pp. 419). Thes Thesee dyna dynamic mic supp supply ly chai chains ns driv drive, e, amon amongs gstt othe otherr thin things gs,, the the development of new business strategies, in which the integration of customers, the outsourcing of business functions, the customer and supplier cooperation, and warehouse management are the focal point. Tradit Tradition ional al linear linear supply supply chains chains are thus thus conver converted ted into into dynami dynamicc networks. Anot Anothe herr inte integr gral al elem elemen entt of such such supp supply ly chai chains ns is thei theirr valu valueeaddi adding ng char charac acte ter. r. The The supp supply ly chai chain, n, ac acco cord rdin ingl gly, y, is a netw networ ork k of organisations linked to each other in both a forward-orientated and backward-orientated fashion, in order to generate value within different processes and activities. This value is reflected by products and services which are delivered to end users. This generation of value may be seen in both a cross-business and business-internal respect. The relationship between the value generation and the corporate strategy may be summarised as follows (in accordance with Normann and Ramirez 2000 Ramirez 2000,, p. 186): Strategy is the art of generating value. It provides the notional framework work,, the the conc concep epts ts and and mode models ls and and the the re regu gula lato tory ry guid guidel elin ines es,, which are designed to enable executives to identify opportunities

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that offer the contribution of value to customers and thereby helps them to attain and secure profit for their own organisation. In this sense, the corporate strategy defines the way in which a business presents itself and competes with others within the market. In order to finalise the supply chain strategy one must first clarify and define the level of the desired value generation. The aim is to answer questions such as: with which products and services is the business joining the competition? Does it offer a standard product of a single model for all customers, or an individually customised serial product? What scope of quantity is envisaged (few, many)? Does it offer only a single product, or also for example, the performance of additional services such as the replenishment of the customer’s stock levels? To what extent is the level of in-house vertical integration sufficient? The best information about the concept of the value chain can be found in Porter in Porter (2008). (2008). The concept of a value network is well illustrated in Bovet and Martha (2000 (2000)) and Christopher (2005 (2005). ). On how how to gain gain comp compet etit itiv ivee adva advant ntag ages es thro throug ugh h the the use use of information technology, see e.g. Porter and Millar (1985 ( 1985). ). One approach which establishes the aspect of value generation in relation to the supply chain is the concept of the value generation chai chain, n, or valu valuee chai chain n in shor short, t, whic which h was was deve develo lope ped d by Mich Michae aell Port Porter er.. With With give given n cons consid ider erati ation on to the the gene genera rati tion on of valu value, e, the the aspect aspectss of Inform Informati ation on Techno Technolog logy y can ultim ultimate ately ly be includ included ed in order to ensure that a supply chain is operational. The result is a so-called value network or value net. In this way, a value network is a business design that uses digital supply chain concepts to ensure both customer satisfaction and maximum profitability. The value network is focused primarily upon the competitive factors of time and flexibility, and therefore has the primary goal of being able to react quickly and flexibly to customer requirements.

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23

The The stra strate tegi gicc tria triang ngle le enco encomp mpas asse sess thre threee deci decisi sive ve fa fact ctor orss in competition: cost, time and quality. In the more recent strategic square another factor arises, namely flexibility (cp. e.g. Poluha 2007,, p. 13 and p. 313). 2007 The special characteristics of a value network can be described as follows, and differ significantly when in comparison to a traditional business design: • • • • •

Focuse Focused d on the custom customer. er. Based on cooperat cooperation ion and integ integrity rity (i.e. (i.e. is holistic) holistic).. Mobile Mobile and scalab scalable. le. Possesses Possesses fast materia material, l, informati information on and cash cash flows. flows. Based upon upon inform information ation technology technology (IT).

The term value network therefore rises above the supply chain itself. It presupposes its own circumstances and focuses explicitly on the the gene genera rati tion on of valu valuee for for all all invo involv lved ed part partie iess (bus (busin ines esse ses, s, customers and suppliers). Whilst it still remains, for the most part, a static system, the (bilaterally) flowing information contained therein is, however, often supported by modern IT systems. The approaches previously represented emanate from the assumption, that the participants in the supply chain are physical partners (busin (business esses, es, person persons, s, etc.). etc.). A relati relativel vely y recent recent develo developme pment nt is the establishment of so-called virtual networks , in which the construct of the virtual enterprise represents the focal-point, or in other words the temporary fusion of core competen tencies of the involved businesses. The resulting entity becomes apparent to the customer in the form of a single unit. Inwardly however, a virtual enterprise has no interlocking legal or organisational structure. The linear, physical supp supply ly chai chain n mode modell as it has has been been prev previo ious usly ly know known n has has shif shifte ted d accordingly, as shown in Fig. 2.5 2.5.. The The tran transf sfor orma mati tion on goes goes beyo beyond nd the the phys physic ical al boun bounda dari ries es of a marketplace and enters into the global and rapidly evolving digital

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Fig. Fig. 2.5 2.5 Deve Develo lopm pmen entt of virt virtua uall ente enterp rpri rise se stru structu cture ress (cp. (cp. Simc Simchi hi-L -Lev evii et al. 2008 al. 2008,, pp. 1)

economy. With the introduction of the Internet and the new role of technology as a catalyst for new strategies, businesses see themselves simultaneously confronted with new strategic challenges and managemen agementt probl problems ems.. Where Whereas as in the past, past, busine businessss-str strate ategie giess have have driven driven Inform Informati ation on Techno Technolog logy, y, IT can be implem implement ented ed today today in order to create the possibility of new business models. The core competency approach provides a frame of reference to analyse the strengths and weaknesses of a business and assumes that there are certain core competencies that constitute a competitive advantage. These core competencies can be resources, capabilities or general assets in the balance sheet and a business must must seek seek mark market etss with within in whic which h it ca can n ac achi hiev evee the the high highes estt retu re turn rnss base based d on thes thesee core core comp compete etenc ncie iess (see (see e.g. e.g. Prah Prahal alad ad and Hamel 1990 Hamel 1990). ). For more information with reference to virtual netw networ orks ks and and virt virtua uall busi busine ness sses es,, see see e.g. e.g. Srok Srokaa and and Hitt Hittma ma´ r (2015 2015). ).

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25

The rea eall-ti time me exch exchan ange ge of infor nform mati ation and the inter nterac acti tive ve capabilities of the Internet have changed the business environment to the extent that now both customers and other businesses have better access to alternative products and services. New distribution channels have have thus thus been been esta establ blis ishe hed, d, whic which h offe offerr alte altern rnat ativ ivee new new ways ways to optimise the generation of value and simultaneously sly allow interactions to become more transparent. The winners in these virtual value networks will be those who have faster access to information and resources, and are, at the same time, in a position to be able to deri derive ve the the appr approp opri riat atee comp competi etiti tion on and and supp supply ly chai chain n stra strate tegi gies es from it. As a result, the traditional physical unit has developed into a virtual unit, in which a large number of potential partners exist and which exch exchan ange ge info inform rmat atio ion n with with ea each ch othe other. r. In this this sens sense, e, the the virt virtua uall network represents a series of market partners who work together as a virtual unit, in which each individual adds a component of value, so to speak. The value-generating activities extend from the supply side in the the form form of ra raw w mate materi rial als, s, inbo inboun und d logi logist stic icss and and prod produc ucti tion on procedures, and right up to the demand side in the form of outbound logistics, marketing and sales. Mich Michae aell Dell Dell,, foun founde derr of comp comput uter er manu manufac factu ture rerr DELL DELL,, has has literally described a virtually integrated business as an organisation which is not cross-linked by the wealth of physical assets, but is ra rath ther er more more conn connec ecte ted d into into a netw networ ork k by mean meanss of info inform rmaation or, in other words, through information and communication technology. Thinking Thinking consequently consequently ahead, the supply chain represents represents part of a supe superi rior or and and comp compre reh hensi ensiv ve Elect lectro ron nic Busi Busine ness ss conc concep ept. t. E-Business must be differentiated from the related concept of Electronic Commerce (E-Commerce), which in general describes the electronic processing of business transactions. Thus, it constitutes a part of the overarching E-Business concept and is therefore subordinate to this.

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Due to its pronounced process-orientation, one highly suitable description of E-Business is expressed as follows according to Dietrich Seibt (cp. Poluha 2007, 2007, p. 15): A business may then considered to be operating Electronic Business, if several and up to all business processes • within the business business • between itself and its business partners partners (e.g. authorities) authorities) • between itself and third parties (e.g.

are are comp comple lete tely ly or part partia iall llyy prov provid ided ed with with the the assi assist stan ance ce of electronic communications networks and supported by the use of Information and Communication Technology systems . An excellent overview of the relevant aspects of Electronic Business and related concepts, such as Electronic Commerce, may be found in Laudon and Trave (2015 2015)), and Jelassi et al. (2014). (2014) . For further-leading information on Electronic Supply Chain Management (E-SCM), Graham et al. (2013 (2013), ), and Ross (2003 (2003), ), are recommended. The concep conceptt which which specifi specifical cally ly concer concerns ns itself itself with with the supply supply chain-related area of E-Business is also often referred to as Electronic Supply Chain Management (E-SCM). In this sense, se, E-SCM repres represent entss the tactic tactical al and opera operatio tional nal compo componen nents ts of a corpor corporate ate strategy, the target of which in the first instance is the linkage of the communal production capacities and resources of overlapping supply syst system emss by mean meanss of the the usag usagee of inte intern rnet et tech techno nolo logi gies es,, with with the the primary goal of creating customer benefit. The main difference compared to the “conventional” management of a supply or value chain beco become mess appa appare rent nt in that that E-SC E-SCM M Inte Intern rnet et tech techno nolo logy gy is used used to support the optimal management of work processes and the material and information flows (Fig. 2.6 2.6). ).

2.2.2 2.2.2 Types Types and Characteri Characteristics stics of Supply Supply Chains Chains The definit definition ionss previo previousl usly y descri described bed have have focuse focused d upon upon differ different ent prop proper erti ties es or char charac acte teri rist stic icss of supp supply ly chai chains ns.. Base Based d upon upon this this,,

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27

Fig. Fig. 2.6 2.6 Exam Exampl plee of the the prac practi tica call impl implem emen enta tati tion on of elec electr tron onic ic busi busine ness ss concepts in supply chain management (cp. Poluha (2010 (2010), ), p. 27)

various categorisations allow themselves to be put into effect, which we will discuss in detail in the following. One possibility lies in the decision as to whether the supply chain is predominantly focused upon the product, or rather upon the target customers. This results in a differentiation into two categories: • Prod Produc uctt-ce cent ntri ricc supp supply ly chai chains ns ar aree thos thosee whic which h ar aree tail tailor ored ed to accomm accommoda odate te very very specia speciall produc products. ts. This This specifi specificc tailor tailoring ing can lead to the fact, that separate supply chains must be introduced for several products on offer. • Customer-centric supply chains however, are tailored to accommoda modate te spec specifi ificc mark market et segm segmen ents ts.. This This may may re resu sult lt in sing single le or mult multip iple le supp supply ly chai chains ns,, whic which h ar aree orga organi nise sed d ar arou ound nd mark market et segments. A further differentiation can be carried out by using the business strategy and associated business requirements (according to Hughes and others (1998 (1998), ), pp.4):

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• Instantaneous open competition: in this case, competitive offers and tenders are dominant. Emphasis is on intensive trade. • Trading of of bulk commodities commodities:: independent trade, forced into being by the necessity of the transaction. Emphasis is on controlling the fluctuation-span of bulk goods. • Lean supply chains chains and system system integration: integration: cost minimisation and gradual transformation of the cost structure. Emphasis is on effective cooperation, but not so much on the savings, which can result in resource bottlenecks. • Competing constellations constellations of associated businesses: businesses: market leaders join forces with the best partners in the market. Emphasis is on performance ability, capabilities, and the organisation of cultural compatibility. network supply between competitors: competitors: merger for • The interlocking network the progressive settlement of transactions. Emphasis is on an association, within which low competitive advantages exist, with the aim being the usage of synergies. • Asse Assets ts cont contro roll the the supp supply ly,, mark market et lead leader ersh ship ip is the the goal goal:: gain control over the assets and implement them purposefully. Emphasis sis is on the the prop proper er use use of the the comp compet etit itiv ivee inst instru rume ment ntss at the the tendering stage. • Virtual offer—no production, just customers: low fixed costs by means of the outsourcing of production. Emphasis is on the marketing and distribution capabilities. • Partnerships for the benefit of customers: trust, candidness and sha sharing of the work to be carried out. Emphasis is on the performance provided by the supplier to the customer (directed forwards in the supply chain), and the value aspect represented by the customer to the supplier (directed backwards in the supply chain).

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29

For a more detailed illustration of the various competitive strategy altern alternati atives ves ac acco cord rdin ing g to Mich Michae aell Port Porter er,, the the orig origin inal al editions are particularly recommended (see Porter 1998/1 and 1998/2). 1998/2 ). For a more current summary refer to Porter (2008). (2008). Acco Accord rdin ingl gly, y, the the thre threee alte altern rnat ativ ives es allo allow w them themse selv lves es to be briefly characterised as follows: • Overall cost leadership is a strategy which focuses on the competitive advantage of the lowest cost compared to that of the competition. • Differentiation focuses on creating at least one unique performance characteristic within the whole of the specific branch of the industry. • The Focus strategy involves the focusing of a supplier on a market segment or on a particular demand group. The fundamental assumption is that a supplier can only be successful if it concentrates on one of the three basic types of strategies and the competitive advantages resulting from them. Otherwise, figur figurat ativ ivel ely y spea speaki king ng,, the the busi busine ness ss runs runs the the risk risk of bein being g “stuck in the middle”. The observation of the primary focal-point of the supply chain is another possible method of categorisation. At the same time a differentiation may be made according to strategic competition and the focus of perspectives upon the distribution flow, the material flow, the work flow, and the information flow. From the competitive strategy perspective, the supply chain is a series of resources that are used to support the position of a product on the the mark market et with with re rega gard rdss to the the comb combin inat atio ion n of targ target et cust custom omer ers, s, pricing and sales measures. The primary purpose is to improve the profit margin across the span of product sales. The focus on the work flow processes processes is based upon its assumption assumption of a pre-defined sequence of activities within an organisation. The work flow supports an operational and technical view of the processes and and prov provid ides es info inform rmat atio ion n pert pertai aini ning ng to fa fact ctor orss such such as cost costss and and revenues. The primary objective lies, consequently, in the most efficient handling of the procedures.

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In the material flow perspective, the flow of information between the the vari variou ouss part partie iess re repr pres esen ents ts the the main main inte integr grat atio ion n fa fact ctor or.. An integrated supply chain possesses, in this sense, a communal basis of information in addition to the mechanisms required in order to exchange this information amongst the participants. When focusing on the distribution, it is assumed that the supply chai chain n is the the phys physic ical al hist histor ory y of a prod produc uctt thro throug ugh h a numb number er of oper operat atin ing g syst system emss and and fa faci cili liti ties es whic which h ar aree link linked ed by a tran transp spor ortt network. These facilities and equipment include factories, warehouses, distribution centres, and fleet and distribution centres. The primary objective is to minimise the costs in the functional areas which are relevant to success. In the the info inform rmat atio ion n flow flow pers perspe pect ctiv ive, e, the the flow flow of info inform rmat atio ion n between the various parties represents the main integration factor. An integrated supply chain has, in this sense, a common information base base and and the the mech mechan anis isms ms to exch exchan ange ge info inform rmat atio ion n amon among g the the participants. The primary goal can be efficient information processes, but may also be advantages in the differentiation. Even though the main focal point may vary, the growing idea of an integrated perspective increasingly asserts itself, by which the business processes, the material and information flows, and the work flow processes are observed and optimised together. This will be discussed in the course of the second chapter.

2.3 2.3

How How Di Did d Su Supp pply ly Chain Chain Manag Managem ement ent Evolv Evolve? e?

2.3.1 2.3.1 From Logisti Logistics cs to Advanced Advanced Planning Planning Systems The role of supply chain management within an organisation has chan change ged d cons consid ider erab ably ly over over the the last last thre threee to four four deca decade des. s. In the the 1970s, it was known primarily as logistics, limited to the integration of storag storagee and transp transport ortati ation on within within a busine business. ss. In additi addition, on, high high double-digit interest rates that existed in most countries during that decade forced businesses to pay special attention to the use of their capi ca pita tal. l. Logi Logist stic icss exec execut utiv ives es were were prim primar aril ily y conc concer erned ned with with the the reduction of inventory. The focal point was mainly how the business would carry out internal changes which could reduce the inventory and logistics costs. Even efforts to reduce production and delivery

2.3

How Did Supply Chain Management Evolve?

31

lead times and thus reduce safety stocks were introduced as a priority within the business, as lead times had been mainly considered as input information for the forecasting and procurement processes. In the the 1980 1980s, s, the the focu focuss shif shifte ted d towa toward rdss over overha haul ulin ing g the the cost cost structures within the supply chain. The attention was then directed at integrating the procedures of the supply chain, thereby reducing operational costs and capital investment. In the late 1980s, the aims and activities within supply chain management then finally shifted from the reduction of costs to the improvement of customer service. The benefits which were sought by improving performance included an increased growth in sales and higher profitability, primarily due to a larger market share and pricing advantage over the competition, which is reflected in the form of higher profit margins. Interest in improving customer service increased during the early 1990s. Similarly, the growth of the business also came to be regarded as an additional goal of supply chain management. Up until that point this had been considered, within many businesses, to be the responsibility of product development, marketing and sales. In the previous and current decades, a new wave of change has taken a steady hold in the field of SCM in many businesses, namely the the deve develo lopm pmen entt of a stra strate tegi gicc mana manage geme ment nt of the the supp supply ly chai chain. n. Contrary to the traditional view in which it was purely a part of the operational definition of objectives, SCM has since then acquired a strategic function that directly contributes to the success of the business, whilst at the same time becoming a central and immanent part of our business strategy. The current status of the opinion, which is increasingly gaining ground, is that SCM both determines the strategy of many many busi busine ness sses es and and has has even even enab enable led d them them to intr introd oduc ucee the the strategy in the first place. In other words, SCM is a prerequisite for the successful implementation of the respective business strategy, as well well as an esse essent ntia iall fa fact ctor or for for the the dete determ rmin inat atio ion n of the the busi busine ness ss strategy. SCM was initially also strongly focused upon improvements to the supply-side processes. In this context, however, one tended to overlook the fact that businesses wanting to manage their supply chain in an optimal manner could only achieve this goal if they recognised the fund fundam amen enta tall conn connec ecti tion on betw betwee een n supp supply ly and and dema demand nd—a —and nd the the resulting impact on the supply chain strategy.

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Ofte Often, n, howe howeve ver, r, busi busine ness sses es have have re revi view ewed ed thei theirr supp supply ly-s -sid idee options, whilst apparently neglecting the demand factor. The relationship between supply and demand lies in the fact that the demand dictates the target of the supply, thereby possessing a determining position, whilst the supply-side capacity supports the fulfilment of the demand. Businesses therefore need to create new methods for the coordinated control of both the supply and demand chains. Supply Chain Management is a central part of these efforts. The possibilities of an enterprise to adjust supply and demand with each other are a function of its reactive capacity, or in other words, its ability to offer a timely response to market signals. This flexibility is in turn heavily influenced by the capital costs of work and operation. Organisations have often struggled with the task of adjusting supply and demand, because the focus during these attempts has usually been upon improving forecast accuracy, optimising production and inventory levels, and reducing lead times. Howe Howeve ver, r, it shou should ld be note noted d that that alth althou ough gh thes thesee meas measur ures es ar aree useful they provide no complete solution. Businesses must therefore take into account those measures, which include the cost of labour and resources. And they must find new methods within the business in order to align their incentives both within the business and within the extended (meaning partner-orientated), supply chain. For the topics of logistics and logistics management, the works of of Ghia Ghiani ni et al al.. (2 (201 013) 3),, Murph Murphy y and Kne Knemey meyer er (20 (2014 14)), and Rushton et al. (2014 (2014), ), are especially recommended. The books of Heizer and Render (2013 (2013), ), Reid and Sanders (2013 (2013), ), and Stevenson (2014 (2014), ), are very up-to-date and comprehensive on the topic of Operations Management. Long before the concept of the supply chain was introduced and the new discipline of supply chain management emerged, one spoke of a so-called Logistics Chain. This chain stood in the centre of a discipline that was called logistics or logistics management (and is today still partially referred to as such). The term operations management was also sometimes used, which is again currently being used more frequently. Let us therefore first consider several definitions in order to allow a differentiation between the terms.

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33

In the the clas classi sica call term termin inol olog ogy y of the the af afor orem emen enti tion oned ed Coun Counci cill of Supply Supply Chain Chain Manage Managemen mentt Profes Professio sional nalss (CSCPM (CSCPM), ), logist logistics ics are described as the process of planning, implementing and controlling the the ef effic ficie ient nt flow flow of mate materi rial al,, ra rang ngin ing g from from the the stor storag agee of ra raw w materials to the stock in the production process (Work In Process, WIP), finished products and services, and related information, from the point of origin through to the point of consumption. This includes goods receipts and goods issues, and internal and external material movements. The ultimate purpose is to be able to meet customer needs. With regard to the planning levels we can differentiate between: i) Operational: shor shortt-te term rm (less (less than than 1 year year for for the the curr curren entt accounting period or invoice period) and mainly with regards to a part of the operation or the activities. ii) Tactical: medium-term (time span from 1 to 3 years) and mostly for a larger part of the business or of the activities, and iii) Strategic: long long-t -ter erm m (tim (timee span span long longer er than than 3 year years) s) and and mainly and objectively with regards to the major product areas, the activities of the operations or the business as a whole, and the aspects critical to success (see e.g. Abraham 2012,, pp. 159). 2012 Logi Logist stic ics, s, howe howeve ver, r, ca can n also also be seen seen from from the the orga organi nisa sati tion onal al aspe aspect ct.. From From this this pers perspe pect ctiv ive, e, it is a goal goal-o -ori rien ente ted d fram framew ewor ork k to control the process of planning, allocation and control of financial resources and labour, which are intended to deal with the physical distribution, manufacturing, support and purchasing transactions. Any additional definitions focus on the conceptual idea of integration tion,, in ac acco cord rdan ance ce with which ich the term term log logisti istics cs gener eneral ally ly encompasses the creation of time, space, quantity, form and ownership, both within a business and in cooperation with other businesses. The special tools which logistics uses to achieve its goal consist of strategic management, infrastructure and resource management. This goal goal is to cre reat atee prod produ ucts cts and and serv serviice cess that hat sat satisfy isfy cust custo omer mer

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requir requ irem emen ents. ts. Logi Logist stic icss ar aree ther thereb eby y invo involv lved ed in all all plan planni ning ng and and execution tasks, on both strategic as well as operational and tactical levels. Logis ogisttics ics manag anagem emeent inev nevitab tably also also has has limi limittatio ations ns and depend dependenc encies ies.. So the logist logistics ics activi activitie tiess typica typically lly includ includee inbou inbound nd and outbou outbound nd logist logistics ics,, fleet fleet and fleet fleet manage managemen ment, t, wareho warehousi using, ng, mate materi rial al hand handli ling ng,, orde orderr entr entry y and and fulfi fulfilm lmen ent, t, logi logist stic icss netw networ ork k design design,, invent inventory ory manage managemen ment, t, demand demand and supply supply plann planning ing,, and the coordination and management of logistics service providers. To a certain limited extent, they also include procurement and purchasing, assembly and packaging, and customer service. With this, the connective bridge to supply chain management was alre alread ady y in plac place, e, wher whereb eby y the the fund fundam amen enta tall diff differ eren ence ce was was in the the integrative nature. In this way, SCM involves not only the logistics, but but also also othe otherr busi busine ness ss ar area eas, s, such such as purc purcha hasi sing ng,, prod produc ucti tion on,, warehousing, marketing and information technology. A major purpose of this is to improve the efficiency of the supply chain. In other words, SCM can be defined as the integrated planning and control of processes in the value chain. The primary objective thereby is the improvement of the efficiency of the supply chain. The overriding aim lies in the optimum satisfaction of customer requirements.

Effectiveness is defined within Business Administration as the degree of achievement of objectives, and is therefore a means of measuring performance. It is therefore a question of doing the the right right thing things. s. Efficiency represen represents ts a relati relations onship hip betwee between n input variables and output variables and can therefore serve as a measure of cost effectiveness. Thus, it constitutes a potential sub-goal of effectivity. It is therefore a matter of doing things righ right, t, i.e. i.e. maki making ng sure sure thin things gs ar aree bein being g done done in the the corr correc ectt manner (see e.g. e.g. Poluha 2007, 2007, pp. 44). In this sense logistics management is an inherent part of SCM, which has the task of planning, implementing and controlling the efficie efficiency ncy and effecti effectiven veness ess of the forwar forwardd- and backwa backwardrd-fac facing ing flow of goods, services and related information, with the intention of fulfilling customer requirements as satisfactorily as possible.

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SCM consequently represents an integrative functional area which is prim primar aril ily y re resp spon onsi sibl blee for for the the conn connec ecti tion on of the the main main busi busine ness ss functions and processes within an organisation, as well as those of other businesses that are involved in the supply chain, in order to form a concept in the shape of a consistent and high-performing business model. This role includes, in addition to the activities of logistics man manage agement ment,, the prod produ ucti ction proce rocess sses es as well ell as the the task task of coordinating the supply chain processes with the functional areas of product design, inventory management, marketing, sales and finance. Furthermore, SCM involves planning, managing and controlling all all ac acti tivi viti ties es of logi logist stics ics mana managem gemen ent. t. Abov Abovee and and beyo beyond nd this this,, though, it includes the coordination of, and cooperation with, partners in the supply chain such as suppliers, distributors, logistics service providers and customers, thus ensuring the coordination of supply and demand within the business. However, a clear demarcation of terms is not not as ea easy sy as one one woul would d imag imagin inee as fa farr as the the prol prolif ifer erat atio ion n of information and the level of topical knowledge is concerned. In actual fact the term is associated with various meanings and across various businesses (see Fig. 2.7 2.7). ). In the broadest sense, it covers all logistics activities, customersuppli supplier er relati relation onship ships, s, wareho warehouse use managem management ent and equipm equipment ent,, as well as the development and introduction of new products. We principally have the ability to differentiate between business-internal and business-i business-integ ntegrated rated supply supply chains chains , where whereby by the latter is concentrated upon the interfaces and interactions of an organisation with its external partners. Practitioners usually define the term more narrowly and restrict the definition to activities within the supply chain of a single business. This would significantly and inevitably reduce the scope of improvement measures, which will be more closely dealt with in the following chapters, to the internal supply chain, but without taking into account the perspective of the interaction with other businesses. To illustrate the range of possible definitions of the terms, let us look below at a series of exemplary attempts at definition.

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Fig. 2.7 Internal and external supply chain (cp. Coyle et al. 2013 2013,, pp. 509)

Based on the classic planning and control approach, the management of the supply chain is an expansion of logistics into an interactive planning and control approach, which may also be between one or more businesses. In addition to the term supply chain management, there is also the less commonly used sed term of progr progress essive ive plann planning ing system system or Advanced Planning System (APS), which especially highlights the aspect of the support already explicitly incorporated by information technology. If the planning element is included, SCM can be defined as the coor coordi dina nati tion on of stra strate tegi gicc and and long long-t -ter erm m coop cooper erati ation on betw betwee een n all all part partic icip ipan ants ts thro throug ugho hout ut the the supp supply ly chai chain n netw networ ork. k. This This incl includ udes es both the purchase and the shop floor and goes beyond the field of product and process development. The purpose is to develop and manufacture products. Each supply chain participant is active in the field in which he can rely on his own core competencies. The choice of further supply chain partners is based mainly upon how much potential they possess to create an increase in competitive advantages.

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A good ood over overv view iew of the var various ious defin efinitio ition ns of ter terms and and clas classi sific ficat atio ions ns in conj conjun unct ctio ion n with with SCM SCM may may be foun found, d, for for exam exampl ple, e, at Cohe Cohen n and and Rous Rousse sell (2013 2013), ), and and Hugos Hugos (20 (2011 11)). For references regarding the term Advanced Planning System ( 2014), ), must be highly (APS), the work of Stadtler and Kilger (2014 recommended. Based on a process approach, approach, SCM may be be described as the the process of planning, implementing and monitoring an efficient and effective flow of goods, services and related information from the starting point of the supply chain and up to the point of consumption. The purpose is to sati satisf sfy y cust custom omer er re requ quir irem ement ents. s. By mean meanss of a furt furthe herr-le lead adin ing g diff differ eren enti tiat atio ion n of the the proc proces esss-re rela late ted d pers perspe pect ctiv ive, e, it ca can n then then be viewed as the design, maintenance and operation of supply chain proc proces esse sess to sati satisf sfy y the the re requ quir irem emen ents ts of end end cust custom omer ers. s. In this this sense, SCM extends both to the formulation of the supply chain as well as its subsequent operation and maintenance. This results in new tasks for managers and executives, as traditional tasks need to be completed in a different way. It has basically become apparent that as a result, the introduction of an SCM-discipline involves an extension of the duties and areas of responsibility for a multitude of employees. The business process-orientated definition can also be extended to the effect that SCM represents the integration of business processes— from the end customers through to the suppliers. This integration provides the products, services and information that generate value for the customer. Accordingly, SCM leads to an alteration of the existing supply chain and generates customer value via the targeted use use of info inform rmat atio ion n whic which h is asso associ ciat ated ed with with the the supp supply ly chai chain. n. In addition, the organisational processes have to be planned, monitored and controlled within the supply chain. For this purpose a universally accepted targeting system is required. Based on the (physical) material and goods flows, the supply chain includes all activities associated with the flow and transformation of goods, ranging from the raw materials to the end consumer, as well as

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the associated information flows. SCM thus represents the integration of these activities through improved relationships with supply chain partners, in order to achieve a lasting competitive advantage. The terms Lean Production and Lean Management denote the principle of increasing efficiency, usually in terms of decentralisation, outsourcing the manufacturing, flatter hierarchies, performan formance ce compre compressi ssion on and, and, accomp accompany anying ing this, this, the result resultin ing g decrease in personnel. Total Quality Equating with “lean” in this sense is an oversimplification of the Japanese concept of an all-encompassing quality management or rather Total Quality Manag anageemen ment (TQ (TQM). It offer fferss the the basis asis for for att attain aining the the advant advantage agess in efficie efficiency ncy and flexibi flexibilit lity y that that are being being strive strived d for and which are visible from the outside as, amongst other things, organisational changes (see for example O’Mara 2013; 2013; Schonberger 2007). 2007). The definition can also be determined on the basis of a constantlyevolving management philosophy. As a part of this philosophy the aim lies in the unison of the joint production skills and resources of the business functions, which are both business-internal and businessexternal (the latter being with the allied supply chain partners). The primary goal is to create a competitive network which is, to a large extent, furnished with benefits for the customer, and which aims at deve develo lopi ping ng inno innova vati tive ve solu soluti tion onss and and sync synchr hron onis isin ing g the the flows flows of products, services and information. The ultimate goal is to create the maximum value for customers. Retrospectively studying the evolution then allows a further development and transition of previous management approaches, such as Lean Manufacturing Manufacturing or Lean Lean Production , into the concept which is pres presen entl tly y re reco cogn gnis ised ed as SCM. SCM. The The scop scopee for for its its appl applic icat atio ion n will will hereby be extended to cover the distribution, whereby the distribution represents a portion of the order management process which focuses on the final delivery to the customer. In this sense, the goal of SCM lies lies in the the impr improv oveme ement nt of the the ef effic ficie ienc ncy y of the the prod produc uctt deli delive very ry process, beginning with the material suppliers and proceeding right through through to the end customer, customer, in order to deliver deliver the right right product product at the

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right time and in the right place, using a minimum of security stocks and processing effort. The focal-point of improvement measures lies primarily in the areas of warehousing, distribution, production and procurement—across organisational units and various businesses. Observed from the functional side SCM allows itself to be defined as the systematic and strategic coordination of traditional business functions, in addition to the tactical and operative measures which span span across across these these busin business ess functi functions ons.. These These inclu include de the the functi functions ons within the relative business, and also the various businesses which are integrated as partners within the supply chain. The main purpose is to improve the long-term performance of the individual businesses, as well as improving the supply chain as a whole. From a behavioural point of view, SCM can be defined as those activities and tasks which are carried out in order to influence the behaviour of the supply chain and obtain the desired results. Seen in this light it represents the coordination of procurement, production, stocks, locations and transportation amongst the participants, in order to secure the best balance between performance capability and flexibility on the one hand and efficiency on the other. A further possible differentiation can be made by means of using both sides of the supply chain, i.e. the control of the supplier-side on the one hand and the customer-side on the other. Accordingly, the hallmark of the supplier-centric approach is that the business and its supp suppli lier ers, s, dist distri ribu buto tors rs and and cust custom omer ers— s—th that at is, is, all all inte interf rfac aces es and and connections of an organisation in a broader sense—work together in order to provide the market with a common product or service, for which the customer is willing to pay the amount requested.

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For For the the comb combin inat atio ion n of the the norm normal ally ly confl conflic icti ting ng targ target etss of cost cost and and Outpacing Strategy Strategy whic qual qualit ity y, there here is also also the the term term Outpacing which h is characterised by the fact that during the strategic adjustment of its activities, a business changes direction between the two main competitive strategy alternatives in good time (these alternatives being cost leadership and differentiation according to Michael Porter), in order to achieve a stable and sustainable advantage over the competition (see Gilbert (see Gilbert and Strebel 1987). 1987). Above and beyond this strategy, which is not based upon a simultaneous, but rather on the assumption of a successive application of various alternative strategies, there are also so-called hybrid competitive that fall fall under under the simulta simultanei neityty-app approa roach, ch, which which is strategies that based upon the assumption that the application of a combined stra strate tegy gy is at least least temp tempor orar aril ily y possi possibl blee (see (see e.g. e.g. Porter Porter 201 2011 1, pp. 1). The group of businesses that recruit from the supply chain partners or participants functions similar to an expanded business, with the aim of ensuring the optimum usage of shared resources (employees, procedures, technologies, etc.), in order to attain the establishment of synergies. This results in products and services that are of high quality and inexpensive, and can be quickly delivered to the market. Therefore the aim is to achieve a combined and simultaneous use of the normally conflicting targets of the respective Strategic Triangle or Strategic Square. The definition of the customer-centric approach requires only that the the trad tradit itio iona nall defin definit itio ion n is exte extend nded ed as foll follow owss (hig (highl hlig ight hted ed by unde underl rlin inin ing) g):: the the comp compan any y and and its its supp suppli lier ers, s, dist distri ribu buto tors rs and and cust custom omer ers, s, i.e. i.e. all all part partie iess in the the supp supply ly chai chain n in the the wide widerr sens sense, e, work work toge togeth ther er to prov provid idee the the mark market et with with a comm common on prod produc uctt or service for which the customer is willing to pay the required amount throughout the entire lifecycle of the product. For the adjustment of SCM on the customer side, there are also the concepts of order-orientated order-orientated SCM or demand-orientated demand-orientated SCM . The primary goal of these concepts is to generate value for the customer, whilst improving the performance in terms of capital investment and cost-effectiveness.

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In summary it can be said, that the primary goal of SCM is the increase in sales of products and services to the end user or consumer, whilst reducing inventory levels and minimising costs. An inevitable conflict of goals arises from this, because the underlying competitive factors (cost, time, quality and flexibility), are in competition with each other. Therefore, SCM is aimed at optimising the effectiveness and efficiency of the involved business processes, ses, and the harm harmon onis isat atio ion n of confl conflic icts ts in goal goals— s—wi with th the the incl inclus usio ion n of the the priori prioritie tiess in accord accordanc ancee with with the respec respectiv tively ely chosen chosen compet competiti itive ve strategy.

2.3.2 2.3.2 Value-Ori Value-Orienta entated ted Supply Chain Chain Strategies Strategies In re rece cent nt year years, s, the the numb number er of busi busine ness sses es that that foll follow ow a valu valueeorientated supply chain strategy, in which the concept of the value chain previously described is the focal-point, has sharply increased. This trend was largely driven by businesses that use advanced information technology to improve their abilities in the field of SCM. In conjunction with this, the aim of the supply chain competence is to better cater for customer requirements, make better decisions, and be able to increase overall operational performance for the benefit of gaining a competitive advantage. The The cons conseq eque uenc ncee is that that a larg largee numb number er of orga organi nisa sati tion onss have have developed strategies that focus on the relevant processes to satisfy those requirements. These strategies should ultimately help to optimise order processing times, cash flows, return on investment, market share, and profitability. They represent the basis of a supply chain strategy which describes what a business wishes to attain with its supply supply chain chain,, and which which perfor performan mance ce improv improveme ements nts the busine business ss wishes to achieve with it. Using this method a business can define how, how, by mean meanss of its its supp supply ly chai chain n proc proces esse sess and and the the asso associ ciat ated ed infrastructure, it can contribute to the competitive capability of the organisation. The aim of the strategy definition is the identification of releva relevant nt compet competiti itive ve factor factorss and their their implem implement entati ation on withi within n the supply chain. The supply chain strategy is thus subordinate to the business and competitive strategies or derived from these, and must, as such, support them. An important feature of a successful supply

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chain strategy is therefore the adjustment to the business strategy and with this also the strategic core vision of the business. For the combination of corporate strategy and supply chain strategy, as well as the specifications and distinctive features of supply chai chain n stra strate tegi gies es plea please se see, see, for for exam exampl ple, e, Chop Chopra ra and and Mein Meindl dl (2015 2015), ), and Dittmann (2012 (2012). ). SCM represents an interdependent organisational structure which links functions, businesses and countries, synchronises the movement of goods with the demand rate and increases the amount of goods created on the global market. For every product there is a supply chain and for each supply chain there is a competitor. The development ment of thes thesee supp supply ly chai chains ns is prom promot oted ed by larg largee corp corpor orat atio ions ns— — typi typica call lly y majo majorr re reta tail iler erss and and orig origin inal al equi equipm pmen entt manu manufa fact ctur urer erss (OEM)—which have the necessary vision and perseverance to drive the performance of their partners, exchange information, and work in unison, in order to secure a superior market position and the efficiency of their business functions. The development of value-based SCM approaches results from the realisation that the isolated optimisation of individual parts of the supply chain does not lead to a cost-effective overall solution. In other words: The sum of local optima does not equal the global optimum (cp. Goldrath 1999 Goldrath 1999,, p. 4). It is therefore necessary to look at the sequence of events within the supp supply ly chai chain n holi holist stic ical ally ly—s —sta tart rtin ing g with with the the cust custom omer er orde orderr and and orie orient ntat ated ed back backwa ward rdss to the the purc purcha hase se orde orderr ra rais ised ed upon upon the the ra raw w material suppliers, as well as forward-orientated through all of the foll follow owin ing g busi busine ness sses es whic which h ar aree invo involv lved ed in the the manu manufa fact ctur uree and and supply of the product or service to the end customer. The focus on the holistic supply chain represents the first step, the focus on the product the second, and the inclusion of value generation within the framework of a value-orientated process organisation which relates to the supply chain—as opposed to the traditional performance measure sureme ment nt,, whic which h is base based d upon upon the the orga organi nisa sati tion onal al stru struct ctur ure— e— represents the third step. In this way, a type of “value flow” may

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Integrated supply chain (cp. Cohen and Roussel 2013 Roussel 2013,, pp. 41) Fig. 2.8 Integrated

emerge, which better reflects the present business processes as was the case with the traditional supply chain (Fig. 2.8 2.8). ). The The organi organisat sation ional al struct structure ure repres represent entss the scaffo scaffoldi lding ng of an orga organi nisa sati tion on (e (e.g .g.. of a publ public ic auth author orit ity y or a busi busine ness ss), ), and and regulates the framework conditions, i.e. which employees and materials are responsible for the completion of which tasks. In contr ontras astt, the the proc rocess ess org organis anisat atio ion n re reg gulat lates all all runn runnin ing g proced procedure uress withi within n this this framew framework ork,, and the inform informati ation on proprocesses (on the topic of organisation structure, see for example Daft 2015 Daft 2015,, pp. 320).

2.3.3 2.3.3 Integrat Integration ion vs. Fragment Fragmentatio ation n Frag Fragme ment nted ed supp supply ly chai chain n stra strate tegi gies es ar aree a diam diamet etri rica call lly y oppo oppose sed d approach to conventional supply chain strategies, as the latter precisely positions the importance of integration into the spotlight. With the word “fragmented”, the opposite of “integrated” in the sense of “inc “incor orpo pora rate ted” d” or “inc “inclu lude ded” d”,, is usua usuall lly y unde unders rsto tood od.. That That is, is, “fragmented” stands for “non-included” or “non-incorporated”. An exam exampl plee from from the the prac practi tice ce of curr curren entt dail daily y busi busine ness ss will will help help to clarify what exactly is meant by this.

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The idea of the SMART car was initially created by Nicolas Hayek, founder of the Swatch Group. His vision was that of “Swatch-Cars”, which should preferably be small and should have have an interc interchan hangea geable ble body body (simil (similar ar to Swatch Swatch watche watches). s). The Smart business was founded by Hayek in 1994 as the Micro Compact Car AG in Biel and as a joint subsidiary of Daim Daimle lerr-Be Benz nz and and SMH SMH SA (Soc (Socie ie´ te´ Suiss Suissee de Micr Microe oe´ lectronique et d’Horlogerie). In September 2002, the Micro Compact Car AG was renamed Smart GmbH. With effect from the 1st of October 2006 the employees were integrated into the then Daimler-Chrysler organisation, and the Smart GmbH was diss dissol olve ved d end end of 2006 2006.. The The manu manufa fact ctur urin ing g fa faci cili liti ties es ar aree loca locate ted d main mainly ly in Hamb Hambac ach, h, Fran France ce,, whic which h due due to this this is also called “Smartville”, and partly in Born in the Netherlands (www.smart.com www.smart.com). ). As part of the development of the so-called SMART car , a feasibility study was initially carried out by Mercedes-Benz. The supply chain which was developed and presented for this purpose at the time, in the mid-1990s, represented a completely new approach. In accordance with this, for example, new models were created for the integr integrati ation on of suppli suppliers ers and the outsou outsourci rcing ng of produc productio tion. n. These These were characterised by pre-assembly at the site of the suppliers, integration of the suppliers into the design and final assembly, and shared ownership of production plant locations, etc. Additional challenges arose, for example, from the fact that the initiating business only contributed about 15 % of the added value within the supply chain. The specific question which resulted was: how can a supply chain be monitored and controlled, in which the central business only offers a relatively minor contribution in value? Developed as part of the feasibility study, the fragmented supply chain provided the basis for the introduction of the so-called customer-specific serial production or mass Weken 2000). ). mass customisation (see Van Hoek and Weken 2000

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mass customisation The customer-specific serial production or mass represents another variety of the aforementioned hybrid competiti petitive ve strate strategie gies. s. Essent Essential ially, ly, the unders understan tandin ding g of this this is— expressis verbis—the customised mass production of goods for a large retail market. The products must therefore satisfy the differing requirements of the purchasers. In this case the prices shou should ld re repr pres esen entt thos thosee of a mass mass prod produc ucti tion on of stan standa dard rdis ised ed products. This approach therefore seeks the balanced combination of continuous mass production with discontinuous single production (see e.g. Kull 2015 Kull 2015;; Gardner 2009). 2009). For the connection between product customisation and supply chain management Anderson (2008 (2008), ), is particularly recommended. The The term term strategi can n some someti time mess be foun found d to desc descri ribe be the the strategicc networks networks ca fragmented supply chain approach, which is understood to be the opposi opposite te pole pole to the previo previousl usly y illust illustrat rated ed valuevalue-ori orient entate ated d supply supply chai chain n appr approa oach ch.. In ac acco cord rdan ance ce with with this this,, the the valu valuee-or orie ient ntat ated ed appr approa oach ches es with within in the the busi busine ness ss syst system emss ar aree the the most most ef effe fect ctiv ive, e, which simultaneously postulates a close cooperation and the maintenance nance of indepe independe ndent nt busine businesse sses. s. From From valuab valuable le experi experienc ence, e, four four char charac acte teri risi sing ng fe feat atur ures es allo allow w them themse selv lves es to be iden identi tifie fied, d, whic which h fa favo vour ur the development of strategic networks: • The speed speed of adjustme adjustment nt of the supply supply chain is crucial crucial for market market success. • Some of the critic critical al supply supply chain activiti activities es must have advant advantages ages when they are carried out in a fragmented form. This can be as a result of differences in terms of market entry barriers, competitive advantages, etc. • Spec Specia iallised sed invest vestme men nts lead lead to high igher ef effic ficiienci enciees. Thes Thesee investments may constitute capital investments or investments in workforce. • Innova Innovati tion on requir requires es a holis holistic tic underst understand anding ing of the supply supply chain chain system, whereby the word innovation in this context is understood to mean the development and implementation of examples for new thought and operation patterns.

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In the case of the SMART car all of these factors have come into play, which has contributed to a fundamental rethinking with regards to the postulate integration of the supply chain, that up until then had been regarded as irrefutable. One of the associated consequences was, that the use of fragmented elements within an otherwise integrated supply chain has been discussed to a greater extent and increasingly used in daily business practice. For an introduction into the topics of innovation innovation and innovation management , the work of Davila et al. (2013 ( 2013), ), is particularly to be recommended, whilst the book of f Davenp Davenport ort (19 (1993 93)), represents a standard reference work on the topic of process very comp compre rehe hens nsiv ivee over overvi view ew of the the vari variou ouss innovation . A very aspe aspect ctss in conj conjun unct ctio ion n with with inno innova vati tion on and and the the asso associ ciat ated ed changes can be found in Drucker (2013 ( 2013). ).

2.4 2.4

Prac Practic tical al Examp Example les: s: Conse Consequ quenc ences es of Su Supp pply ly Chain Mismanagement

Listed below are some practical examples, presented to illustrate the serious consequences which may be involved if a business does not pay the necessary attention to the management of its supply chain, or does not have the required supply chain expertise. The potential errors associated with this concern all relevant areas of the supply chain (cp. Lee (cp. Lee 2004): 2004): • Design: Design: for exampl example, e, lack of adaptabi adaptability lity.. • Contro Control: l: for exampl example, e, inadeq inadequat uatee respon responsiv sivene eness ss or insuffi insufficie cient nt flexibility. • Coordinat Coordination: ion: for example, example, lack of considerati consideration on for the interests interests of partners, etc. The effects can be serious and possibly even threaten the existence of the business itself.

2.4

Practical Practical Examples Examples:: Conse Consequen quences ces of Suppl Supplyy Chain Chain. . .

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2.4.1 2.4.1 Lack of Adaptabili Adaptability ty at Lucent Technolo Technologies gies Executives often wonder whether it is really necessary to continuously update their supply chains and adjust them if considered necessary. This depends to a large extent on the fact that it is difficult to accept accept that that contin continuou uously sly changi changing ng compet competiti itive ve condit condition ionss make make a permanent process of change and adaptation necessary. In the middle of the 1990s the executives of Lucent Technologies realised that the business could only gain a foothold in the Asian market market if it posses possessed sed produc productio tion n facili facilitie tiess on site. site. Conseq Consequen uently tly Luce Lucent nt adju adjust sted ed its its supp supply ly chai chain n ac acco cord rdin ingl gly. y. Fact Factor orie iess were were constructed in Taiwan and China and they could therefore, similar to their competitors Siemens and Alcatel, adapt digital exchange costeffe ef fect ctiv ivel ely y in orde orderr to bett better er fulfi fulfill cust custom omer er re requ quest ests. s. In orde orderr to integrate the interests of the parent and subsidiary businesses, the executives decided to no longer charge the Asiatic business excessive prices for the import of structural components from the USA. This enabled Lucent to recapture its lost market share in China, Taiwan, India, and Indonesia by the end of the 1990s, and to strengthen its competitive position at a later stage. Until mid-2006 Lucent Technologies had been an independent business with headquarters in Murray Hill, New Jersey, USA. The The Group Group develo developed ped and distr distribu ibuted ted system systems, s, softwa software re and servi services ces for commun communica icatio tions ns networ networks ks with with emphas emphasis is on the convergence of networks, services and communication media. Their clients included service providers, global businesses, and local authorities. In the fiscal year 2004 Lucent Technologies achieved a revenue of 9.1 billion US Dollars (about 8.3 billion Euros ros at the exch exchan ange ge ra ratte in mid mid-201 -2015 5), and and empl mployed yed approxim approximately ately 31,000 31,000 people people worldwid worldwide. e. Followin Following g the taketakeover over by its its comp compet etit itor or,, Alca Alcate tell in 2006 2006,, the the grou group p oper operat ated ed under the name of Alcatel-Lucent. On April 15, 2015, Nokia announced that is would acquire Alcatel-Lucent for 15.6 billion Euros (www.nokia.com (www.nokia.com). ). Up until then, the correct action had been taken, but following this Lucent failed to continuously sly adjust its supply chain. The

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manage managemen mentt had obvio obviousl usly y not realis realised, ed, that that many many middle middle-si -sized zed manufa manufactu cturer rerss had then then develo developed ped the necessa necessary ry techn technolo ology gy and gathered the required expertise, in order to manufacture components and assemblies for digital switching centres (so-called “switches”). Due to the advantage gained by the scale of the quantities, they could manu manufa fact ctur uree at a frac fracti tion on of the the cost cost re requ quir ired ed by the the inte integr grat ated ed businesses, and Lucent failed to take advantage of the fragmented elem elemen ents ts of the the supp supply ly chai chain n to coun counte tera ract ct.. The The comp compet etit itor orss had had recognised the sign of the times and forcefully outsourced the manufacture of the switching systems. Due to the resulting cost savings they could offer them at lower prices than Lucent. Meanwh Meanwhile ile,, the manage managemen mentt of Lucent Lucent Techno Technolog logies ies hesita hesitated ted with the outsourcing of its manufacturing, because the business had invested in its own factories. Finally, however, the group had no other choice than to close its Taiwan factory in 2002 and to begin to build an outs outsou ourc rced ed supp supply ly chai chain. n. Howe However ver,, the the tran transfo sform rmat atio ion n of the the busi busine ness ss took took plac placee too too late late to re rega gain in cont contro roll of the the worl worldw dwid idee mark market et.. In midmid-20 2006 06,, Luce Lucent nt was was take taken n over over by its its comp compet etit itor or,, Alcatel.

2.4.2 2.4.2 Lack of Consider Consideratio ation n Shown for the the Interests Interests of Supply Chain Partners at Cisco Different businesses within the same supply chain can have different interests. To not offer adequate consideration to this fact can also lead to serious problems, such as a lack of adaptability. During the 1990s, most experts assumed that Cisco’s supply chain was the “ideal” type and therewith practically infallible. The business was amongst the first to use the Internet to communicate with suppliers and customers, and to automate business processes between trading partners. It was due to this, for example, that the previously illustrated concept of Collab Collabora orativ tivee Plann Planning ing,, Foreca Forecasti sting ng and Replen Replenish ishmen mentt (CPFR) (CPFR) became more intensely used.

2.4

Practical Practical Examples Examples:: Conse Consequen quences ces of Suppl Supplyy Chain Chain. . .

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Cisco Systems was founded in 1984 by scientists at Stanford Univ Univer ersi sity ty in Cali Califo forn rnia ia,, USA. USA. The The Grou Group, p, whic which h has has its its headquarters in San Jose, California, is now a leading global provider of networking solutions for the Internet. In the fiscal year year 2014 2014,, Cisc Cisco o had had a turn turnov over er of 47 bill billio ion n US Doll Dollar arss (about 43 billion Euros at the exchange rate as at mid-2015), with more than 74,000 employees (www.cisco.com ( www.cisco.com). ). In addi additi tion on to this this,, Cisc Cisco o was was also also a pion pionee eerr in coll collab abor orat ativ ivee production procedures, such as Online Product Tests, that will help suppli suppliers ers receiv receivee high high qualit quality y resul results ts with with a minimu minimum m amount amount of manual data entry. The business also outsourced the manufacturing of most of its networking products, and worked upon selecting those sites which were best suited to cover its requirements in order to work closely together with various contract manufacturers (outsourcing). In 2001, Cisco surprisingly had to write-off stock to the value of abou aboutt 2.25 2.25 bill billio ion n US Doll Dollar arss (a (abo bout ut 2.06 2.06 bill billio ion n Euro Euross at the the exchange rate in mid-2015). As it turned out later, there were several fact fa ctor orss that played ayed a role role in this, is, but the the most most seri seriou ouss was the the conflicting interests of Cisco and its partner contractors: above all, Cisco was mainly interested in paying the lowest possible prices to its suppliers and therefore insisted upon freezing the prices for as long as possible. This course of action, however, was not always in the best interests of the contract partners, because even a mere rise in the cost of raw materials or wages and salaries would have forced the already negligable profit margins further downwards. However, when economical growth slowed down in the USA at the end of 2000, the cost of raw materials lay noticeably lower than at the time of the original agreement. The contracted partner manufacturers therefore produced and accumulated large amounts of inventory at an unchanged rate for months without taking into account the actual market demand for Cisco products. Finally, Cisco realised that it could not use most of the materials delivered, because the demand at the end customer had considerably reduced. The business was therefore forced to sell the excess inventory as obsolete, and write off the loss in capital. With this, Cisco had

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therefore paid a heavy price for the lack of consideration for the interests of its partners.

2.4.3 2.4.3 Insufficie Insufficient nt Responsiveness Responsiveness at HewlettHewlett-Packa Packard rd Busi Busine nesse ssess ofte often n over overlo look ok the the fa fact ct that that supp supply ly chai chains ns shou should ld be flexi flexibl blee in orde orderr to re resp spon ond d as quic quickl kly y as poss possib ible le to chan change gess in demand behaviour. This comes largely from the fact that, for some time time,, the ada adaptab ptabiility ity and and the bal balance ance of inte interrests ests have ave bee een n recognised as relevant supply chain requirements. However, it is a false conclusion to believe that a satisfactory responsiveness automatically accompanies this. The latter represents an additional and more recent requirement. However, even if the supply chain is both adaptable, and respects the interests of all participating businesses, it is dangerous to disregard the aspect of responsiveness.

Hewlett-Packard Hewlett-Packard (HP), was founded in 1939. The business is located in Palo Alto, California (USA). In 2002, it merged with its former rival Compaq Computers. With more than 300,000 employees in 170 countries and a turnover in the 2014 fiscal year of around 114.9 billion US Dollars (about 104.5 billion Euros at the exchange rate as at mid-2015), HP with its two divisions, Hewlett-Packard Enterprises and HP Inc., belongs to the the world world’s ’s leadin leading g inform informati ation on techno technolog logy y busin businesse esses. s. The produc productt range range includ includes, es, among amongst st others others,, Comput Computers ers,, printe printers rs and printe printerr suppli supplies, es, digita digitall camera cameras, s, consum consumer er electr electroni onics, cs, servers, storage devices, IT application solutions and services (www.hp.com www.hp.com). ). In 1995, Hewlett-Packard got together with its competitor Canon, to jointly develop and market printers. At the very beginning, the American company tuned its own interests to those of its Japanese part partne ner, r, i.e. i.e. show showed ed exem exempl plar ary y beha behavi viou ourr in this this re resp spec ect. t. It was was agreed that HP would assume the production of printed circuit boards, whilst Canon was to build the motors for the newly-planned LaserJet series.

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The division of labour was regarded on both sides as fair and just, and the research and development teams quickly learned to work closely together. After the LaserJet printer had been commercially rele re leas ased ed,, HP and and Cano Canon n swif swiftl tly y adju adjust sted ed the the supp supply ly netw networ ork k for for marketing the product. HP used its factories in Idaho, USA and in Italy. Canon manufactured in its factories in West Virginia, USA and Tokyo, Japan. After some time, however, a problem emerged that neither HP nor Canon had foreseen. To keep costs low, Canon had agreed to vary the number of motors produced. However, this was subject to the condition, that HP would advise them of the changes long beforehand—in some cases at least 6 mont months hs befo before re the the prin printe ters rs were were due due to be put put on the the mark market et.. However, at the earliest, HP was only able to predict the demand 3 months before the printer was launched. At this time, however, Canon could only modify its production plan marginally by a few perc percen enta tage ge poin points ts.. The The re resu sult lt was was that that the the supp supply ly chai chain n coul could d no longer absorb sudden fluctuations in demand. As the demand for the LaserJet III declined towards the end of its lifecycle, HP was left with a large and costly amount of its revenue invested in excess printer motors, known as the infamous “LaserJetMountain”. Although HP had an adaptable supply chain which also pres preser erve ved d the the inte intere rest stss of all all part partne ners rs,, this this fa fact ct did did not not assi assist st the the business to avoid the negative consequences that had arisen due to the lack of responsiveness of its supply chain—for which it had to accept significant losses.

References Abraham, S. C. (2012). Strategic planning: A practical guide for competitive success (2nd ed.). Bingley, West Yorkshire: Emerald Group. Anderson, D. M. (2008). Build-to-order & mass customisation: The ultimate supply supply chain chain manage managemen mentt and lean lean manufa manufactu cturin ring g strate strategy gy for low-co low-cost st on-demand production without forecasts or inventory. California: Cambria. Bols Bolsto torf rff, f, P. A., A., & Rose Rosenb nbau aum, m, R. G. (201 (2011) 1).. Supply Supply chain chain excell excellenc ence: e: A hand handbo book ok for for dram dramat atic ic impr improv ovem emen entt usin using g the the SCOR SCOR mode modell (3rd (3rd ed.). ed.). New York: AMACOM. Bovet, D., & Martha, J. (2000). Value Value nets—B nets—Brea reakin king g the supply supply chain chain to unlock hidden profits. New York: Wiley. Chop Chopra ra,, S., S., & Meind eindl, l, P. (201 (2015 5). Supply Supply chain chain manag manageme ement: nt: Strateg Strategy, y, planni planning ng & operations (6th ed.). Upper Saddle River, NJ: Prentice Hall.

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Christophe Christopher, r, M. (2005). (2005). Logisti Logistics cs and supply supply chain chain manage managemen ment: t: Creati Creating ng value-adding networks (4th ed.). London: Prentice Hall. Cohen, S., & Roussel, J. (2013). Strategic supply chain management: The five core disciplines for top performance (2nd ed.). New York: McGraw-Hill. Coyle, J. J., Langley, C. J., Jr., Nocack, R. A., & Gibson, B. J. (2013). Supply chain chain manag manageme ement nt – A logist logistics ics perspe perspectiv ctivee. Mason, Mason, OH: OH: SouthW SouthWest estern ern Cengage Learning. Daft, R. L. (2015). Management (12th (12th ed.). Boston, MA: Cengage Cengage Learning. Learning. Davenport, T. H. (2005). The coming commoditisation of processes. Harvard Business Review, 83(6), 100–108. Davila, T., Epstein, M., & Shelton, R. (2013). Making innovation work: How to manage it, measure it, and profit from it, updated edition. Upper Saddle River, NJ: Pearson. Dittmann, J. P. (2012). Supply chain transformation: Building and executing an integrated supply chain strategy. New York: McGraw Hill. Drucker, P. F. (Ed.). (2013). On innovation: HBR’s 10 must reads on innovation (with featured article “The Discipline of Innovation” by Peter F. Drucker). Boston, MA: Harvard Business Review. Geneva, R., Debevoise, T., & Welke, R. (2011). The microguide to process modelling in BPMN 2.0: How to build great process, rule, and event models. Scotts Valley, CA. Ghiani, G., Laporte, G., & Musmanno, R. (2013). Introductio Introduction n to logistics logistics systems management (2nd (2nd ed.). Chichester, West Sussex: Wiley. Goldrath, E. M. (1999). Theory of constraints. Great Barrington, MA: North River Press. Gold Goldra rath th,, E. M., M., & Cox, Cox, J. (201 (2012) 2).. The goal goal:: A proc proces esss of ongo ongoin ing g impr improv ovem emen ent t . Great Barrington, Barrington, MA: North River Press Press (30th Anniversary Anniversary ed.). Govil, M., & Proth, J.-M. (2002). Supply chain design and management – Strategic and tactical perspectives. San Diego, CA: Academic Press. Graham, D., Manikas, I., & Folinas, D. K. (2013). E-logistics and e-supply chain management: Applications for evolving business (1st ed.). Hershey, PA: Business Science Reference. Hand Handfie field ld,, R. B., B., & Nich Nichol ols, s, E. L., L., Jr. Jr. (200 (2002) 2).. Supp Supply ly chai chain n rede redesi sign gn – Transforming supply chains into integrated value systems. Upper Saddle River, NJ: FT Press. Heizer, J., & Render, B. (2013). Operations management (11th ed.). Upper Saddle River, NJ: Prentice Hall. Holc Holcom omb, b, M. C., C., Manr Manrod odt, t, C. C. B., B., & Ross Ross,, T. (200 (2003) 3).. Operation Operation excellenc excellencee – The transi transitio tion n from from tactic tactical al to adapti adaptive ve supply supply chains chains. Cap Gemini Ernst & Young (Ed.), Year 2003 report on trends and issues in logistics and transportation. New York. Transform m your supply supply chain. chain. Hugh Hughes es,, J., J., Ralf Ralf,, M., M., & Mich Michel els, s, B. (199 (1998) 8).. Transfor Releasing value in business. Andover: Cengage Learning EMEA.

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Jacobs, F. R., & Chase, R. (2013). Operations and supply chain management . New York: McGraw-Hill. Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Boston, Boston, MA: Harvard Business School Press. Kull, H. (2015). Mass customisation: Opportunities, methods, and challenges for manufacturers. New York: Apress. Laudon, Laudon, K. K. C., & Trave, Trave, C. (2015) (2015).. E-commerce (11th ed.). ed.). Upper Upper Saddle Saddle River, River, NJ: Prentice Hall. Levitt Levitt,, H. J. (1965) (1965).. Applied Applied organi organisat sation ional al change change in indust industry: ry: Struct Structura ural, l, technology and humanistic approaches. In J. G. March (Ed.), Handbook of organisations (pp. 1144–1170). Chicago, IL: Rand McNally. Murphy, P. R., Jr., & Knemeyer, A. (2014). Michael: Contemporary logistics (11th ed.). Upper Saddle River, NJ: Prentice Hall. Myerson, P. A. (2015). Supply chain and logistics management made easy: Methods and applications for planning, operations, integration, control and improvement, and network design (1st ed.). Old Tappan, NJ: Pearson. Normann, R., & Ramirez, R. (2000). From value chain to value constellation– Designing interactive strategies. In Harvard business review on managing the value chain (pp. 185–220). Boston, MA: Harvard Business School Press. O’Mara, P. (Ed.). (2013). TQM: Introduction to and overview of total quality management . Milwaukee, WI: ASQ Quality Press. Plattn Plattner, er, H., & Leuker Leukert, t, B. (2015) (2015).. The in-memory in-memory revolution revolution. Heidelberg Heidelberg:: Bernd. Poluha, R. G. (2001). SCM in der Praxis – Projektmanagement komplexer SCM Projekte. In O. Lawrenz et al. (Eds.), Supply chain management. Konzepte, Erfahrungsberichte und Strategien auf dem Weg zu digitalen Wertschopo€p fungsnetzen (2nd ed., pp. 311–327). Braunschweig and Wiesbaden: Vieweg (German Edition). Poluha, R. G. (2010). Quintessenz des Supply Chain Managements. Was Sie wirklich uber u€ber Ihre Ihre Proz Prozes esse se in Be Besc scha haffu ffung ng,, Fe Fert rtig igun ung, g, Lage Lageru rung ng und und Logistik wissen mussen u€ssen. Berlin und Heidelberg Heidelberg:: Springer Springer (German (German Edition). Edition). Port Porter er,, M. E. (199 (1998a 8a). ). Com Compet petitiv itivee strate strategy: gy: Techni Technique quess for analys analysing ing industries and competitors. New York: Free Press. Porter, M. E. (1998b). Competitive advantage: Creating and sustaining superior performance. New York: Free Press. Porter, M. E. (2008). On competition, updated and expanded edition updated expanded edition. Boston: Harvard Business Review Press. Porter, M. E. (Ed.). (2011). On strategy: HBR’s 10 must reads on strategy (including (including featured article “what is strategy?” strategy?”). ). Boston, Boston, MA: Harvard Business Review. Porter, M. E., & Millar, V. E. (1985). How information gives you competitive advantage. Harvard Business Review, 63(4), 149–160. Prahalad, C. K., & Hamel, G. (1990). The core competence of the corporation. Harvard Business Manager, 68(3), 79–91.

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Reid, R. D., & Sanders, N. R. (2013). Operations management: An integrated approach (5th ed.). Hoboken, NJ: Wiley. Ross, D. F. (2003). E-supply chain management: Engaging technology to build market-winning business partnerships. Boca Raton, FL: St. Lucie Press. Ross, D. F. (2011). Introduction to supply chain management technologies (2nd ed.). Boca Raton, FL: CRC Press. Rushton, A., Croucher, P., & Baker, P. (2014). The handbook of logistics and distribution management: Understanding the supply chain. London: Kogan Page. € Schonsleben, onsleben, P. (2012). Integral logistics management: Operations and supply chain management within and across companies (4th ed.). Boca Raton, FL: CRC Press. Schonberger, R. J. (2007). Best practices in lean six sigma process improvement . Hoboken, NJ: Wiley. Seibt, Seibt, D. (Ed.). (Ed.). (1997) (1997).. CEBUSNET CEBUSNET consolidati consolidation on framework framework . In D. Seibt, P. Bielli, N. Bjørn-Andersen, A. Bolz, R. Borring-Olsen, G. Christensen, et al. Working Working paper series, series, University University of Cologne, Cologne, Department Department of Information Systems and Information Management, Working Paper 97/1, Cologne. Simchi Simchi-Le -Levi, vi, D., Kamins Kaminsky, ky, P., & Simchi Simchi-Le -Levi, vi, E. (2008) (2008).. Designing Designing and managing the supply chain (3rd ed.). New York: McGraw Hill Professional. Sroka, W., & Hittma´ r, S. (Eds.). (2015). Management of network organizations: Theoretical problems and the dilemmas in practice (1st ed.). Heidelberg: Springer. Stadtler, H., & Kilger, C. (2014). Supply chain management and advanced planning. Concepts, models, software and case studies. Heid Heidel elbe berg rg:: Springer. Stark, J. (2015). Product lifecycle management: Volume 1: 21st century paradigm for product realisation (Decision Engineering) (3rd ed.). Heidelberg: Springer. Stev Steven enso son, n, W. J. (201 (2014) 4).. Operations Operations managemen management t (12t (12th h ed.) ed.).. New New York York:: McGraw-Hill. Thurow, L. C. (2008). Profits. In D. Henderson (Ed.), The concise encyclopedia of economics (2nd ed., pp. 419–421). Indianapolis, IN: Liberty Fund. Van Hoek, R. I., & Weken, H. A. M. (2000). SMART car and smart logistics—A case study in designing and managing an innovative de-integrated supply chain. Oak Brook, IL: Council of Supply Chain Management Professional (CSCMP).

3

Planning, Management and Control of Processes in Procurement, Manufacturing, Warehousing and Logistics

At the end of the day, supply chain management is about relationship management. A supply chain is managed link-by-link, relationship-byrelationship, and the organisation that best manages those relationships will win. (cp. Lambert 2014 Lambert 2014,, p. 6).

3.1 3.1

Work Work,, Mater Materia iall and Infor Informat mation ion Flows Flows

The The begi beginn nnin ing g of the the prev previo ious us chap chapte terr has has alre alread ady y disc discus ussed sed the the impo import rtan ance ce of the the proc proces esss pers perspe pect ctiv ivee to unde unders rsta tand nd the the supp supply ly chain, and introduced a process-orientated framework for businesses. A process can be defined, in this context, as a series of sequential activities and actions that are gradually triggered by events and lead to a result. Processes can be broken down into sub-processes. Furthermore, one can differentiate between key processes that include procedures or partial-procedures and contribute directly to the fulfilment of the business’s core activities, and support processes, which represent the related actions in support of the key processes. Typical key processes within manufacturing businesses include: • • • • •

Develo Developme pment nt Produc Productt Evolut Evolution ion Procur Procureme ement nt Produc Productio tion n Plan Planni ning ng Prod Produc ucti tion on



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Planning, Management and Control of Processes in. . .

• Acquis Acquisiti ition on of of Orde Orders rs • Distribu Distribution tion and disposal disposal The key processes are classified in the previously-mentioned product lifecycle and are often distributed across several businesses, as long as an appropriate division of labour is present. Basically, two primary and superior approaches to the illustration and description of supp supply ly chai chains ns can can be iden identi tifie fied: d: the the Proc Proces esss Ch Chai ain n appr approa oach ch and and Process Reference models. For a comprehensive and current overview and description of the struc structur ture, e, elemen elements ts and contro controll princi principl ples es of Supply Supply Chains Chains,, Chopra and Meindl (2015 (2015), ), is particularly worth noting. The currently most widely used reference model for supply chains is the Supply Chain Operations Reference model (SCOR) . It spans the entire supply chain, from the procurement process to consumption. It is an ideal-typical approach that applies to various types of business, and in which the the sequences attributed attributed to the partners within within the supply chain are unitarily described. The SCOR model is studied in more detail in the further course of this work. The Process Chain Approach , which is also known as a Process Chain Model, forms a business’s supply chain from the onset and from a purely process perspective. The result is a type of process Eventfocused supply chain, which is known as the Process Chain , or Eventdriven Process Chain (EPC) . This process chain can be described as a combin combinati ation on of time time and logica logically lly relate related d activi activitie tiess that that serve serve to achieve a given business result. The process chain model enables visualisation and analysis, as well as the organisation of processes within the supply chain. In this case, each process may be represented by using the following parameters, which are reflected in the form of process chain elements (for an example, please see Fig. 3.1 3.1): ): • Input Input variab variables les.. • Output Output variab variables les.. • Reso Resour urce ces. s.

3.1

Work, Material and Information Flows

57

Fig. 3.1 Example of a process chain. Note: “XOR” is one of the connection symbols (connectors), in process chains. These symbols are used to split or unite the control flow. Three connectors are available: AND, OR, and XOR (Exclusive OR)

• Struct Structure ures. s. • Co Cont ntro rol. l. Additional information on Process Chains and Event-driven Process Chains (EPC) can be found for instance at Damelio (2011 (2011), ), and Panagacos (2012 (2012). ). A process chain element is connected to the business environment, on the one hand by the input variables which, as it were, describe the load under which the supply chain finds itself, and on the other hand by the the outp output ut vari variab able les. s. The The resp respec ecti tive ve proc proces esss chai chain n elem elemen entt transforms a given input variable into a given output variable in

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accordance with the design of the process chain. The process, which is stored in the design, is thereby described on a lower, i.e. more detailed level. The comparison of input and output variables can draw conclusions about the productivity of the process chain (i.e. output quantity in relation to factor input quantity), and thus also on their effectiveness and efficiency. The approach therefore also has the aim of providing the necessary information with which to perform model-based, quantitative performance analyses of the supply chain. The measurement of supply chain costs often represents a region which greatly interests business executives—after all, it often conceals the potential to save on costs. However, the measurement also relates to an area that often involves a complex sequence of activities, so that an accurate measurement is difficult. You will find more on this topic in the next section. Regardless of whether the process chain approach or a process reference model is used, processes are at the focal point. One method which is concerned with the finding, designing, documenting and improv improvin ing g busine business ss proces processes ses,, is Process hich is Process Managemen Management t , which also sometimes referred to as Business Process Management . Prior to the implementation of new or redesigned business processes, it is absolu absolutel tely y necess necessary ary to invest investig igate ate which which contri contribut bution ion they they make make with respect to the relevant factors within the strategic triangle— cost cost,, qual qualit ity y and and time time.. The The rela relate ted d conc concep eptt of Bu Busi sine ness ss Proc Proces esss Optimisation will be discussed in more detail in the third chapter. For further information about the subject of Business Process or in short Proce Management or Process ss Manage Managemen ment, t, Dumas et al. (2013 2013)) and Franz and Kirchmer (2012 2012)) are highly recommended. In the integration concept for the design of Business Processes show shown n in the the first first chap chapte ter, r, the the spec specifi ificc inpu inputt vari variab able less (e.g (e.g.. raw raw materials, manpower and data), and output variables (e.g. products,

3.1

Work, Material and Information Flows

59

services and activities), are not explicitly described, but are rather considered to be an intrinsic part of Business Processes. In the context of the supply chain, the material flows, work processes and information flows are of crucial importance with respect to the input and output variables. The Material Flow embraces all processes and their linkage with the the profi profits ts and and the the prod produc ucti tion on and and dist distri ribu buti tion on of mate materi rial al good goodss within certain established production areas. In conjunction with the supply chain, the material flow exceeds the boundaries of the respective production areas. More recently, the term Value Stream is commonly used, with which the requirement is simultaneously connected of designing material flows only in such a way as to ensure an increase in the material value in the customer’s best interest, and to ensu ensure re that that wast wastag agee is avoi avoide ded. d. The The prim primar ary y obje object ctiv ives es for for the the improvement of material flows are: • • • •

Shorte Shortenin ning g lead lead tim times. es. Reduct Reduction ion in scrap. scrap. Cost Co st savi saving ngs. s. Avoiding Avoiding energy energy waste waste and environme environmental ntal polluti pollution. on.

A Workflow is a pred predefi efine ned d sequ sequen ence ce of acti activi viti ties es with within in an organi organisat sation ion,, which which empha emphasis sises es the operat operation ionalal-tec techni hnical cal view view of the processes and provides information on factors such as costs and revenues. In this case, an IT system to support the procedure can provide the organisation with necessary data and process it in accordance with a default or designated algorithm stored in the system. Severa Severall intern internati ation onal al bodies bodies,, which which span span betwee between n manufa manufactu cturer rers, s, such as the Workflow Management Coalition (WfMC) , have developed special standards for this purpose, such as the Business Process Modelling Language (BPML). The Workflow Management Coalition (WfMC) was founded in 1993 as a global association of users, developers, consultants, analysts, universities and research institutes which have an interest in workflows and business processes. The WFMC creates (continued)

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process-related standards or contributes to them, and provides information about related issues and developments. In this context, the WfMC has, in conjunction with the Object Management Management Group (OMG) , a non-profit consortium of IT businesses (www. ( www. omg.org), omg.org ), created the widely spread and highly recognised Business Process Modelling Language (BPML) as a standard for the graphical mapping of business processes and workflows (www. ( www. wfmc.org). wfmc.org ). The goal lies less in the documentation of an organisation or its employees, but rather more in a possible (partial) automation of the execution. In contrast to the business process, the operational level is deal dealtt with with in deta detail il,, in that that the the work workflo flow w desc descri ript ptio ion n divi divide dess the the process into components which are clearly visible at IT level and are in a deterministic relationship. Workflow models are designed to help ensure the optimal integration tion of vari variou ouss appl applic icat atio ions ns (wor (word d proc proces esso sors rs,, spre spread adsh shee eets ts,, data databa base ses, s, etc.) etc.),, into into the the oper operat atio ions ns of the the orga organi nisa sati tion on.. Fo Forr this this Workflow Managepurpose a so-called Workflow Control System or Workflow ment System, is often used. This is an IT application solution, which enables the definition and execution of workflows by controlling the workflow instances according to a predetermined scheme depicted by a comp comput uter er,, and and whic which h make makess the the requ requir ired ed data data and and info inform rmat atio ion n available by use of queries. The primary task of a workflow control system is to coordinate the operation of who (the role), what (the task), when (the process), and how (the environment), works. The analysis and definition of workflows can also take place without any reference to a computer system. Under the term Information Flow , which is sometimes also referred to as the Information Stream , one understands the way to acquire and utilise oral or written information before it arrives at one or more recipients. The scientific study of informati ation flow within organisations is called Information Logistics , in information technology it is referred to as a Data Flow. With regards to the information flow, it is important that the recipients receive the information in a punctual manner.

3.2

Why and How Is Supply Chain Performance Measured?

61

Dist Distur urba banc nces es in the the flo flow w of info inform rmat atio ion n can can lead lead to misu misund nder er-standings, mistakes or even business failure. Severe consequences can ensue when the information reaches a person who is responsible for forwarding it, but he or she does not forward the information in good time. A poor flow of information within businesses is often a sympto symptom m of organi organisat satio ional nal or perso personal nal conflic conflicts. ts. Non-fu Non-funct nction ional al flows flo ws can can lead lead to a loss oss of infor formati ation and have ave farfar-re reaachi ching consequences. It is obvious that the efficient and effective design of the material and information flows and work processes has a decisive influence upon the performance of the supply chain. At the end of the chapter is an example of how the analysis and optimisation can be carried out in practice, and which results can thereby be achieved.

3.2 3.2

Why and How How Is Supply Supply Chain Chain Perfo Perform rmanc ance e Measured?

3.2.1 3.2.1 Measurem Measurement ent of Cost and Performan Performance ce of Supply Chains The importance of measurement and control of supply chain costs arises directly from the objectives and tasks of supply chain management. One of these tasks is well known in the minimisation of time and costs, as the business’s success largely depends on the punctual and accurate delivery of products and services. The indicators to evaluate the performance capacity or the performance of an organisation should cover both the financial sector as well as the operations, since the aim is to achieve customer satisfaction at lower costs and ensure the long-term competitiveness. In this sense, performance indicators are not only intended to contribute to the continuous improvement of the performance of the supply chain, but also to control the business and competitive strategy. For a comprehensive overview of the subject of supply chain cost costss and and thei theirr meas measur urem emen entt and and cont contro roll Cece Cecere re (2015 2015)), is recom recommen mended ded.. An excell excellent ent intro introduc ductio tion n into into Supply Supply Chain Chain Controlling can be found in Seuring and Goldbach (2010 (2010). ).

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Performance indicators should be simple and clearly defined, easy to use and simple to understand, in order to allow the executives who use use them them to resp respon ond d quic quickl kly y and and appr approp opri riat atel ely y with with adeq adequa uate te measures. Otherwise, in accordance with past experience, they will be consulted insufficiently or not all for supporting decisions. The performance of the operations is an essential premise for the (external) customer satisfaction. The financial performance capacity however, reflects the (internal) profitability of the business and the ability to remain competitive. In the short-term period, the assessment of the financial performance capacity consists of the measurement of the Marginal Cost per per unit (for each activity and each project), as well as the measurement of non-value-adding costs. In the medium and long terms a realistic assessment is more difficult. This is due to a number of causes, such as the inclusion of costs of research and development (R & D), because R & D costs cannot be broken down and therefore not be applied to each product individually. Marginal cost is is defined as the production of the most recently yielded (produced) unit. As long as the total cost curve of a prod produc uctt or cost cost cent centre re is line linear ar,, the the marg margin inal al cost cost of each each manufactured piece is equal and corresponds to the proportional costs and the product costs. The terms product costs, marginal costs and proportional costs have an equivalent meaning. Therefore, instead of the term Marginal Cost Calculation, the terms Proportional Proportional Costing or Direct Direct Costing are used (see e.g. Shim and Siegel 2009 Siegel 2009,, pp. 2).

The management must also bear in mind that capital investors are primar primarily ily focuse focused d on maximi maximisin sing g the profita profitabi bilit lity y of the the invest invested ed capital, and are therefore interested in the maximisation of the profit margin margin and asset asset turno turnover ver.. Finall Finally, y, they they must must leave leave the strate strategic gic decisions sufficient financial leeway, i.e. ensure an adequate financial flow or revenue surplus (Cash Flow). Control of the business’s performance has the intention, within the context of corporate governance, to ensure that the focus is on the achievement of defined strategic and operational objectives. To this end, end, the perfor performa mance nce is measu measured red by perfor performa mance nce indica indicator torss and

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subsequently monitored. However, not all the methods of measurement and indicators are effective. Many organisations are barely able to cope with the amount of data that is either irrelevant, too detailed, poor poorly ly orga organi nise sed, d, or of litt little le valu valuee for for deci decisi sion on-m -mak akin ing, g, or may may otherwise be difficult to obtain. An “excess” of data can have a detrimental effect. Key Performan Performance ce Indicator Indicatorss (KPI) are financial and non-financial measures and also measures that are intended to determine how succ succes essf sful ul an orga organi nisa sati tion on is with with a view view to achi achiev evin ing g its its long long-t -ter erm m goals. The supervision and control is usually carried out by the info inform rmat atio ion n serv servic icee of the the orga organi nisa sati tion on,, whic which h has has the the prim primar ary y task task of determining the current situation and helping to develop future activities on this basis. The key performance indicators depend largely upon the nature of the organisation and the business strategy, and form an integral part of the measurable targets. These factors must be distinguished from the Critical Success Factors (CSF), which are compared to the conditions that must be met in order to achieve the targets (see e.g. Marr 2012; 2012; Parmenter 2015). 2015).

Furthermore, some of the indicators have only a minor relationship to that which an organisation attempts to achieve. They are therefore not not rele releva vant nt for for targ target et achi achiev evem emen ent. t. Othe Otherr indi indica cato tors rs may be misinterpreted, because their meaning is unclear or ambiguous. The potential impact may consist in incorrect decisions with potentially farfar-re reac achi hing ng cons conseq eque uenc nces es.. This This has has led led to the the deve develo lopm pmen entt of a special management reporting system, which is characterised by the implementation of Key Performance Indicators (KPI) , for example within the context of a Balanced Scorecard , which will be discussed in the next section. The key performance indicators need to be seen in conjunction with the so-called Critical Success Factors (CSF) . These have the purpose of identifying the key to a business’s success factors. The more qualitative critical success factors are quantified and measured by the key performance indicators, which are sometimes also referred to as financial ratios.

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It has been confirmed by various studies that businesses which delibe deliberat rately ely monit monitor or and contro controll their their perfor performan mance ce by the use of these indicators are more successful than those who do not, or who only monitor it to a limited extent. If the business’s executives are well informed about the performance indicators and the factors that have an impact on this and contribute to the results, they can make better, more effective decisions. Whilst doing this, the monitoring and control of the performance indicators must be aligned with the specific objectives, problem areas and decision factors, in other words, with the critical success factors. The resulting benefits can be summarised as follows: • • • •

Improved Improved goal achievem achievement. ent. Improved Improved and and accelerat accelerated ed decisio decision n making. making. Alignmen Alignmentt of the relevant relevant workforce workforce with the common common objectiv objectives. es. Increased confidence and increased motivation motivation amongst amongst executives and personnel.

The problems associated with the general performance indicators have led to the development of special performance metrics and ratios to support the business’s decision making process in specific areas, such as supply chain management. One possibility in this direction exists in the measurement of the performance capability using performance mance metric metrics, s, which which are based based upon upon relate related d logist logistics ics activi activitie ties. s. These logistic activities can thereby, for example, include the following sub-processes of the supply chain: purchasing, delivery, inspection tion,, ware wareho hous usin ing, g, manu manufac factu turi ring ng,, inte interm rmed edia iate te deli delive very ry,, orde order r proces processin sing, g, shippi shipping ng,, logist logistics ics design design,, and strate strategic gic plann planning ing.. For this purpose it is possible to apply, for example, the following performance mance measu measures res:: produc productt availa availabi bilit lity, y, order order cycle cycle time, time, respon response se time, and service quality. An exce excell llen entt and and comp compre rehe hens nsiv ivee over overvi view ew of oper operat atio iona nall metrics can be found in Dimon (2013 (2013). ). For exemplary studies on the importance and the impact of the measurement of performance indicators, see e.g. Hofmann (2004), (2004), PMG (2002 (2002), ), and SAP (2004 (2004). ).

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Anothe Anotherr possib possibili ility ty is the applic applicati ation on of proces processs perform performanc ancee indi indica cato tors rs and and simi simila larr meth method odss for for the the meas measur urem emen entt of thes thesee indicators. Firstly, the process performance indicators can contain cust custom omer er sati satisf sfac acti tion on,, whic which h can can be eval evalua uate ted d or meas measur ured ed for for example by carrying out and analysing customer complaints and customer surveys, or by the involvement of customers in productand and proc proces esss-or orie ient ntat ated ed perfo perform rman ance ce appr apprai aisa sals ls.. An addi additi tion onal al pote potent ntia iall indi indicat cator or is the the qual qualit ity y of cust custom omer er deli delive veri ries es,, whic which h focuses on the successful delivery of a product or service to a client client and fulfill fulfilling ing his expect expectati ations ons.. The custom customer er expecta expectatio tions ns typically include perfect order fulfilment rates and the supply of products or services in the right place, in good quality and at the right time. Anot Anothe herr indi indica cato torr whic which h ofte often n is used used,, is the the time time from from orde order r plac placem emen entt to deli delive very ry or paym paymen entt (ord (order er-t -too-cas cash) h).. It meas measur ures es,, evaluates and compares the amount of time that elapses between the customer placing an order and the supplier side payment. One method which is used to measure the cost is Activity Based Costing. In addition to the classic allocation of costs to cost centres, activity based costing has gained particular popularity for logistics serv servic ices es in the the past ast few year years. s. Due to the the fact fact that that the the tasks asks performed within the supply chain are often comprehensive and cross-cutting, a cost allocation to internal cost centres proves itself to be difficult. Activity Based Costing (ABC) is characterised by the fact that the allocation of product overheads of the indirect activity areas to the manufactured products is not carried out on the basis of value-based references. Rather, this is done according to the activiti activities es necessary necessary for producti production on (process (processes, es, activiti activities), es), and taking taking into into accoun accountt the proces processes ses benchm benchmark arkss (cost (cost driver drivers). s). On this this subj subjec ect, t, see see for for inst instan ance ce Mocc Moccia iaro ro Li Dest Destri ri et al. al. (2012 2012)) and Velmurugan (2010 (2010); ); a specific reference to the sub ject matter on Supply Chain Management can be found e.g. in Askarany et al. (2010 (2010), ), pp. 238.

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In addition, the transparency of the allocation of costs is often not present at the intra- and inter-enterprise levels. It is therefore necessary, as part of the process cost calculation, to identify the most costrelevant factors. These factors are also known as Cost Drivers. These are divided into volume- and performance-based cost drivers. The aim is to dete determ rmiine the the cost cost per per proc proceess exec execut utio ion. n. The The rele releva vant nt bas basic data data is obtained from the individual activities of the relevant processes.

3.2.2 3.2.2 Balanced Balanced Scorecar Scorecard d and Supply Chain Scorecar Scorecard d The problems described in terms of a uniform procedure for the measurement of key performance indicators, as well as the assumption that the majority of existing approaches to measure performance are primarily based upon financial ratios, triggered a study with the title Performance Measurement in Businesses of the Future which was carried out by the Nolan Norton Institute at the beginning of 1990. The Nolan Norton Institute was, at that time, the research bran branch ch of the the audi auditi ting ng and and cons consul ulti ting ng comp compan any y KPMG KPMG (www. kpmg.com). kpmg.com ). The study confirmed that in addition to the problems of redundant effort and lack of comparability, conventional approaches to performance measurement were too limited to monetary values. Conversely, the value-adding and pioneering process aspects were only only give given n limi limite ted d cons consid ider erat atio ion. n. This This was was espe especi cial ally ly true true with with regards to the supply chain processes. The study also laid the foundations for modification of the operational performance measurement by means of the development of the so-called Balanced Scorecard (BSC). The further development lay mainly in the fact, that not only the optimisation optimisation of existing processes, structures and procedures was addressed, but also new processes, structures and procedures were included. Due to this, the method gained dynamic momentum and innovative capacity. For refe For refere renc ncee to to the the stud study y Perf Perfor orma manc ncee Meas Measur urem emen entt in Busi Busines nesse sess of the Future, and for an introduction into the subject of the Balanced Scorecard (BSC), the standard work by Kaplan by Kaplan and Norton (1996),, is particularly highlighted. Recommended furthermore are (1996) Gardiner and Simmons (2006 (2006)) and Lawrie et al. (2005 (2005). ).

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The concept of BSC was introduced by David Kaplan and Robert Nort Norton on with with the the inte intent ntio ion n of cont contri ribu buti ting ng to the the deve develo lopm pmen entt of business objectives, basing upon this the support for the definition of strategic initiatives in order to achieve these goals, and finally enabling the measurement of the results over the duration of time. If one tries to systematise possible objectives that may influence the target functions of a business, it helps to offer a fundamental disti distinct nction ion betwee between n monet monetary ary and non-mo non-monet netary ary objec objectiv tives. es. Under monetary or financial goals we understand those goals which can be measured in monetary terms, such as the striving for profit and sales. Any additional monetary objectives are for example, securing the solvency and capital preservation. Conversel versely, y, the non-mo non-monet netary ary object objectiv ives es includ includee values values such such as achieving certain growth or productivity goals, the pursuit of market share expansion, and ensuring certain quality requirements (cp. e.g. Dimon 2013 Dimon 2013,, pp. 1). The method of BSC was, at the time it was developed (early 1990s), not entirely new, as businesses were already using a number of financial, non-financial, and tactical and operational indicators. It was, however, a relatively new practice to apply them in a composite and structured way, with the aim of measuring the operational performance as comprehensively and accurately as possible, and to determine mine whet whethe herr the the obje object ctiv ives es had had been been achi achiev eved ed.. A numb number er of businesses were already using databases (so-called Data Ware Wareho hous uses es), ), and and spre spread adsh sheet eetss to tran transl slat atee and and impl implem emen entt the the indicators. However, these were firstly not necessarily geared to the succes success-c s-crit ritica icall busine business ss proces processes ses and system systemss in genera general, l, or the supply supply chain chain proces processes ses and system systemss in partic particula ular. r. And And second secondly, ly, collecting, aggregating and analysing the (correct) data often proved itself itself to be difficu difficult lt and someti sometimes mes even even impos impossib sible, le, becaus becausee the required data material was not always or only insufficiently available. The BSC contains two basic elements: the equilibrium (Balance) and the visualisation of indicators by means of an evaluation list (Scorecard) (Scorecard).. The balanc balancee is aimed aimed at an indem indemnit nity, y, amon amongst gst other other things, between the following components: strategic vs. operational

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indicators, long-term vs. short-term positions, historical vs. future performance, hard vs. soft factors, monetary vs. non-monetary terms, cost drivers vs. performance drivers, internal vs. external processes. The core Strategic Vision describes the purpose of a business, its core competencies and current competitive spirit to achieve a competitive advantage, the desired future competitive positioning and product range, as well as the financial goals (return on sales, etc.). One can derive from this the areas in which an organi organisat sation ion wishe wishess to achiev achievee excell excellenc ence. e. Succes Successfu sfull imple imple-mentation can be seen in the evaluation of the corresponding power in the market (see e.g. Kotler e.g. Kotler et al. 2010, 2010, pp. 12). In the visualisation of the indicators by means of a Scorecard, the Strategic Vision of a business, which is dictated by its management, forms a focal-point. This core vision must be made operational by means of strategies and activities and is considered, in conjunction with those, from four different perspectives: • The financial financial perspecti perspective, ve, which which includes includes the return return flow of funds and the value added. • The The cust custom omer er pers perspe pect ctiv ive, e, whic which h is char charac acte teri rise sed d by cust custom omer er satisfaction, customer preservation, market share, etc. • The business business process process perspecti perspective, ve, which which contains contains the cost, cost, quality, quality, response time and new product launches. • The learning learning and growt growth h perspe perspecti ctive, ve, which which includes includes employee employee satisfaction and availability of information systems. Each of these perspectives within the limits specified by the BSC is in turn determined by four characteristics, which are of a businessspecific nature: strategic intentions, performance indicators, targets and initiatives. In this way, BSC figuratively guarantees a balanced perspe perspecti ctive ve of the the select selected ed financi financial al and non-fin non-financ ancial ial indica indicator torss which are necessary to advance the strategic plan and to monitor the business’s performance. It can also be used as a tool for assessing value creation strategies for monitoring the success of the valueoriented processes and, finally, to check whether the involved groups

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of interest (stakeholders), actually receive the value they expect in terms of return on capital. For a detailed overview on the strategic and operational management and controlling approach to measuring the performance of supply chains, the book by Botta-Genoulaz et al. (2010 ( 2010), ), shou should ld be part partic icul ular arly ly emph emphas asis ised ed.. Fo Forr use use of the the Bala Balanc nced ed Scorecard in Supply Chain Management and the related Supply Chain Scorecard , Gleissner and Femerling (2014) and (2014) and Gudehus and Kotzab (2012 (2012), ), are recommended. Over time, BSC has evolved, due to its special possibilities, into one of the most widely used and accepted methods of defining and controlling the corporate strategy. The use of BSC is typically funded mainly by the Chief Executive Officer (CEO) or the Chief Financial Officer (CFO). BSC has therefore also become the preferred method of the largest management consulting businesses, such as McKinsey & Company (www.mckinsey.com www.mckinsey.com), ), and and The The Bo Bost ston on Co Cons nsul ulti ting ng Group (www.bcg.com (www.bcg.com). ). The The prec precis isee desi design gn of the the scor scorec ecar ard d depe depend ndss larg largel ely y upon upon the the particular division being examined. Consequently, a special Supply Chain Scorecard was specifically developed for the area of the supply chain. The specific indicators which are required to measure and control the performance of the supply chain vary depending on the type of customer, the product line, the industrial sector and other factors. As the supply chain is ultimately aimed at the end user, it is important to include the perspective of the end user in the development of a Supply Chain Scorecard and the identification of specific indicators. This inclusion of the end user perspective consequently embraces aspects which are relevant, in terms of the capabilities of the supply chain in satisfying end-user requirements cost-effectively and in accordance with their wishes, as represented as an example in Fig. 3.2 3.2.. The development of a Scorecard specifically aligned to the supply chain inevitably requires the disclosure of corporate objectives and data data betw betwee een n supp supply ly chai chain n part partne ners rs.. Ther Theref efor ore, e, the the desi design gn is not not pra practi ctical cal when ther theree is no suffi ufficie cient confid onfiden ence ce betw etween een the

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scorecard (cp. Zimmermann Zimmermann 2010 2010,, pp. 399) Fig. 3.2 Supply chain scorecard

cooperating businesses within the supply chain. Thus, a Supply Chain Scorecard, which is shared by all parties in the supply chain, requires a relatively wide-ranging confidence. At the same time, however, the joint development of the Supply Chain Scorecard and the related exchange of data can enhance mutual trust and partnership. Nevertheless, the introduction of a scorecard focused on the entire supply chain appears, although theoretically desirable, relatively difficult in practice, due to the “conflict in interests” between manufacturers and suppliers. The aforementioned SCOR model is another unified approach in order order to, amongs amongstt other other thing things, s, measu measure re the supply supply chain chain perfor perfor-mance. Since the approach extends to cover the entire supply chain, the the workfl orkflow owss are are con config figu urab rable and and ther here is the the pos possibil ibilit ity y of illustrating various alternatives of a same process. This as it were, creates a standardised language for the corporate and cross-business or business-integrated communication, which in turn is an essential

3.3

What Is a Supply Chain Reference Model?

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prereq prerequis uisite ite for the perfor performan mance ce compar compariso ison n betwee between n the supply supply chain partners. The performance of the respective processes in the standardised supply chains is measured by means of specific performance indicators. We will go deeper into this subject in the next section.

3.3 3.3

What What Is a Su Supp pply ly Chain Chain Refe Referen rence ce Mode Model? l?

Supply Chain Chain Counci Councill (SCC) (SCC) was established in 1996 in the The Supply United States. With the Supply Chain Operations Reference (SCOR) model, this organisation created ted a means of support for the standardisation and normalisation of supply chains, both within a single business as well as between several businesses. The primary objective of the SCC is to promote a common understanding of the processes and activities amongst the various partners that participate in a network.

The Supply Chain Council (SCC) was founded in 1996 in the U.S. by the two organ rganiisati ations ons Pitt Pittig igllio, io, Rab Rabin, in, Todd & McGrath (PRTM) (www.pwc.com www.pwc.com)), and AMR Research (www.amr-research.com www.amr-research.com). ). It init initia iall lly y incl includ uded ed 69 volu volunt ntar ary y member businesses and had expanded to over 1000 members worldwide, with global operations in North America, Europe, Japan, Australia/New Zealand, Southeast Asia and South Africa by the the end end of 2013 2013.. In 2014 2014 APIC APICS S Su Supp pply ly Ch Chai ain n Co Coun unci cill (APIC APICS S SC SCC) C),, was form ormed thro throug ugh h the merge ergerr betw etween een APIC APICS, S, a lead leadin ing g prof profes essi sion onal al asso associ ciat atio ion n for for the the supp supply ly chain and operations management, and the Supply Chain Council. il. Today oday,, APIC PICS SC SCC C adva advan nces ces supply pply chai hains thro throug ugh h resear research, ch, benchm benchmark arking ing,, and publi publicat cation ionss and mainta maintain inss the Supp Su pply ly Ch Chai ain n Oper Operat atio ions ns Refe Refere renc ncee (SCO (SCOR) R) mode modell (www. apics.org). apics.org ). The process categories of the SCOR model are differentiated by the dimensions Production Concept and Orientation of Product Structure. With regards to this, the expression discrete corresponds to the focus on the assembly, i.e. a convergent product product structure, whilst the

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expression process literally corresponds to the process of alignment to the flow, i.e. a divergent product product structure. The primary task of the previously illustrated SCM concept is the contin continuou uouss synchr synchroni onisat sation ion of the value value creati creation on along along the entire entire supply chain and its permanent coordination with consumer demand. It is this that the underlying supply chain of the SCOR model is based upon upon,, whic which h exte extend ndss acro across ss the the SC SCOR OR cont contro roll proc proces esse sess in all all businesses involved on the supplier and customer side. All conditions and opportunities to meet the necessary process steps are carried as a whole by the participants in the network and jointly agreed. The plan planni ning ng and and cont contro roll meth method odss whic which h are are nece necess ssar ary y to make make this this possible coincide logically with the methods that are used for internal planning and control. Other measures include methods to access data from the various businesses involved, in particular data pertaining to storage and capacity. One great benefit of the SCOR model is to define a common language for communication between the various internal functional areas and, in addition to this, with the external supply chain partners. Only with a common understanding of the relevant processes does an optimised design of the customer-supplier relationships across the supply chain no longer represent a problem. The inclusion of performance indicators creates the conditions for a continuous evaluation and optimisation. Furthermore, these indicators provide the basis to enable the comparison of the performance of supply chains by means of a process known as Benchmarking. Benchmarking Benchmarking deno denote tess a comp compar arat ativ ivee anal analys ysis is of proc proces esse sess using specific performance indicators. In the operating economic doctrine this is a systematic and continuous process of comparing products, services and processes within the business (internal benc benchm hmar arki king ng), ), mean meantt as com compare pared d to a comp compar aris ison on with with businesses in the same sector (competitive benchmark level), or with businesses from other sectors (generic benchmarking). The relevant processes are compared using specific performance indicators (see for example Zhu 2014 Zhu 2014;; Bogetoft 2012 Bogetoft 2012). ).

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Since about the late 1990s, increasing and widespread acceptance of the SCOR model in the United States and the rapidly growing number of members in the SCC are a clear and present indication that a “de facto” standard for the description and analysis of supply chains has developed. With the intensified efforts of the SCC to create a user European Chapter Chapter in Europe, the base by the establishment of a European SCOR model distribution is also expected to be increasingly found in European countries. The term best (business) practice can be defined as exemplary solutions or procedural methods that lead to top performance, or as the approach carried out to determine such procedures and to take advantage of improving one’s own processes, often as a continuation of Benchmarking. This is a pragmatic approach, which compares, in systematised form, the experiences of successful organisations and often also competitors and users, etc. It also evaluates various solutions which are used in practice, based upon operational objectives and upon this basis, specifies which designs and procedural methods best contribute to goal achievement (see e.g. Bogan and English 2014 2014;; Watson 2007 Watson 2007). ). In view of the standardisation aspect, SCOR may also be referred to as a normative model. A normative model consists of a predefined set of alternatives. It describes how an object of the model can be view viewed ed and and desc descri ribe bed, d, and and how how it shou should ld beha behave ve.. The The valu valuee of normative models lies primarily in the following areas: • Simplific Simplification ation of the modell modelling ing by a higher higher level of abstracti abstraction. on. • Compilat Compilation ion of an exchange exchange of models models above above and beyond beyond business business areas and organisations by means of standardisation. • Desc Descri ript ptio ion n of univ univer ersa sall lly y comm common on prob proble lems ms and and metr metric icss by means of standardisation. • Exchange Exchange of industri industrial al norms for for performance performance comparis comparisons. ons. • Applicat Application ion of leadin leading g business business practi practices ces (Best Practices).

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3.3.1 3.3.1 Origin Origin and Evolutio Evolution n of the SCOR Model Model In the case of SCOR one specifically understands a model which combines process elements, performance indicators, leading business practices and the specifics relating to the execution of supply chain activities in a very special way. The uniqueness and effectiveness of the model and its successful use are based mainly upon the concerted and coordinated implementation of these elements. Basically, reference models are used in order to systematise business processes and uniformly represent them. SCOR builds upon the input, throughput and output scheme, which is used within the framework of process control. The model is used, amongst other things, to illu illust stra rate te the the proc proces esse sess at the the vari variou ouss leve levels ls and and to grad gradua uall lly y formulate them. A Business Process Reference Information Model (or in short: Reference Model), is a specific information model for an organisation, which is used on an individual case and abstracted to repr repres esen entt a stan standa dard rdis ised ed sect sectio ion n of “rea “reali lity ty”. ”. Refe Refere renc ncee models are thus attributable to the normative models and support the the deve develo lopm pmen entt of an indi indivi vidu dual al info inform rmat atio ion n mode modell of an organisation. For the practical implementation of supply chain management, enterprise-wide information systems which enable a rapid exchange of information are required, in addition to the willingness of businesses to cooperate and disclose the relevant processes. For more information on this subject, see for example Sherry (2012 (2012), ), and Geneva and Geneva et al. (2011); (2011); a comprehensive overview of the operational reference models may be found in the standard work by Scheer (1994 (1994). ). Reference models are based upon the aforementioned work processes (Workflows ), and the control of these technological processes Workflow Managemen Management t ). These reference models refer to the (Workflow interfaces within the workflow structure which allow the individual proces processes ses to intera interact ct at variou variouss levels levels.. All All syste systems ms to contro controll the workflows include a number of universal blocks that interact and influence each other within a defined set of scenarios. Depending upon upon their their develo developme pment nt,, variou variouss produc products ts typic typicall ally y have have differ different ent

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perf perfor orm mance ance leve levels ls with within in the the spec specifi ified ed and and univ univer ersa sall lly y vali valid d modules. In orde rder to ach achieve eve inter ntero oper perabi ability lity betw etween een the the diff ifferen erentt work workflo flows ws,, it is nece necess ssar ary y to esta establ blis ish h a stan standa dard rdis ised ed numb number er of interfaces and formats for the exchange of information. This can be achieved by setting up unique interaction scenarios with reference to these interfaces. These interaction scenarios in turn serve to identify various levels of functional conformity, which are in line with the range of products that are on the market. A reference model also represents a model of the supply chain which can support the introduction of application systems. In con junction with this, the advantages of a reference model result from the ability to provide the detailing of several levels of observation and methods of questioning. On the one hand this includes the description of the the proc proces esss cond condit itio ions ns and and proc proces esss resu result lts, s, i.e. i.e. to answ answer er the the questions: which data, information and resources are to be used and which objects are to be processed? On the other hand, it embraces a description of the contiguous sequence from a process point of view, i.e. to answer the questions: which sub-processes and results control the process, and which organisational areas are thereby involved? On the the subj subjec ectt of desi design gn,, impl implem emen enta tati tion on and and exec execut utio ion n of busin business ess rules rules defini defining ng the busine business ss trans transacti actions ons within within and between businesses and within the framework of supply chain management, as well as on various aspects of implementation of these business regulations in business information systems to support supply chain management, the book by Krichen and Jouida (2015 (2015), ), is to be particularly recommended. Proces Processs decom decompos positi ition on model modelss are clearl clearly y distin distingui guisha shabl blee from from process reference models, whose intention is significantly different from from the the form former er.. SC SCOR OR prov provid ides es a lang langua uage ge for for comm commun unic icati ation on between supply chain partners. Process decomposition models, howeve ever, are meant eant to obs observ erve a specia eciall confi configu gura rattion ion of pro proces cess elem elemen ents ts.. They They ther theref efor oree lack lack the the inte integr grat ativ ivee char charac acte ter, r, both both in terms of the business-internal supply chain, as well as the businessspanning supply chain.

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As a new application domain associated with the reference models the aforementioned Electronic Business has, in recent years, become increasingly important. These reference models for E-business can be simp simply ly desc descri ribe bed d as thos thosee mode models ls whic which h supp suppor ortt the the desi design gn of E-business systems. The SCOR model can thus also be understood as an E-business reference model, since its use may require, amongst other things, an extensive use of information technology. An interesting method of the classification and observation of reference models in the context of E-business can be found in Fettke and Loos (2003 (2003 & 2006 2006). ).

3.3.2 3.3.2 Objectives Objectives and and Structure Structure of of SCOR The main objective of the Supply Chain Council is the creation of an “ideal type” model of the supply chain, so to speak. For this purpose the members of the SCC defined the SCOR model as a standardised process reference model of the supply chain and continued its further development. In 2012, the SCC released the latest version, SCOR version 11.0 (cp. SCC 2012a SCC 2012a,, 2012b & 2012c 2012c). ). The application of SCOR is meant to enable a uniform description, analysis and evaluation of supply chains, across both businesses and industries. The model’s application lies in three basic tasks: • To evaluate evaluate and compar comparee the the perfor performan mance ce capaci capacity ty of (inter (internal nal)) supply chains. • To anal analy yse int integr egrated ated supp upply chai chain ns abov abovee and beyo eyond the involved partners and, if necessary, proactively optimise them. • To determine determine the appropriat appropriatee locations locations for the implementat implementation ion of application solutions and their functionality along the supply chain. The SCOR model has been developed and promoted by the Supply Chain Council as an industry-spanning standard for the management of supply chains. The SCC is significantly interested in the widest possible dissemination of SCOR in order to improve customer/supplier relationships as well as software systems, which can optimally support the members by means of the usage of common indicators and criteria. In addition to this, the SCC strives to achieve the early

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recognition and adoption of leading business practices, regardless of their origin. For further information on the SCOR model and its application, Bolstorff and Rosenbaum (2011 (2011)) and Poluha and Poluha (2007), (2007), are particularl ularly y recomm recommend ended. ed. The detail detailed ed descri descripti ption on of the SCOR SCOR model, as well as an overview and a brief description of the SCOR model are available on the website of the APICS Supply Chain Council: www.apics.org/sites/apics-supply-chaincouncil.. council Whilst a large part of the model’s underlying content has been successfully used and tested for many years by practitioners, it also provides a flexible framework of business processes, performance indi indica cato tors rs,, lead leadin ing g busi busine ness ss prac practi tice cess and and syst system em tech techno nolo logi gies es,, which are interlinked in accordance with the respective requirements. The result is a unified structure to support communication amongst supply chain partners, as well as to improve the effectiveness and efficiency of the supply chain planning and control. All users that implement SCOR are requested to refer to the SCC in documents or illustrations of the model, and in the case of its application. In addition to this, members are encouraged to regularly visit the website of the APICS Supply Chain Council (www.apics.org/ (www.apics.org/ sites/apics-supply-chain-council), sites/apics-supply-chain-council ), familiarise themselves with the latest information, and ensure they are working with the most current version of SCOR. With this the SCOR model represents, so to speak, the consensus of the SCC with regards to the management of the supply chain. The assumption underlying underlying the model is that each supply chain can, in principle, be identified by five fundamental processes, which are also known as Chevrons: in each of the four executive main processes cesses—P —Proc rocurem urement ent (Sourc (Source), e), Manufa Manufactu cturin ring g (Make) (Make),, Delive Delivery ry (Del (Deliv iver er), ), and and Rede Redeli live very ry (Ret (Retur urn) n)—m —mat ater eria ials ls or prod produc ucts ts are are proc proces esse sed d or tran transp spor orte ted. d. By comb combin inin ing g thes thesee proc proces esse sess into into a chain, chain, custom customer/ er/sup suppli plier er relati relations onship hips, s, among amongst st other other thing things, s, are defined. These have supply and demand balanced out for them by the fifth fundamental process, namely Planning (Plan). Putting all the

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main processes together is intended to result in a holistic model of the supply chain. In addi additi tion on to thes thesee fiv fivee main main proc proces esse sess whic which h make make up the the organi organisat sation ional al struct structure ure of the SCOR SCOR model model,, the follow following ing three three Process Types can be distinguished: • Planning: a plan plann ning elem elemen entt is a proc rocess ess which hich alig align ns the the expe expect cted ed reso resour urce ce requ requir irem emen ents ts with with the the expe expect cted ed dema demand nd conditions. Consequently, the planning processes balance out the aggregate demand over a given planning horizon and can contribute to the response time of the supply chain. They usually take place at regular intervals. This process type refers to the aforementioned basic process of planning. • Execution: execution processes are triggered by planned or actual dema demand nd and and chan change ge the the cond condit itio ion n of a prod produc uct. t. They They incl includ udee scheduling and sequencing, the change of materials and services and and the the move moveme ment nt of prod produc ucts ts.. This This type type of proc proces esss ther theref efor oree includes the aforementioned four main processes. • Enable, formerly Infrastructure : enabling processes are responsible ble for for the the pre prepar parati ation, on, care care and and cont contro roll of inform format atiion or relationships upon which the aforementioned planning and execution processes are based. The diagram below (Fig. 3.3 3.3), ), summarises the model structure in pictorial form. According to the diagram the first model includes a business’s own supply chain and its five basic processes. In addition, it can also

Fig. 3.3 Structure of the SCOR Model (cp. SCC 2008, p. 1.2.1)

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embrace the customer’s supply chains on the one hand as well as the suppli supplier’ er’ss on the other. other. Finall Finally, y, the suppli supplier’ er’ss own own suppli suppliers ers and customer’s own customers can be included. In this sense, the model includes all interactions with customers, from order entry through to the paid invoice. Furthermore, it can include all products, materials and services, from the suppliers of the suppliers to the customers of the custom customer, er, inclu includin ding g equipm equipment ent,, access accessori ories, es, spare spare parts, parts, and software. Finally, it covers all interactions with the market, beginning with the understanding of the total demand up to the fulfilment of the order. The notation of the model is firmly defined and follows consistent naming conventions for the basic processes: • • • • •

The lett letter er P stands stands for planni planning ng elemen elements ts ( Plan). The letter letter S stands stands for for procuremen procurementt elements elements (Source ). The letter letter M represen represents ts the manuf manufactur acturing ing element elementss ( Make). The lett letter er D stands stands for for deliver delivery y element elementss ( Deliver ). ). The letter letter R repres represents ents redel redelivery ivery elements elements ( Return).

The basic processes can be configured as enabling processes. In this this case case the resp respec ecti tive ve proc proces esss is prec preced eded ed by the the let letter ter E, indicating that it is an enabling element ( Enable ). Example: EP represents an enabling element within the planning process. Within the basic processes a universal structure also exists, whereby the model focusses upon the “product environment”, so to speak, as shown below and using the example of the manufacturing process ( Make ): • • • •

Stock Stock produc productio tion n ( Make-to-Stock )—M1. )—M1. Contra Contract ct manu manufact facturi uring ng ( Make-to-Order )—M2. )—M2. Cust Cu stom om Bu Buil iltt ( Engineer-to-Order )—M3. Engineer-to-Order )—M3. Merc Mercha hand ndis isee ( Retail Product )—M4. )—M4.

The terms terms procur procureme ement nt proces processs (Source ), and and deli delive very ry proc proces esss ( Deliver ), ), are classified accordingly. Only the return delivery process ( Return), diff differ erss from from this this and and is inev inevit itab ably ly char charac acter teris ised ed by the the following sub-processes:

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Defective Product Product —R1. • Return Defective Maintenance, Repair or Overhaul Overhaul —R2. • Return Maintenance, • Return Excess Excess Product Product —R3.

Within each section for the description of the planning and implement mentat atio ion n proc proces esse ses, s, the the asso associ ciat ated ed enab enabli ling ng elem elemen ents ts are are also also described. These will also have the same format as set out above for their description and graphical presentation. In addition to this and in SCOR’s case, we are dealing with a hierarchical model with several levels. The business’s supply chain itse itself lf repr repres esen ents ts the the outp output ut leve levell (lev (level el 1). 1). The The subs subseq eque uent nt main main proces processs level, level, e.g. e.g. Plan—P, repres represent entss the second second level. level. Beneat Beneath h this so to speak, follows the target object of the original main process, (Plan Supply Chain) . symbolised by a single digit. For example: P1— (Plan The exact number is derived from the respective position within the model structure. Level 1 metrics included in SCOR are: • • • • • • • • • •

Perfec Perfectt Order Order Fulfilm Fulfilment ent.. Order Order Fulfil Fulfilmen mentt Cycle Cycle Time. Time. Upside Upside Suppl Supply y Chain Chain Flexibili Flexibility. ty. Upside Upside Supply Supply Chain Adaptabi Adaptability lity.. Downside Downside Supply Supply Chain Chain Adapt Adaptabil ability. ity. Overal Overalll Valu Valuee at Risk. Risk. Total Total Cost Cost to to Serv Serve. e. Cash-t Cash-to-C o-Cash ash Cycle Cycle Time Time.. Return Return on Supply Supply Chain Chain Fixed Fixed Assets. Assets. Return Return on on Worki Working ng Capi Capital tal..

A level lower, that is, on the third level, there are the corresponding specific process steps, for example, P1.1—Identify, Prioritise, and Aggregate supply chain requirements . Furt Fu rthe herr leve levels ls,, that that is belo below w the the thir third d leve level, l, are are howe howeve ver, r, not not included due to their specialised nature and would contradict the idea of the SCOR model being independent of any particular branch of industry.

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) 2 . 2 . 1 . p , 8 0 0 2 C C S . p c ( l e d o m e c n e r e f e r s s e c o r p s s e n i s u b l a c i h c r a r e i h a s a R O C S 4 . 3 . g i F

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The processes from the fourth level onwards prove themselves to be so extremely industry-specific and with increasing levels even business-specific, that standardisation would not be sensible or practical, tical, and hardly hardly possi possible ble.. Theref Therefore ore,, the the fourt fourth h and all subseq subsequen uentt levels levels represent represent the subject subject of operation operational al implemen implementati tation on projects, projects, whereby the fourth level refers to Tasks, the fifth to Activities and the Instructions ions. The sixt sixth h to Instruct The diag diagra ram m abov abovee give givess a summ summar aris isin ing g ove overvie rview w of the relationships and the range of model coverage (see Fig. 3.4 Fig. 3.4). ). In addition to this there is the definition of indicators (Performance Indica Indicator tors), s), which which allow allow the basis basis for a perfor performan mance ce compar compariso ison n (Benchmarking), with businesses or supply chains within the same industry or from other industrial branches. The members of the SCC established the most effective business procedures for the main processes in order to achieve a high performance capacity, namely the aforementioned Best Practices, and integrated them into the model. Fina Finall lly, y, the the requ requir irem emen ents ts of IT appl applic icat atio ion n syst system emss were were adde added, d, which are known from experience to be helpful in implementing these practices. The performance indicators are, analogue to the process elements, also built up hierarchically. Although not explicitly shown in the model, they are typically allocated to the first level of the respective control process, (e.g. P1—Plan Supply Chain ), and stemming from there and following the hierarchy they are collated and assigned to the respective Planning, Execution and Enabling Elements.

3.3.3 3.3.3 Practical Practical Applicati Application on In summary it can be stated that the SCOR model has been developed with the intention of describ ribing the business activities of org organis anisat atio ion ns which ich refe referr to the supply pply chai chain, n, and and which ich are are connected with all phases that are traversed in order to satisfy customer requirements. By using the above-mentioned Process Modules and also by the use of universally valid definitions the model can serve to describe supply chains which are of a very simple or a very complicated nature. This allows disparate industrial branches to be linked, in order to reproduce the “depth” and the “width” of any given supp supply ly chai chain. n. The The mode modell has, has, in mult multip iple le prac practi tica call appl applic icat atio ions ns,, successfully contributed to the provision of a valuable basis for the

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improvement of the supply chain, both within a location-specific as well as a global perspective. One One of the the bigg bigges estt stre streng ngth thss duri during ng the the impl implem emen enta tati tion on of the the SCOR model within the framework of projects to analyse the supply chain (hereinafter simply referred to as SCOR Projects), is the reliability and predictability of temporal duration and costs. The initiation of SCOR projects depends primarily on the particular objective. Ther Thereb eby y the the foll follow owin ing g oper operat atio iona nall fact factors ors form form the the part partic icul ular arly ly important focal points: • Improv Improveme ement nt in the the share share pric price. e. • Increasing the financial financial resources available for the the implementation implementation of investment (e.g. IT investment). • Cost Cost reduct reduction ions. s. • Increasin Increasing g profits profits and margins. margins. • Optimi Optimisin sing g indust industria riall planni planning ng by using using an Enterprise Resource Planning system (ERP system in short). Operatio Operational nal planning planning and inventory inventory manageme management nt systems, systems, or Enter Enterpri prise se Resour Resource ce Planni Planning ng (ERP) (ERP) system systemss pursu pursuee the priprimary mary obje object ctiv ive, e, whic which h is to inte integr grat atee the the ofte often n func functi tion onal ally ly aligned solutions for the diverse business areas existing within this business, i.e. procurement, production, retail along with the associated data into a system and to make it centrally available. ERP systems represent, in this sense, transaction systems which mainly reflect the actual status and manage historical data (see for example Magal and Word 2012 Word 2012). ).

In addition to qualitative improvements such as improved communication between the operational and functional areas, a sequence of quantitative results were able to be achieved and proven (cp. Bolstorff and Rosenbaum 2011 Rosenbaum 2011,, pp. 15): • Improvem Improvement ent in operati operating ng profit profit by an average average of 3 % in the the initial initial phase of the project by reducing costs and improving customer service.

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• Two to sixfold sixfold return return on the projec projectt invest investmen mentt costs costs within within the first 12 months, often associated with improvements which were able to compensate for the costs within the first 6 months. • Reduction in expenditure on informati ation technology by minimising business-specific system adaptations (“cu (“cust stom omis isat atio ion” n”), ), and and the the bett better er use use of avai availa labl blee stan standa dard rd functionality. • Improv Improveme ement nt to the busines businesss results results by an averag averagee of 3 % in the initial project phase by means of cost reduction and an improvement in customer service. Another not directly quantifiable benefit is the industryindependent character of the SCOR model. This enables, amongst othe otherr thin things gs,, a comp compari ariso son n of the the proc proces esse sess of busi busine ness sses es with within in various industrial branches and the resulting process optimisation. In a review, the technology group Intel describes the benefits that have arisen within the context of the SCOR Initiative (cp. Intel (cp. Intel 2002). 2002). The advantages described are mainly qualitative in nature. The project team, which was originally responsible for the SCOR project, strongly encouraged the spread of the SCOR model for implementation across all areas of Intel’s supply chain. In this, a clear indication is seen that the team was convinced by the experience gained from the performance capability and the advantages of the model. Although difficult to measure, but still detectable and of great benefit, was the increase in knowledge of the project team members regarding the business and supply chain processes, as well as relationships and contexts within the supply chain. The application of the SCOR model is also considered by Intel to be positive in order to understand the basic connections with regards to a generally valid language convention, and the orientation towards a cont contin inuo uous us stru struct ctur uree to inte intern rnal alis isee them them.. The The invo involv lvem emen entt of representatives from the business areas is quoted by Intel as another big advantage. This enabled the risks associated with the unilateral implementation of projects for analysing and optimising the supply chain by the IT sector to be confronted. Finally, Intel quotes the central knowledge database which has arisen within the course of the project and is now an integral part of the corporate Knowledge Management (KM) of the Intel business, to be a further significant advantage. The part of the knowledge base,

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Practi Practical cal Exampl Examples: es: Analy Analysis sis and and Optimi Optimisat sation ion of Mater Material ial Flows Flows

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which was created and used for the SCOR projects, was also subsequen quentl tly y used used for for seve severa rall cros crosss-bo bord rder er proj projec ects ts.. This This incl includ uded ed,, amongst other things, an initiative for business process modelling in conjunction with the introduction of operational planning and the Enterprise Resource Planning system (ERP system). For a general introduction into the subject of Knowledge Management (KM), refer to Pasher and Ronen (2011 (2011)) and Dalkir und Liebowitz (2011 (2011); ); for a specific reference to KM in con junction with Supply Chain Management, Gattorna (2015), (2015), is particularly recommended. The view of the leading research firms such as the META Group (www.meta-group.com www.meta-group.com), ), extends in the same direction: the SCORbased performance comparison of supply chains is viewed as a good opportunity to provide businesses with valuable information in order to analyse and optimise their business processes. In particular, the usefulness of indicators is highlighted, which make it possible to compare the performance capacity of the supply chain with that of its competitors. In conjunction with this, Research companies highlight the special cial bene benefit fit in comp compari ariso son n to the the afor aforem emen enti tion oned ed Su Supp pply ly Ch Chai ain n Scorecard, which has been used up until now, whereby they categorise the latter as being rather one-dimensional and insufficiently integr integrate ated. d. Thus, Thus, the advant advantage agess and streng strengths ths of the indica indicator torss applied within the framework of the SCOR model gain a strong and clear emphasis.

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Practica Practicall Example Examples: s: Analysi Analysiss and Optimis Optimisatio ation n of Material Flows

As stated at the beginning of the chapter, the material and information flows and work processes are of crucial importance in supply chain management and integration within the concept for the design of business processes at the outset. An analysis and optimisation based upon them should therefore be carried out at regular intervals to ensure the desired effectiveness and efficiency of related processes in procurement, manufacturing, warehousing and logistics.

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The following shows an example of how an analysis and improvement of material flows can be carried out in practice (see Bolstorff and Rosenbaum 2011 Rosenbaum 2011,, pp. 17). There are similar approaches for the work processes and information flows. As was made clear in connection with the integration concept, it is necessary to consider and include all relevant factors for the optimal design of business processes, and thus on how best to achieve the business objectives.

3.4.1 3.4.1 Creating Creating an Inventory Inventory of Existing Existing Material Material Flows Flows In the analysis and description of the current actual material flows three points should mainly be noted: • Comp Compli lian ance ce with with the the requ require ired d prec precis isio ion n in the the pres presen enta tati tion on of details, i.e. ensuring the required level of detail. • Realistic Realistic represent representation ation of the physical physical locations locations in geographical geographical charts, for example, based on the types of processes on the second SCOR level. • Crea Creati tion on of a tabl tablee to illu illust stra rate te the the perf perfor orma manc ncee of the the mate materi rial al flows. The first task whilst analysing material flows consists of determining the level of detail in order to identify potential inefficiencies. Some factors that may assist in determining the reasonable accuracy are: • In the the case case of actu actual al valu values es,, it is ofte often n easi easier er to define define mate materi rial al flows in the form of a supply chain matrix, and carried out from a prod produc uctt pers perspe pect ctiv ivee (usu (usual ally ly in colu column mns) s),, and and not not from from the the custom customer’ er’ss persp perspect ectiv ivee (usual (usually ly presen presented ted in rows). rows). The reason reason for this is that physical locations, raw materials and major suppliers are listed mainly for products, not for customers. • The The level evel of the produ roduct ctss which ich are are to be cart carto ograp graph hicall cally y represented during this procedure plays an important role. A cartographic representation of the material flows at the level of inventory of stock is more labour-intensive than the ones on the level of the product group or product family. In order to emphasise the tactical and operational inefficiencies in services, transport costs, lead time and inventory range as widely as possible, the highest possible level should be used.

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Fig. 3.5 Example of a geographical chart based upon material flow types (cp. Bolstorff and Rosenbaum 2011 Rosenbaum 2011,, p. 253)

After the definition of the details the cartographic representation can be created. Usually, the physical locations and then the links of product families between these sites are drawn first, as shown in the figure above. There are two basic approaches to the creation of a cartographic representation: • By type of material material movement movement (input (input supplies, supplies, internal internal deliverie deliveriess betwee between n produc productio tion n sites sites or wareho warehouse uses, s, initia initiall delive deliverie riess and return deliveries). • Along Along the proces processes ses of the supply supply chain. chain. For many businesses, the creation of geographical charts to represent the material flows is the first in-depth examination of the efficiency of its material movements. The performance summary of the material flows therefore possibly represents the first attempt to quantify tify these these efficie efficienci ncies es and attach attach their their real real value. value. Experi Experienc encee has shown that during this task the support of the transport department and the logistics services is of great assistance (Fig. 3.5 3.5). ). A geographical chart with highlighted start and finish points for the delive deliverie riess from from the distri distribu butio tion n centre centress to the places places of custo customer mer

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ful fulfilm filment ent shou hould incl includ ude, e, for for exam examp ple, le, a list ist of its exis existi tin ng inef ineffic ficie ienc ncie ies. s. Su Such ch a char chartt can can prov provid idee valu valuab able le info inform rmat atio ion n to mana manage gers rs.. Othe Otherr char charts ts can can be deve develo lope ped d for for inte intern rnal al busi busine ness ss deliveries between the personal storage or manufacturing sites and for for inbo inboun und d ship shipme ment nts. s. Howe Howeve ver, r, they they are are not not able able to prov provid idee a deeper understanding of the details which are necessary to answer the ultimate question: what would be the (desired and undesired), consequences if the problems identified by, and represented in, the charts could be solved? Most project teams would probably prefer to make their material flow assessment based upon the established geographical charts. This rather superior view would, however, restrict the ability to make individual events or problems transparent and compare them. Another frequently observed preference is to wish to try and solve all material flow problems individually. This detailed view, however, severely limits the possibilities for observing the efficiency of the entire supply network. It is therefore important to ensure that neither of these two perspectives is neglected. When the geographical chart is complete, it is followed by the creation of the performance summary of the material flows in tabular form. The aim is to conduct a comprehensive analysis of possible performance indicators for each site. Frequently used indicators in terms of the procurement process include: • Punctuality and completeness completeness of deliveries deliveries by the product product supplier. supplier. • Su Supp pply ly of raw raw mate materi rial alss to stor storag agee and and prod produc ucti tion on site sites, s, and and in transit. • Transport Transport costs costs will be calcula calculated ted and charged charged in accordan accordance ce with incoming deliveries. • Durati Duration on of of order order backl backlogs ogs.. • Cycle time time for procurem procurement ent due to current current contract contractual ual agreement agreements. s. To align a supply chain strategy to effective material flows, knowledge edge and and expe experi rien ence ce as well well as coll collat ated ed and and comp compil iled ed fact factss are are necess necessary ary.. This This knowle knowledg dgee and experi experienc encee for the observ observati ation on of material flows is implemented from a superior perspective in order to understand to which extent they are consistent with the supply chain strategy and business practices. Contrarily, however, the facts are used in order to focus upon details and to examine, for example,

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how effective and efficient means of transport and capital are used to replenish the inventory in order to meet customer requirements. This part is inherently linked to working through large amounts of data. The main components of the table for the performance summary of the material flows are usually place names, profits, warehouse management costs, transportation costs, inventory value, punctual order fulfilment, throughput times and return delivery quotas. The diagram illustrates an exemplary table for a product group and three locations. The table in Fig. 3.6 expressively represents a summary. Each comp compon onen entt is, is, howe howeve ver, r, supp suppor orte ted d by deta detail iled ed info inform rmat atio ion. n. The The actual sales value of the deliveries for a particular delivery location is represented by the relevant sales data. Other possible details for inclusion in the analysis are the number of deliveries and the number of customers, for example, to represent places of fulfilment. The storage costs result from the materials and products that can be stored and moved. The two inventory categories that are shown in the table are raw materials or semi-finished and finished products. Transport costs are usually aggregated into three categories: • Freight Freight costs costs for inbound inbound deliveri deliveries es from suppli suppliers. ers. • Freight Freight costs between between own own locations, locations, that that is, the transportat transportation ion of goods between storage and/or production sites. • Freight Freight costs costs for outbound outbound delive deliveries ries to custom customers. ers. For each category the cost, weight and number of deliveries represent relevant information in order to assess the efficiency of freight movements. The cost per delivery and the number of deliveries which are necessary to fulfil a customer order in this case are critical factors for the performance measurement. The inventory level data can be catego categoris rised ed in accord accordance ance with with the produc productt type— type—raw raw materi materials als,, semi-finished and finished products. The annual cost of the products sold by product type (i.e. direct as well as indirect costs that occur whilst manufacturing end products), which are partially referred to as sales costs (i.e. direct and indirect costs incurred by a business to produce finished products), must be known in order to allow the calculation of the inventory coverage. The on-time performance rate is calculated for both inbound and outbound deliveries. Many businesses identify both the timely order

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) f f 6 4 2 . p , 1 1 0 2 m u a b n e s o R d n a f f r o t s l o B . p c ( s w o fl l a i r e t a m f o w e i v r e v o e c n a m r o f r e P 6 . 3 . g i F

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fulfilment (i.e. the complete and punctual performance of the sales order request), as well as the timely fulfilment of customer order items (i.e. the correct delivery of each respective item belonging to a single order). In this case they calculate the delivery time for all incoming purchase orders, internal transfer orders and outgoing sales orders. The data compiled for this part of the table includes both the duration of the on-time order fulfilment as well as the duration of any backorders. The return delivery data embraces the total cost of returned products, the value of the inventory, the inventory coverage based on the annual cost of sales, as well as the cargo weight of redelivery and the resulting shipping costs.

3.4.2 3.4.2 Performin Performing g a Material Material Flow Bottlene Bottleneck ck Analysis Analysis The The anal analys ysis is of mate materi rial al flo flow w bott bottle lene neck ckss conc concen entr trat ates es upon upon the the identification of events, inefficiencies and problems with regards to the movement of goods—from suppliers through the business and up to the custom customer, er, in other other words words:: throug throughou houtt the comple complete te supply supply chain. Forr a thor Fo thorou ough gh and and usef useful ul repr repres esen enta tati tion on of a bott bottle lene neck ck it is necessary to describe one in a complete and easily understandable sentence, create a direct reference to current and real-world examples (designation of a product, suppliers, customers, etc.), and to assess the frequency of the occurrence. A good problem representation usually includes three sentences: one to describe the problem, another to describe the effects by means of an example, and a third listing the indicator/s of the performance summary of the relevant material flow, upon which the problem could possibly have an effect. An effective and simple system within this task consists of the allocation of a number to each problem category (1, 2, etc.), a second number for each sub-category (e.g. 1.1, 1.2, etc.), and a third number for each bottleneck (1.1.1, 1.1.2), and so on. The table in Fig. 3.7 below shows an exemplary template for the documentation options of the data collected. Listed below are two examples to illustrate the possible material flow flo w bott bottle lene neck ck cate catego gori ries es,, incl includ udin ing g prob proble lem m desc descri ript ptio ions ns and and associated metrics:

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Fig. 3.7 Template for summary of bottlenecks (cp. Bolstorff and Rosenbaum 2011,, p. 73 ff) 2011

• Bottlenec Bottleneck k category category 1.1: inaccurate forecasts of operations due to a lack of reliable market information, weak demand signals for many product variants and inadequate data integrity. The results are excess inventories and lost sales opportunities. Forr exam Fo exampl ple, e, a prod produc uctt is fore foreca cast st too too low, low, alth althou ough gh a high higher er demand for it exists, whilst another article is forecast too high, although only a small demand is present for it. The relevant indicators in this case being: forecast accuracy, delivery performance (date, etc.), sales, transportation costs, and inventory. • Bo Bott ttle lene neck ck cate catego gory ry 1.2: 1.2: inef ineffic ficie ient nt good goodss tran transf sfer er betw betwee een n wareho warehouse usess and/or and/or incor incorrec rectt adjust adjustmen mentt to the invent inventor ory. y. The results are longer lead times and inefficient use of existing stocks. Thus, for example, finished products are transported from one location to another in order to allow the recovery of the local inventory in response to reported backlogs. The products in question may actually already be present in large quantities, and the backlogs relate, in actual fact, to other articles. The The rele releva vant nt indi indica cato tors rs in this this case case bein being: g: sale sales, s, inve invent ntor ory, y, transportation costs and warehouse management costs.

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Many individual bottlenecks are conceivable under each bottleneck or problem category. Listed below are several examples of possible individual bottlenecks. With reference to bottleneck Category 1.1—inaccurate forecasts of the business units: • Bottlenec Bottleneck k 1.1.1: 1.1.1: the forecasts forecasts for new product productss are often inaccuinaccurate and result in lost sales. • Bottlenec Bottleneck k 1.1.2: 1.1.2: incorrect incorrect forecast forecastss for new products products.. • Bottle Bottlenec neck k 1.1.3: 1.1.3: inade inadequa quate te market market inform informati ation on for foreca forecasti sting ng new products. • Bottlenec Bottleneck k 1.1.4: a forecast forecast at product-fami product-family ly level offers offers insuffiinsufficient support, given the variety of available inventory products. • Bottleneck 1.1.5: the growth growth rate of new products is not not included included in the sales plans and forecasts. • Bottle Bottlenec neck k 1.1.6: 1.1.6: too much depende dependence nce upon the forecast forecastss of the distribution function for new products and lack of involvement of strategic market forecasting. • Bottleneck 1.1.7: discrepancies between the sales forecasting, marketing forecasts, and forecasts of the relevant business areas. • Bottleneck 1.1.8: errors in data processing, processing, leading leading to further errors errors in the planning and procurement to production (for manufactured products), or suppliers (for related articles). • Bottlenec Bottleneck k 1.1.9: 1.1.9: spare parts parts are not forecast forecast as a separate separate product product demand, but there is an assumption that these are covered by the existing forecasts. • Bottleneck 1.1.10: lack of transparency with regard regard to the influence influence of return shipments to the (adjusted) sales to end customers and intermediaries.

3.4.3 3.4.3 Creating Creating Cause Cause and Effect Effect Diagrams Diagrams At the next stage, the above bottleneck categories are to be consolidated into unique and unambiguous problem statements. The following statements could arise from the previously listed bottleneck categories 1.1 and 1.2:

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• Poor invento inventory ry planning: planning: the problem problem lies in a purely operatio operational nal and reactive management of inventories and replenishment orders. • Inaccu Inaccurat ratee foreca forecasts sts:: this this proble problem m lies lies in insuffi insufficie cientl ntly y defined defined business business practices practices,, non-opti non-optimis mised ed forecasti forecasting ng methods, methods, and the lack of personnel knowledge in the fields of marketing and sales planning. One method which may be used for structuring the problem causes and their consequences is, for example, a method named after its inventor, Kaoru Ishikawa, which is also known as cause-and-effect based d upon upon the the visu visual alis isat atio ion n of a prob proble lemm-so solv lvin ing g diagram . It is base process, with the help of which the primary causes of a particular problem are sought after, and which is often quoted as one of the so-called seven quality tools. For a comprehensive and current introduction into the topic of quality management and related topics, such as Total Quality Management (TQM), amongst others Goetsch and Davis (2014 ( 2014), ), and Pyzdek and Keller (2013 (2013), ), can be recommended. The starting point is a horizontal arrow pointing to the right and whic which h has, has, at its its end, end, a prob proble lem, m, whic which h shou should ld be as conc concis isel ely y formulated as possible (e.g. a high rate of error during a certain oper operat atio ion) n).. From From abov abovee and and belo below w this this arro arrow, w, othe otherr diag diagon onal al “cause” arrows are aimed at it, which are also responsible for the alternative and widely spread name given to the diagram, namely the The main main arro arrows ws usua usuall lly y refe referr to the the basi basicc Fishbone Diagram. The material ial,, machi machine, ne, metho method d and man. man. Other categorie categoriess of mater Other typical typical environ ronmen ment, t, busin business ess,, measur measureme ement nt and categories are the envi processes. Horizontal arrows now point at these main arrows, upon which the uncovered problem areas are marked. Within the diagonal and horizontal arrows one is, in stages, able to search for gradually deepening consecutive ive caus causes es.. As a gene genera rall rule rule,, the the tech techni niqu quee of the the five consecut questions is applicable here, whereby based upon experience it is assumed that under certain circumstances one must pose up to five selective questions asking why, in order to reach the actual root of the problem.

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Fig. 3.8 Template for cause and effect diagrams

The Fig. 3.8 Fig. 3.8 above above shows a template representing the starting point for a cause-and-effect diagram. The individual problem statements, i.e. the effects, form the starting point in this case (right side of the chart). In the first stage, the cause on a higher level is named ( Cause 1 in the diagram), and then a deeper level follows ( Cause A). One should try, in every case, to attain the second level of the causehierarchy (e.g. Cause A.1).

3.4.4 3.4.4 Developin Developing g Concrete Improvem Improvement ent Proposals Proposals The The fin final al step step is to quan quanti tify fy the the pote potent ntia iall for for impr improv ovem emen ent. t. The The quantification procedures used for this may be based, for example, upon the following five fundamental principles: • Whilst dealing with the level of improvements, realistic assumptions should be used with regards to the actual level of improvement, so that unrealistic expectations may be avoided. • The assessment assessment of the impact impact of projected growth growth is based upon upon the assum assumpti ption on that that sales sales remain remain consta constant nt in the releva relevant nt financi financial al period. The improvements can be approximately calculated upon

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an annual basis and the profit growth may be illustrated by the use of the sales growth (i.e. a linear profit development is presumed). • The assess assessmen mentt of the quant quantita itativ tivee value value for the elimina eliminatio tion n of a problem statement should take place, with the inclusion of the locations and measurements from the table for the performance summary of the material flows. • Before Before publication publication of the figures figures and assumption assumptions, s, all employees employees who may contribute to a conscientious examination and objective validation should be identified and involved. The resulting benefit aspects concern both the content substance and the change process. On the the one one hand hand,, the the qual qualit ity y is impr improv oved ed with with rega regard rdss to the the validity and reliability of the figures, and on the other, the involvement of all relevant employees of the organisation is made possible, which also provides an insight into the project activities. • All presump presumptio tions ns with respect respect to the estimat estimated ed values values should should be clearly documented. This principle is of great importance, because doubts about the potential improvements are known to be far more common due to missing or unclear assumptions, than to the actual number of the values. The possibilities to document the improvements vary from sophisticated tools for supply chain modelling and simulation, to simple spreadsheets. The real challenge is rather to determine which financial implications a value possesses upon the profit and loss accounting and the balance sheet, as a result of the elimination of a problem stat statem emen ent, t, and and rega regard rdle less ss of the the appl applic icat atio ion n used used.. It is ther theref efor oree unders understan tandab dable le that that employ employees ees often often have have difficu difficulti lties es with with these these assessments. To make this task easier, a rounding-up or roundingdown to whole $50,000 or $100,000, may take place. An additional assistance during this task may be to determine a value value for every cause cause on the lowest lowest level, level, and then then to calculate calculate a grand grand total total of the the indivi individua duall values values for the respec respectiv tivee causecause-and and-ef -effec fectt diagram, and associated problem statement. In other cases, however, it may be advantageous to directly determine an overall value for the enti entire re char chartt or prob proble lem m stat statem emen ent. t. Prov Provid ided ed the the assu assump mpti tion onss are are documented in detail for this purpose, both approaches are acceptable. For many businesses it is often the first time that the skills and methods for management of their supply chain are studied in detail.

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This approach has the primary purpose of providing a reference base, which can later be used to measure the achieved improvements. The degree of difficulty in the assessment of opportunities for improvement depends to a large extent upon the experience of the project members, as far as their cost accounting is concerned. Because the performance within the supply chain often involves widely embracing as well as cross-sectioning tasks, a cost allocation to internal cost centres proves itself difficult. In addition to this, a transparency of the allocation of costs at intra- and inter-enterprise level is not always given. Due to this, and as well as the classic assignment of costs to cost centres, the previously mentioned activity-based costing has gained in importance in recent years. This fact applies particularly to logistic services. The focal point of activity-based costing is the attempt to identify cost-relevant factors and cost drivers. During this process, a distinction is made between volume-based and performance-based cost cost driv driver ers. s. The The allo alloca cati tion on of the the prod produc uctt over overhe head adss of indi indire rect ct activity areas to the manufactured products takes place, not on the basis of value-based reference figures, but according to the activities required for manufacturing (processes and activities), and taking into acco accoun untt the the refe refere renc ncee fig figur ures es that that influ influen ence ce the the proc proces esse sess (cos (costt drivers). The goal is to ultimately determine the cost per process execution, whereby the relevant basic data stems from the individual activities of the respective processes. Despite their progressive status, techniques such as activity-based costing are, at best, an approximate assessment of the opportunities for improv improvem ement ent.. Using Using the bottl bottlene eneck ck catego category ry presen presented ted at the beginning of Sect. 3.4.3 ( poor inventory planning), the following could, for example, be identified as possibilities to increase profits, which result from the elimination of the associated problem statement by improving the relevant material flows: • Reduction Reduction of of the inactive inactive invento inventory ry by a certain certain percentage percentage.. Based upon inventory write-offs, the resulting cost savings within the first year mainly have to do with the working capital. In the second year, however, the cost savings affect the profits in the majority of cases, because write-offs do not take place.

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• Reduction Reduction of inactiv inactivee stocks in the warehous warehouses es by optimisin optimising g the sales and production planning processes, in order to comply with the requirements of the competition with regards to inventories and to reduce the inventory range by a certain number of days. • Perm Perman anen entt and and imme immedi diat atee avai availa labi bili lity ty of accu accura rate te inve invent ntor ory y figures. This allows time for the multiple processing of an order, the shipment of inventory transfer orders, and the reduction in the notification of field service employees. It is frequently possible to eliminate a large number of problem statements and cause-effect-diagrams cause-effect-diagrams by the introduction introduction of relatively few, few, but but ther theref efor oree farfar-re reac achi hing ng,, chan change ges. s. Howe However ver,, ther theree are are no general rules for the duration of the development and implementation of future solutions. This depends largely upon the scope and complexity of the relevant problems. From From expe experi rien ence ce,, the the use use of lead leadin ing g busi busine ness ss prac practi tice cess (Bes (Bestt Practices) provides great assistance in the development of solution approaches. With regards to the above-mentioned bottleneck category or problem statement ( poor inventory planning), such a solution proposal could consist of the implementation of the aforementioned Collaborative Planning, Forecasting and Replenishment concept of Collaborative (CPFR), in order to improve the material flows (please refer to Sect. 2.2). 2.2 ). This in turn can result in the following potential measures for shaping future material flows: • Shor Shorte teni ning ng lead lead time timess by mean meanss of impr improv ovem emen ents ts to inve invent ntor ory y aggregation and storage techniques. The aims are to increase the reliability of supply and to reduce transport costs. • Co Cond nduc uctt an incre ncreas ased ed num number of dire direct ct deli eliverie eriess fro from the supp suppli lier erss to the the ware wareho hous uses es of cert certai ain n reta retail il cust custom omer ers. s. This This would mean a change in the connecting lines in the geographical cha charts rts. In futu future re char chartts, the the res respect ective ive mater ateria ialls woul ould be transported directly from the supplier to a regional warehouse of a fin final al cust custom omer er (i.e (i.e.. the the pare parent nt busi busine ness ss is no long longer er dire direct ctly ly involved in the flow of materials). This would replace the prior approach of using several warehouses and only delivering to the location of the end customer at the final stage. • Opti Optimi misi sing ng the the mate materi rial al flo flow w for for retu return rned ed good goods. s. Befo Before re the the changes, all return deliveries were transported from the sites of

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Fig. Fig. 3.9 3.9 Example of bottleneck-potential-matrix (cp. Bolstorff and Rosenbaum 2011,, p. 129 ff) 2011

the customer to the closest warehouse of the parent business. In future charts, the returned goods would at first be consolidated in a regional warehouse of the customer, in order to then be transported to a central warehousing facility of the parent business, which functions as a focal point for the acceptance of all return deliveries. Sinc Sincee ther theree can can be a vari variet ety y of solu soluti tion onss for for each each bott bottle lene neck ck catego category ry and proble problem m statem statement ent,, and experi experienc encee has furthe furthermo rmore re shown that a variety of bottleneck categories and problem statements exist, the solution proposals must be conclusively prioritised. For this purp purpos ose, e, the the crea creati tion on of a Bottleneck-Potential-Matrix can prove prove itself to be of ideal assistance. This matrix typically consists of four quadrants or areas in which the projects are positioned based upon the level of difficulty of their implementation and their expected benefits, as illustrated in Fig. 3.9 above. It is recommended to first tackle projects whose benefits are high and whose level of difficulty is low—in the illustrated example, these projects are the number 2. As alread already y mentio mentioned ned,, consid considera eratio tion n should should really really be given given to including the proposals for improving the material flows into the analys analysis, is, in additi addition on to the develo developed ped sugge suggesti stions ons for improv improving ing

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workflows and information flows. The resulting list can be used as a basis for the implementation of improvement projects with a 6 month payback period. The achievements reached herewith can then be used to launch further initiatives, with which the goal is to achieve higher returns on investment over a longer period.

References Askarany, D., Yazdifar, H., & Askary, S. (2010). Supply chain management, activity-based costing and organisational factors. International Journal of Production Economics, 127 (2), (2), 238–248. Bogan, C. E., & English, M. J. (2014). Benchmar Benchmarkin king g for best best practi practices ces:: Winning through innovative adaptation. New York: McGraw-Hill. Bogetoft, P. (2012). Performan Performance ce benchmark benchmarking: ing: Measuring Measuring and managing managing performance (management for professionals). Heidelberg: Springer. Bolstorff, P. A., & Rosenbaum, R. G. (2011). Supply Supply chain chain excell excellenc ence: e: A hand handbo book ok for for dram dramat atic ic impr improv ovem emen entt usin using g the the SCOR SCOR mode modell (3rd (3rd ed.). ed.). New York: AMACOM. BottaBotta-Gen Genoul oulaz, az, V., Campag Campagne, ne, J.-P., J.-P., Lleren Llerena, a, D., & Pelleg Pellegrin rin,, C. (2010) (2010).. Supply Supply chain chain perfor performan mance: ce: Collab Collabora oratio tion, n, alignm alignment ent,, and coordi coordinat nation ion (control systems, robotics and manufacturing series). London: Wiley. Cecere, L. M. (2015). Supply chain metrics that matter . Hoboken, NJ: Wiley. Chopra, S., & Meindl, P. (2015). Supply chain management: Strategy, planning & operations (6th ed.). London. Dalkir, K., & Liebowitz, J. (2011). Knowledge management in theory and practice. Boston, MA: MIT Press. Damelio, R. (2011). The basics of process mapping (2nd ed.). Boca Raton, FL: CRC Press. Dimon, R. (Ed.). (2013). Enterprise performance management done right: An operating system for your organisation. Hoboken, NJ: Wiley. Dumas, M., La Rosa, M., Mendling, J., & Reijers, H. A. (2013). Fundamentals of business process management . Heidelberg: Springer. Fettke, P., & Loos, P. (2003). Classification of reference models: A methodology and its application. Information Systems and E-Business Management, 1 (1), 35–53. Fettke, P., & Loos, P. (2006). Reference modelling for business systems analysis. Hershey, PA: IGI Publishing. Franz, P., & Kirchmer, M. (2012). Value-driven business process management: The value-switch for lasting competitive advantage. New York: McGraw-Hill. Gardiner, P. D., & Simmons, J. E. L. (2006). Performance measurement tools: The balanced scorecard and the EFQM excellence model. Measuring Business Excellence, 7 (1), (1), 14–29.

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Gardner, D. J. (2009). Mass customisation: How build to order, assemble to order, configure to order, make to order, and engineer to order manufacturers increase. Cupertino, CA. Gattorna, J. (2015). Dynamic supply chains: How to design, build and manage people-centric value networks (3rd ed.). Upper Saddle River, NJ: FT Press. Gilbert, X., & Strebel, P. (1987). Strategies to outpace the competition. Journal of Business Strategy, 8(1), 28–36. Gleissner, H., & Femerling, J. C. (2014). Logistics: Basics – exercises – case studies (Springer Texts in Business Business and Economics). Economics). Heidelberg: Heidelberg: Springer. Springer. Gude Gudehu hus, s, T., T., & Kotz Kotzab ab,, H. (201 (2012) 2).. Comprehens Comprehensive ive logistics logistics (2nd (2nd ed.) ed.).. Heidelberg: Springer. Hiatt, J., & Creasey, T. (2012). Change management: The people side of change (2nd ed.). Loveland, CO: Prosci Research. Imai, M., & Gemba, K. (2012). A common sense approach to a continuous improvement strategy (2nd ed.). New York: McGraw Hill. John Johnst ston on,, G. (201 (2012) 2).. Busin Busines esss proc proces esss reen reengi gine neer erin ing: g: A simp simple le proc proces esss improv improveme ement nt approa approach ch to improv improvee busine business ss perfor performan mance ce (The Business Business Productivity Series Book). Seattle, Washington. Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Boston, MA: Harvard Business School Press. Kric Kriche hen, n, S., S., & Joui Jouida da,, S. B. (201 (2015) 5).. Supp Supply ly chai chain n mana manage geme ment nt and and its its applications in computer science (1st ed.). Hoboken, NJ: Wiley. Lamb Lamber ert, t, D. M. (Ed.) Ed.).. (201 (2014) 4).. Suppl Supplyy chai chain n mana manage geme ment nt:: Proc Proces esse ses, s, partnerships, performance (4th ed.). Sarasota, FL: Supply Chain Management Institute. Lawrie, G., Kalff, D., & Andersen, H. (2005). Balanced scorecard and resultsbased management— management—Conv Convergen ergentt performanc performancee management management systems. systems. Business Systems Review 1(1). ISSN: 2280-3866. Magal, S. R., & Word, J. (2012). Integrat Integrated ed business business processes processes with ERP systems (1st ed.). Hoboken, NJ: Wiley. Marr, B. (2012). Key Performance Indicators (KPI): The 75 measures every manager needs to know (1st ed.). Harlow: Financial Times Series. Mocciaro Li Destri, A., Picone, P. M., & Mina` , A. (2012). Bringing strategy back into financial systems of performance measurement: Integrating EVA and PBC. Business System Review, 1(1), 85–102. Panagacos, T. (2012). The ultimate guide to business process management: Everything you need to t o know and how to apply it to your organisation. Scotts Valley, CA: CreateSpace Independent Publishing Platform. Parmenter, D. (2015). Key performance indicators: Developing, implementing, and using winning KPIs. Hoboken, NJ: Wiley. Pasher, E., & Ronen, T. (2011). The complete guide to knowledge management: A strategic plan to leverage your company’s intellectual capital. Hoboken, NJ: Wiley.

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PMG (Performance Measurement Group) (Ed.). (2002). Achieving delivery performance: Linking strategy, capabilities, and results. Signals of Performance 3(4). Poluha, R. G. (2001). SCM in der Praxis – Projektmanagement komplexer SCM Projekte. In O. Lawrenz et al. (Eds.), Supply chain management. Konzepte, Erfahrungsberichte und Strategien auf dem Weg zu digitalen Wertschopo€p fungsnetzen (2nd ed., pp. 311–327). 311–327). Braunschweig Braunschweig and Wiesbaden: Wiesbaden: Vieweg (German Edition). Pyzdek, T., & Keller, P. (2013). The handbook for quality management: A complete guide to operational excellence (2nd ed.). New York: McGrawHill. Scheer, A.-W. (1994). Busines Businesss process process engineerin engineering: g: Reference Reference models models for industrial enterprises (2nd ed.). Berlin: Springer. SAP (Ed.). (2004). PRTM/SAP benchmarking study 2002–2003: Supply chain planning. Walldorf. SCC (Supply-Chain Council) (Ed.). (2008). Supply-chain operations reference model: Overview of SCOR Version 9.0. Washington, DC: APICS. SCC (Supply-Chain Council) (Ed.). (2012a). Supply-chain operations reference model revision 11.0. Washington, DC: APICS. 2012/1. SCC (Supply-Chain Council) (Ed.). (2012b). Supply Chain Council publishes SCOR 11. Washington, DC: APICS. 2012/2. SCC (Supply-Chain Council) (Ed.). (2012c). SCOR 11 quick reference guide. Washington, DC: APICS. 2012/3. Seuring, S., & Goldbach, M. (Eds.). (2010). Cost management in supply chains. Berlin: Physica-Verlag. Sherry, K. J. (2012). BPMN pocket reference: A practical guide to the international business process model and notation standard BPMN version 2.0. Seattle, WA: Createspace Independent. Shim, J. K., & Siegel, J. G. (2009). Modern cost management and analysis (3rd ed.). Hauppauge, Hauppauge, New York: Barron’s Barron’s Educational Educational Series. Velmurugan, M. S. (2010). The success and failure of activity-based costing systems. Journal of Performance Management, 23(2), 3–33. Wats Watson on,, G. H. (200 (2007) 7).. Strat Strategi egicc benchm benchmark arking ing reload reloaded ed with with six sigma: sigma: Improving your company’s performance using global best practice (2nd ed.). Hoboken, NJ: Wiley. Zimmermann, K. (2010). Using the balanced scorecard for interorganisational performance management of supply chains—A case study. In S. Seuring & M. Goldba Goldbach ch (Eds.) (Eds.),, Cost Cost manage managemen mentt in supply supply chains chains (pp. 399–416). 399–416). Berlin: Springer. Zhu, Zhu, J. (201 (2014) 4).. Quan Quanti tita tati tive ve mode models ls for for perf perfor orma manc ncee eval evalua uati tion on and and benchm benchmark arking ing:: Data Data envelo envelopme pment nt analys analysis is with with spread spreadshe sheets ets (3rd (3rd ed.). ed.). Heidelberg: Springer.

4

Innovative Concepts for Supply Chain Design and Optimisation

Supply chain design, planning and operation decisions play a significant role in the success or failure of a business. To stay competitive, supply chains must adapt to changing technology and customer expectations. (cp. Chopra and Meindl 2015 Meindl 2015,, p. 18).

4.1 4.1

Flexi Flexibl ble e Busine Business ss Proc Proces esses ses Using Using Adapt Adaptiv ive e Supply Chains

Since about the year 2000 it has become clear for many businesses, especially those in the fields of the manufacturing industry and the wholesale/retail trade, that in the present competitive environment the perf perfor orma manc ncee and and ef effic ficie ienc ncy y of the the supp supply ly chai chain n ar aree nece necess ssar ary y cond condit itio ions ns for for the the busi busine ness ss to succ succee eed. d. To assi assist st in ensu ensuri ring ng that that these conditions are supported, adaptable supply chains or adaptive adaptive supply supply chains chains are being discussed lately. Terms such as adaptive networks, agile supply chains and adaptive business networks may be found for this purpose. With With regards regards to the conditio conditions ns and peculiar peculiaritie itiess of adaptive adaptive supply chains, the book by Claus Heinrich and Bob Betts is particularly reco re comm mmen ende ded d (see (see Hein Heinri rich ch and and Bett Bettss 2003 2003). ). In addi addittion ion, ther theree ar aree a number of interesting articles on the subject, such as Colehower (continued)



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Inno Innova vati tive ve Conc Concep epts ts for for Supp Supply ly Chai Chain n De Desi sign gn and and Opti Optimi misa sati tion on

etal.(2003 etal.(2003), ), Ho Holc lcom omb b et al al.. (2 (200 003) 3),, Radjou et al. (2002 2002), ), and and Sega Segall (2003 2003). ). Although most of them are several years old, the practical imp impleme lement ntat atio ion n with within in busi busine nesse ssess is stil stilll at a relat relativ ivel ely y ea earl rly y stag stage. e.

4.1.1 Combining Planning, Procurement, Procurement, Manufacturing Manufacturing and Distribution Processes into an Integrated Business Process The adaptive supply chains are presently in the process of replacing the originally illustrated, traditional linear supply chain concept and the further advanced, dynamic supply chains. They possess the flexibility to continuously adapt to changing market requirements and thus respond to the environmental variables in an optimal manner, i.e. with maximum efficiency and in real time. In order to meet these requirements, they combine planning, procurement, manufacturing and distribution processes into integrated business processes and provide supply chain networks with real-time information. This feature enables faster decisions and their efficient and effective execution. IT systems supporting SCM try, amongst other things, to display the state of the supply chain in or at least close to real-time. For this purpose, data required with regards to demand, condition, location, etc. of materials and products along the supply chain aree re ar reco cord rded ed at ce cert rtai ain n prepre-de dete term rmin ined ed poin points ts.. This This ca can n take take plac placee for for inst instan ance ce by scan scanni ning ng an indi indivi vidu dual al bar bar code code or by means of identification with the aid of electromagnetic waves (so-called Radio Frequency Identification or RFID RFID). The combination of these real-time data stored in IT systems as part of an event-driven supply chain is called Supply Chain Event Management (SCEM) (see for this purpose e.g. Ijioui e.g. Ijioui et al. 2010, 2010, and Otto 2003 Otto 2003). ). The The conv conver ersi sion on of a trad tradit itio iona nall supp supply ly chai chain n into into an adap adapti tive ve network makes it necessary to review the business processes of the supply chain and undertake changes if necessary in order to remain

4.1 4.1

Flex Flexib ible le Busi Busine ness ss Proc Proces esse sess Usin Using g Adap Adapti tive ve Supp Supply ly Chai Chains ns

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competitive. The supply chain is then no longer a static system, but rather a dynamic, constantly changing and adapti ptive highperformance network. The changes in market conditions determined by the internet play a major role, and the result must be seen in contex contextt with with the curren currently tly availa available ble inter internet net-ba -based sed optio options. ns. From From this the following characteristics can be derived: • Event driven: in this case, the afore-mentioned principle of control by means of demand pull comes into play, which is supported by information technology • Business-related : in this this ca case se,, one one unde unders rsta tand ndss the the foca focall poin pointt which lies upon the components of the integration concept for the the desi design gn of the the busi busine ness ss proc process esses es whic which h was was intr introd oduc uced ed in the the first first chap chapte ter. r. Influ Influen enci cing ng fa fact ctor orss ar are: e: huma human n re reso sour urce ces, s, organisation and information technology, business goals, business strategies, and business guidelines, as well as the business context (industry, etc.) • Self-regulating : with the use of suitable application solutions the supply chain may be continuously adapted to the actual demand in order to proactively avoid supply shortages, as well as the occurrence of surplus materials The The foll follow owin ing g diag diagra ram m illu illust stra rate tess a simp simpli lifie fied d re rela lati tion onsh ship ip in grap graphi hica call form form.. All All the the prop proper erti ties es ment mentio ione ned d must must be pres presen entt in order to constitute an adaptive supply chain (Fig. 4.1 4.1). ). Taking into consideration the business process-orientated description of E-Business presented in Sect. 2.2.1 Sect. 2.2.1 (cp. (cp. Poluha Poluha 2007, 2007, p. 15), the following definition of the term can be made: Adaptive supply chains or electr electroni onicc busine business ss networ networks ks are business-based, event-driven and self-regulating. They are based on a supply chain integrated by means of information technology, in whic which h the the flow flow of info inform rmat atio ion n betw betwee een n the the vari variou ouss supp supply ly chai chain n partners represents the integration factor. For this purpose, several and up to all supply chain relevant business processes within the business, between the business and its partners, as well as between the business and third parties (for example government organisations), are completely or partially implemented using electronic communications networks and supported by the use of suitable IT systems and application solutions.

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Characteristics of an adaptive supply supply chain (cp. Radjou et al. 2002 al. 2002,, p. 3) Fig. 4.1 Characteristics

All represented properties stand in conjunction with the introduction of appropriate information technologies, or may even cause them to be urgently required. Section 4.1.3 4.1.3 will will deal with these aspects in greater detail. First, however, we will study how adaptive supply chains may be put into practice.

4.1.2 4.1.2 Practical Practical Impleme Implementat ntation ion of Adaptive Adaptive Supply Networks The The impl implem emen enta tati tion on of adap adapti tive ve supp supply ly chai chains ns is base based d upon upon an existing supply chain and can be graphically presented in the form of a gradual process (cp. Heinrich and Betts 2003 2003,, pp. 79): • Firs Firstt stag stage: e: Transparency (Visibility): The exchange of information and the handling of standard processes for routine transactions with the supply chain partners. The exchange of information by means of internet-based technology. Furt Furthe herr insi insigh ghtt oppo opport rtun unit itie iess into into busi busine ness ss proc proces esss and and data data problems. • Seco Second nd stag stage: e: Supply Chain Community: Sett Settle leme ment nt of re regu gula larl rly y re recu curr rrin ing g tran transa sact ctio ions ns by mean meanss of so-c so-cal alled led portals (virtual marketplaces that allow users to handle electronic

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transactions), introducing minimum and maximum control values (e.g. for inventory), reduction of inventory levels and increased efficiency of processes through automation. • Thir Third d stag stage: e: Collaboration: Exchange of customer demand information amongst supply chain partne partners, rs, for exampl example, e, by joint joint order order plann planning ing or Collab Collabora orativ tivee Orde Orderr Plan Planni ning ng (i.e (i.e.. the the exch exchan ange ge of orde orderr and and plan planni ning ng data data between different participants within the supply chain). Establishment of targets to rebuild stocks (e.g. by use of the aforementioned concep conceptt of Collab Collabora orativ tivee Plann Planning ing,, Foreca Forecasti sting ng and Replen Replenish ish-ment). Transfer of responsibility for the replenishment of stock to the suppl supplier ierss (for (for this this purpo purpose, se, the the conce concept pt of Supp Suppli lier er Manag Managed ed Inven Invento tory ry or Vendo Vendorr Manag Managed ed Inve Invent ntor ory, y, abbre abbrevi viate ated d to SMI SMI or VMI, VMI, ca can n be appl applie ied) d).. Usin Using g the the poss possib ibil ilit ity y of exac exactt inve invent ntor ory y allo alloca ca-tion tion in orde orderr to fulfi fulfill ll the the comp comple leti tion on of a maxi maximu mum m numb number er of orde orders rs.. Adaptability: • Four Fourth th stag stage: e: Adaptability: Significant shortening of the process times often eliminating stages of work. Significant reduction of inventories and working capital. Opening new market opportunities using strategic partnerships and the accelerated introduction of new products. The concept of Vendor Vendor Managed Inventory (VMI) or Supplier Managed Inventory (SMI) are logistical means to improve the perf perfor orma manc ncee of the the supp supply ly chai chain, n, in whic which h the the supp suppli lier er has has access to the inventory and demand data of customers. In this case, the supplier accepts responsibility for the inventory of his products at the location of the customer. The inventory at the customer’s location will be fully managed by the supplier. For this the customer often receives the full right of return. The basis for the calculation of the the supplies are, for example, example, usage or sales figur figures es whic which h ar aree eith either er re reco cord rded ed by the the supp suppli lier er duri during ng the the regul regular ar replen replenish ishmen ment, t, or electr electroni onical cally ly commun communica icated ted (for (for these and other inventory management, principles and strategies, see e.g. Waller and Esper (2014 (2014)). )). Steps one to three have already been, at least partially, developed and applied in the past within the framework of traditional supply

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chain strategies. The key difference lies in the fourth step, which only then enables the development towards an adaptive network. In this step, companies begin to standardise and automate a large number of their business processes. This entails an increasing complexity in terms of supporting informati mation on tech techno nolo logi gies es,, as well well as a sign signifi ifica cant ntly ly high higher er degr degree ee of automation amongst members of the enterprise-wide and integrated supply chain. In the fourth stage the transition to Electronic Business Networks is completed. The diagram below summarises the stages in graphical form (Fig. 4.2 4.2). ). The The part partic icul ular ar chal challe leng nges es in term termss of adap adapti tive ve netw networ orks ks stem stem from the requirement to exchange information both within the business as well as with the relevant supply chain partners. To make the proces processs of creati creating ng electr electron onic ic partne partnersh rships ips and allian alliances ces effect effective ive,, businesses need to integrate different types of information systems in order to avoid inefficiencies and redundancies. The resulting supply chain environments are increasingly complex and consist of a variety of sub-processes and activities. The competitive requirements literally force revolutionary changes to be made in the existing supply chain processes. The result is the increasing conversion of traditional linear and static supply chains into dynamic, adaptive networks.

Fig. 4.2 Development stages of electronic business networks (cp. Hofmann 2004,, p. 85) 2004

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4.1.3 4.1.3 State-of State-of-the-the-Art Art Solutions Solutions for Supply Chain Design Design Management The existing tools and applications for supply chain management are often only restrictedly able to keep pace with the changes which are required to be implemented for greater supply chain effectiveness and efficiency. In some cases, it is not even possible to complete this task at all. This chapter deals with details on the new, modern tools that sho should uld offer ffer assi assist stan ance ce.. In the ca case se of the IT syst systeems and and IT applications that support the planning and management of the supply chain and which are illustrated in certain places in the first chapter, the the ter erm m Elec abbreviat iated ed Electro troni nicc Suppl Supplyy Chain Chain Manage Managemen ment t or abbrev E-SCM is is used to describe them. Similarly, the term Supply Chain Design Management Management or SCDM SCDM may may be used to describe IT systems whic which h supp suppor ortt adap adapti tive ve supp supply ly chai chains ns and and elec electr tron onic ic busi busine ness ss networks. The term Supply Chain Design Management is based upon a given supply chain model and is aimed at possibilities for the simulation and continuous optimisation of adaptive supply chains. It represents a completely new type of tool that is designed to help to identify and impr improv ovee supp supply ly chai chain n proc process esses es and and supp supply ly chai chain n perf perfor orma manc ncee indicators, as well as the information flows within an organisation and with other supply chain partners. It primarily pursues the following objectives: • Validati Validation on of the current current supply supply chain model model based upon upon existing existing or actual business processes (As-Is analysis). • Simula Simulatio tion n and predic predictio tion n of the influen influence ce of adjustme adjustments nts to the supp supply ly chai chain n stru struct ctur ures es to meet meet the the desi desire red d or targ target et busi busine ness ss processes with the performance of the supply chain. • Use of per perfor formanc mancee ind indicat icato ors in ac acco cord rdan ance ce with ith indu indust stry ry standards for the analysis of alternative supply chain scenarios. • Meas Measur urem emen ent, t, pred predic icti tion on and and cont contro roll of supp supply ly chai chain n fa fact ctor orss to identify potential improvements. • Link Linkin ing g busi busine ness ss and and supp supply ly chai chain n proc proces esse sess at deep deeper er leve levels ls,, which which are releva relevant nt to the contro controll of operat operation ionss and applic applicati ation on systems.

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A supply chain model which is supported by Supply Chain Design Management is particularly efficient if it is recognised by both the executives responsible for decision-making (within the business), as well as by the external supply chain partners. Changes in demand and the resul resultin ting g altern alternati ative ve scenar scenario ios, s, for exampl example, e, may be analy analysed sed quickly to determine the impact these have on the business policy and and the the finan financcial ial and and the the sup supply ply chai chain n-spe -speccific ific per erfo form rman ance ce indicators. The result is a clear understanding of the options, risks and effects on the supply chain. SCDM therefore opens up new possibilities for greater flexibility and adaptability. At the strategic level it can be used both for the initial design as well as to continuously improve the entire supply chain, and thus serve to implement adaptive supply chains. For a current and comprehensive overview of Supply Chain Design Management (SCDM), the work of Watson et al. (2014 ( 2014), ), is particularly recommended. SCDM makes a universally accepted language convention available able for for the the busi busine ness ss proc proces esse sess in proc procur urem emen ent, t, manu manufa fact ctur urin ing, g, warehousing and logistics, for example. It also reflects the integrated (i.e. (i.e. busin business ess intern internal al and crosscross-bus busine iness) ss),, supply supply chain, chain, enable enabless anal analys ysis is of poss possib ible le impa impact ctss on chan change gess in supp supply ly and and dema demand nd factors, as well as the simulation of changes in the supply structure and processes. It therefore directly contributes to the realisation of adaptable networks and to their design and continuous improvement. As a part of the electronic business concept, it has to be continually adjust adjusted ed to market market develo developme pments nts and changi changing ng requir requireme ements nts in a consistent manner and throughout the system lifecycle. IT systems and applications to support SCDM are not to be confused fused with with applic applicati ations ons for planni planning, ng, manage managemen mentt and contro controll of oper operat atio ions ns,, into into whic which h ca cate tego gory ry the the af afor orem emen enti tion oned ed Ente Enterp rpri rise se Resour Resource ce Planni Planning ng system systemss (ERP (ERP system systems) s) fall. fall. The clear clear leader leaderss amongst the providers of these systems are for instance SAP (www. sap.co sap.com), m), and Oracle Oracle (www. (www.Ora Oracle cle.com .com). ). There There are also also smalle smaller r

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manufacturers that offer more specialised niche solutions or solutions for small and middle-sized businesses, such as IBS (www.ibs.net), Infor (www.infor.com), and Sage (www.sage.com). They are also not to be confused with such applications that are used used for for init initia iall desi design gn and and poss possib ibly ly spor sporad adic ic tran transfo sform rmat atio ion n and and forward planning of the supply chain. Such cases include the aforementio mentioned ned Advanc Advanced ed Plann Planning ing System Systemss from from specia specialis lised ed vendo vendors rs such such as jda. jda. (www.j (www.jda. da.com com). ). Furthe Furthermo rmore, re, there there are vendor vendorss who offer a specific line of business application, such as Salesforce.com for salesforce automation solution (www.salesforce.com), and Workday for Human Capital Management solutions (www.workday.com). In addition to these applications, there are also specialised electronic tools for the continuous design and respective reshaping of supp supply ly chai chains ns whic which h have have only only re rece cent ntly ly been been deve develo lope ped d and and ar aree ther theref efo ore not ver ery y widel dely known own. The prim rimar ary y goal of these ese applications is to create complex supply chains for strategic, tactical and operational predictions and implement them. Such cases include e-SCOR by Gensym (www.gensym.com), ADOlog by BOC Group (www (www.b .boc oc-g -gro roup up.c .com om)) and and ARIS ARIS Easy EasySC SCOR OR by Soft Softwa ware re AG (softwareag.com). The majority of these SCDM specialised applications are based to a grea greate terr or less lesser er exte extent nt upon upon the the SCOR SCOR mode model. l. They They in no way way supers supersede ede existi existing ng IT system systemss to suppor supportt supply supply chain chain proces processes ses,, such as the above Enterprise Resource Planning systems or Advanced Planning Systems, but rather assist in their completion and provide a complimentary component within the interactive Electronic Business concept. The following diagram, Fig. 4.3 4.3,, gives an exemplary insight into ARIS EasySCOR. The method of schematic representation highlights, above all, the principle of these applications as well as its consistency and integ integra ratio tion n with with SCOR, SCOR, whic which h is re reflec flected ted in the well well-k -know nown n constit constituen uentt element elementss of the model model (proces (processs elemen elements, ts, perform performanc ancee attributes, etc.). The current release of ARIS EasySCOR is consistent wit with the the SCOR SCOR re revi vissed vers versio ion n 11.0 11.0.. It is used used by some some well well-k -kno now wn and and glob global al busi busine ness sses es such such as Inte Intel, l, as well well as a numb number er of larg largee gove govern rnme ment nt organisation organisationss such as the United States Department Department of Defence Defence (DoD).

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) 8 . p , 3 0 0 2 r e h t n u G . p c ( R O C S y s a E S I R A f o e l p m a x e l a c i h p a r G 3 . 4 . g i F

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4.2 4.2

Busines Businesss Proces Processs Optimis Optimisatio ation n in Supply Supply Chain Chain. . .

113

Busine Business ss Proc Process ess Opti Optimis misati ation on in Su Supp pply ly Chain Chain Management: Reducing Cost and Improving Quality

At the beginning of the first chapter, the importance of the process point of view was made clear whilst studying the supply chain. In the second chapter an introduction was given into the process-related perspe perspecti ctive ve upon upon work work proces processes, ses, materi material al flows flows and inform informati ation on flows flows.. The The foll follow owin ing g sect sectio ion n will will now now deal deal spec specifi ifica call lly y with with the the optimisation of processes and the related measures for the improvement of their effectiveness and efficiency. Becaus Becausee the supply supply chain chain runs runs throu through gh the the entire entire organi organisat sation ion,, many changes must be managed during the optimisation of supply chain processes. These include, amongst other things, the following areas (cp. e.g. Poluha e.g. Poluha 2001, 2001, p. 312): • • • • • • • • •

Organisati Organisational onal Structure Structure.. Respon Responsib sibili ilitie ties. s. Planning Planning and control control processes. processes. Busine Business ss guide guidelin lines. es. Planni Planning ng cycles cycles.. Material Material and informati information on flows. Work Workflo flows ws.. Communicat Communication ion channels. channels. Inform Informati ation on system systems. s.

Firs First, t, the the re rela late ted d impr improv ovem emen entt meas measur ures es must must be anal analys ysed ed,, quantified and prioritised, taking into account the business strategy and the derived supply chain strategy. These may be viewed from four four diff differ eren entt pers perspe pect ctiv ives es upon upon the the basi basiss of the the af afor orem emen enti tion oned ed balanced scorecard (cp. Kaplan (cp. Kaplan and Norton 1996, 1996 , pp. 20):

financial perspecti perspective ve, whic • The financial which h incl includ udes es the the bene benefit fitss and and the the value. • The customer which h is char charac acte teri rised sed by cust custom omer er customer perspect perspective ive, whic satisfaction, customer preservation, market share, etc.

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business ess proces processs perspe perspecti ctive ve, whic • The busin which h comp compri rise sess qual qualit ity, y, response time, cost and new product launches. • The learn which involv involves, es, learnin ing g and and deve develo lopm pmen entt pers perspe pect ctiv ivee which amongs amongstt other other thing things, s, employ employee ee satisf satisfact action ion and availa availabil bility ity of information systems.

4.2.1 4.2.1 Business Business Process Reengine Reengineering ering vs. Continuou Continuouss Improvement One possible approach to the implementation measures for the initial improvement of the supply chain is the transformation of business processes and business process reengineering. Within this concept, the curren currentt busine business ss proces processes ses are fundam fundament entall ally y chang changed, ed, and in some some ca case sess even even enti entire rely ly new new busi busine ness ss proc proces esse sess ar aree intr introd oduc uced ed.. This This is alre alread ady y clea clearl rly y stat stated ed and and expr expres esse sed d in the the prog progra ramm mmat atic ic title of a standard study on the subject by Michael Hammer and James Champy: A Manifesto for the Business , as well as the subtitle on the book cover: How to Re-invent Your Business (cp. Hammer and Champy 2006 Champy 2006). ). Basically one is dealing with the elimination of “process fractures” and and the the harm harmon onis isat atio ion n and and stan standa dard rdis isat atio ion n of proc proces esse ses. s. This This is because it is assumed that the simpler and more standardised the processes, the fewer exceptions and therefore incurred costs will be presen present, t, and the inter interven ventio tion, n, contro controll and monito monitorin ring g will will conseconsequently be better. For this purpose one strives to achieve the use of time potentials to reduce lead times and buffers (e.g. waiting time), betwee between n the indivi individua duall proces processs steps, steps, and to elimin eliminate ate interf interface acess which are a hindrance to the process flow (organisational interfaces arise when tasks require a cross-functional cooperation, and activities with those of other operating areas overlap). The restructuring is thus a process-orientated adjustment of the business, where existing procedures are monitored for their effectiveness and efficiency. Due to the scope of this restructuring one is typica typically lly dealin dealing g with with strate strategi gicc projec projects, ts, withi within n which which not only only a

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busine businessss-int intern ernal al cooper cooperati ation on,, but also also a busin business ess-ex -exter ternal nal crosscrosscooperation with customers and suppliers takes place, and is carried out by the responsible project group. The implementation measures norm normal ally ly lead lead to a chan change ge in the the orga organi nisa sati tion onal al and and oper operat atio iona nall structures. For an introduction into Business (Process) Reengineering , the original work of Hammer and Champy (2006 ( 2006), ), should be especially emphasised. Furthermore for example, Johnston (2012), (2012) , is recommended. For the connection with Information Technology, see e.g. Donovan (1994 (1994). ). For a specific reference to the subject of Supply Chain Management, Handfield and Nichols (2002 2002), ), are recommended. The organisational changes aim at beginning a conversion of the functional mindset so often associated with the “silo mentality”, into a more pronounced and process-oriented mindset. The following four basi basicc comp compon onen entts ar aree typi typica callly used sed duri durin ng this his con convers versiion (cp. Hammer and Champy 2006 Champy 2006,, pp. 47): • Renewing meaning improved training and organisational involvement of employees. • Revitalising referring to the redesign of processes. • Reframing shoul should d lead lead to conv conven enti tion onal al thou though ghtt patt patter erns ns bein being g discarded, and new paths being taken; this component is directly related to the change process. • Restructuring requ require iress a fundam fundament ental al revisi revision on of busin business ess proprocesses and workflows. However, it has been shown in practice that this concept meets with massive resistance from within the workforce, which can play a very special role during the monitoring of the change process. This resistance results, for example, from the fact that most employees show a function-orientated thought process, tend to consider a certain area of

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respon resp onsi sibi bili lity ty to be “the “their ir own” own”,, and and ther therefo efore re defe defend nd it agai agains nstt change change.. Accord Accordin ing g to experi experienc ence, e, this this resist resistanc ancee can be manage managed d usin using g suit suitab able le measu measure ress duri during ng the the impl implem emen enta tati tion on of the the init initia iall improv improveme ement nt projec project, t, but may only only be perman permanent ently ly overco overcome me by means of a constant effort. Irrespective of this there is often no longer an immedi immediate ate requir requireme ement nt for the enforc enforceme ement nt of radica radicall change changess afte af terr the the comp comple leti tion on of the the init initia iall proj projec ect. t. Ther Theref efor ore, e, the the init initia iall projects are often carried out as an initiative to transform business processes and then switch to an alternative approach. An alternative approach, which offers itself as a method for the continuation of necessary improvement measures and which has been used successfully in the past in connection with strategic supply chain Continuous us Improvemen Improvementt Process Process improv improveme ement nt initia initiativ tives, es, is the Continuo (CIP), or in short Continuous Improvement . During this method, the continuous improvement of products, processes and service quality is sought in incremental steps rather than drastic, incisive changes. The meth method od was was deve develo lope ped d in the the 1980 1980ss as an esse essent ntia iall part part of the the Japanese Kaizen concept. The terms CIP and Kaizen are sometimes used synonymously, which is not always applicable. For a comprehensive overview on the topic of Continuous Improve Impr ovemen ment t and Continuo Continuous us Improv Improveme ement nt Process Process (CIP), (CIP), the works of Ahlstrom (2014 ( 2014), ), and Boutros and Purdie (2013 ( 2013), ), are particularly recommended. The continuous improvement process can be broadly associated with quality management, which itself is a part of business governance. However, it does not have the same or similar meaning as, for example, related terms such as Total Quality Management , or TQM. TQM. The primary objective of CIP is to optimise workflows and business processes, taking into account material and time constraints and ensuring certain quality requirements of products or services and their further development.

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Kaizen comes from the Japanese and, literally translated, means “constant improvement”. However, it is understood as a concept within business management which summarises all the efforts to improve operational performance standards in a comprehensive manner manner,, and combin combines es variou variouss method methodss and techni technique quess from from qual qualit ity y mana manage geme ment nt.. Kaiz Kaizen en incl includ udes, es, for for exam exampl ple, e, grou group p work, Kanban (a method of productio tion process control according to the pick-up or call principle, which is based purely on the requirements of a consumption point in the production process), and the in-time delivery (Just-in-Time), to name just a few (see e.g. Imai and Gemba 2012; 2012; Taiichi 1988, 1988, 2015). 2015). For further information on the subject of Total Total Quality Management Goetsc sch h and and Davi Daviss (2014 2014), ), and and O’Mar ’Maraa (2013 2013), ), ar aree (TQM), Goet recommended. In this context, for example, we are dealing with the optimisation of commun communica icatio tion n struct structure ures, s, the drafti drafting ng of profes professio sional nal soluti solution on stra strate tegi gies es,, the the main mainte tena nanc ncee or incr increa ease se of cust custom omer er sati satisf sfac acti tion on,, staff motivation, and the standardisation of certain business processes and workflows. In addition to this we are also dealing with standards for products and services, documentation, training and further education measures, as well as the design and furnishing of workrooms. All signifi significan cantt busine business ss units units (devel (develop opment ment,, purcha purchasin sing, g, produc productio tion, n, sales, and order processing, etc.), are included. Organisations as well as those people working in them have a tend tenden ency cy to re reta tain in the the “Sta “Statu tuss Quo” Quo”,, i.e. i.e. they they poss posses esss a kind kind of “inertia” effect. The demand for constant improvement contradicts this effect. Therefore, continuous activities are required in order to analyse problems and implement improvement measures, otherwise the the chan change ge proc proces esss ea easi sily ly lose losess mome moment ntum um and and ther theref efor oree also also its its effectiven effectiveness. ess. The continuo continuous us improvemen improvementt process process is highligh highlighted ted by supporting the following activities: • • • •

Analysis Analysis and optimis optimisatio ation n of workflows workflows and processes processes.. Increasing Increasing productiv productivity. ity. Improvemen Improvementt of product product quality quality and customer customer satisfacti satisfaction. on. Indicatio Indication n of availabl availablee resources resources and synerg synergies. ies.

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• Lowering Lowering costs and reduc reducing ing wastag wastage. e. • Enhancement of skills, creativity, and commitment of its employees. • Improving Improving teamwor teamwork, k, business business culture, culture, and employee employee satisfactio satisfaction. n. As part of the continuous improvement process within business process optimisation, employees analyse their respective workspace in special working groups and later develop concrete suggestions for improvement. For this purpose they are trained to work in groups and carry out group presentations. In addition to this they are allocated a part of their working time for related tasks. The unconditional intent of management to implement the changes resulting from the improvement process, authorise the special working groups to introduce their ideas, and if necessary make the necessary resources available, is an absolute requirement which must not be underestimated. If it is not possible to implement certain changes—for example, by law, agreements with the works council, etc.—this should be justified to the group members in a credible and understandable way. To this end, a business culture is necessary, within which appreciation is shown for the ideas of the workforce and the group work, and the employees receive effective support and candid recognition. There will be more on this topic in the next section.

4.2.2 4.2.2 Managing Managing Change Change Successfu Successfully: lly: Change Change Management and the Human Factor Experience has shown that resistance is to be expected during the implementation of improvement measures within the organisation. This is especially the case when it comes to changes within the area of supply chain management. As long as the employees involved in the change process are within their possibilities as far as knowledge and experience is concerned and are also in a position to support and react to the changes, they can make a valuable contribution. However, if the expectations can no longer be met, it may result in a negative and thus counterproductive behaviour, which can be attributed primarily to the fact that not all people have the same capacity to cope with, and accept, change.

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The process of change must therefore be carefully planned, conManagement. nt. trolled and monitored as part of a targeted Change Manageme Although the process can take a different course within each various business and according to the various circumstances involved, some typical phases can be distinguished: • Unfreezing : the starting point of the first phase is the realisation, that one’s expectations no longer correspond to reality. The necessity for change gradually makes its way into our consciousness in form of a possibility, and the practicality of existing behavioural tendencies and work methods is questioned. The primary objective of this phase is to strengthen and support the entities striving for change, and to create a kind of “change awareness”. • Moving: in this phase solutions are compiled, new processes and operations are developed, and identified problems are addressed in the form of improvement measures. One therefore moves out of the prevailing state, and a change occurs towards a new balance. • Freezing: the aim of the third phase is to implement the solutions found and thus to at least temporarily complete the preliminary chan change ge proc proces ess. s. All All perf perfor orme med d chan change gess ar aree inte integr grat ated ed into into the the overall system of the organisation. Within the term Change Management, all tasks, measures and activities may be subsumed, which may bring about a comprehensiv hensive, e, crosscross-sec sector tor,, and far-re far-reach aching ing conten contentt change change to the implementation of new strategies, structures, systems, processes and/or behavioural tendencies within an organisation (see for example the standard work of Kotter Kotter 2012). 2012). Hiatt and Creasey (2012 2012), ), is also recommended for an introduction. A comprehensive review of the subject can be found in Kotter (2011 ( 2011). ). The process of change is supported by so-called Change Agents, who are ideally from the upper hierarchical levels. These working colleagues are trained in the areas of technique which are relevant for change management, such as Conflict Management and Group Communi munica cati tion on,, and and shou should ld be excl exclus usiv ivel ely y re resp spon onsi sibl blee for for chan change ge

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intentions. In the further development, changes are then supported by the responsible Change Teams . Very interesting and modern aspects for the integration of the management of businesses into the change process, and for the requirements asked of innovative management, can be found in Hamel (2007 (2007,, 2012 2012). ). Over a period of time, all executive managers of a business should possess the competence and expertise to act responsibly during the realisation of change, so that no further colleagues are required for this this purp purpos ose, e, and and the the re resp spec ecti tive ve expe experi rien ence ce beco become mess part part of the the knowledge basis of the organisation. It is also a prerequisite within the scope of the continuous improvement process, that it will become a natural daily component within the thoughts and areas of responsibility bility of manage managers rs and employ employees ees withi within n everyd everyday ay busin business. ess. The The related concepts and methods are closely linked to the organisational education as part of its development. The stipulation for the significant involvement of the business’s management in the improvement process results from the associated nece necessi ssity ty for for supp suppor ort, t, as show shown n in Fig. Fig. 4.4 4.4.. As alre alread ady y stro strong ngly ly indicated, this support is an absolute prerequisite for the successful impl implem emen enta tati tion on.. It is ofte often n show shown n in prac practi tice ce,, howe howeve ver, r, that that the the necessity for support does not necessarily always correlate with the attention span of executive management. It would be ideal to adjust the course of the attention span to the necessity for support, or at least attempt to match them with each othe otherr as close losely ly as possi ossib ble. As far as the the ec eco onomi omic asp aspec ectt is concerned, this would also correspond to the cumulative cost of the impr improv ovem emen entt init initia iati tive ve,, beca becaus usee the the impo import rtan ance ce of a succ succes essf sful ul realisation naturally increases with the duration of time and in con junction with the rising cost. According to experience the management of change is most often only only poss possib ible le if the the curr curren entt prob proble lems ms have have atta attain ined ed a leve levell that that exceeds the cost of transition to a new, improved state. To acquire the necessary information, it is recommended that an analysis of the current competitive position is carried out using common indicators

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Fig. 4.4 Required change management support in supply chain management projects (cp. Poluha (cp. Poluha 2001, 2001, p. 322)

and to identify bottlenecks within the material and information flows and work procedures (such as those which are described during the example of the mater eriial flows). s). Based sed upon this analysis sis, a subs subseq eque uent nt agre agreem emen entt is made made to proc procee eed d with with stri strivi ving ng for for an improved design for the future conditions. As a possible result, for example, the key to success could lie in the strategic transition from an excell excellent ent operat operative ive perfor performan mance ce capabi capabilit lity y within within the the fields fields of procurement and manufacturing, into a strategic customer orientation with regards to outbound logistics processes. This in turn can result in further and more thorough investigations into problems in terms of delivery performance, order lead times, inventory levels, return delivery costs, etc., in order to prove that a transition to a new state is required, if not critical, for the long-term success. The associated discovery process can assist in dispelling the initial common reservations and resistance. The employees involved in the change process must be resolute and convinced in eliminating the the bott bottle lene neck ckss whic which h may may have have poss possib ibly ly exis existe ted d for for year years. s. This This conviction is the initial starting point so that initial resistance may give way to a clear motivation for the acceptance of further changes. As already mentioned, there are large differences in the individual capability and willingness of employees to deal with change. It is

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ther theref efor oree impo import rtan antt to iden identi tify fy a mana manage geab able le numb number er of re rele leva vant nt projects, which are aimed at the greatest number of possible results within a short to medium time-frame (ideally less than 12 months). As a result, the initial projects can constitute an important contribution to the integration of supply chain related changes into an executable supply chain strategy, with the associated business processes, material and information flows, and working procedures.

4.3 4.3

The Su Supp pply ly Chain Chain Integr Integrat atio ion n Conc Concep eptt and Adaptive Businesses

In order to put the newly-introduced aspects such as adaptive supply chains and supply chain design management into a framework for cross-reference, it is first necessary to define the relevant dimensions used to describe supply chains. As already mentioned, supply chain mana manage geme ment nt curr curren entl tly y re repr pres esen ents ts an inhe inheren rentt part part of the the field field of business governance and therefore has to be aligned with the overall business strategy and goals. One possi ssibility of descr scribing orga organi nisa sati tion onss is to grou group p them them into into syst system em vari variab able less or desi design gn dime dimens nsio ions ns.. Haro Harold ld J. Leav Leavit ittt intr introd oduc uced ed the the term term four-variable conceptions of organisations (cp. Levitt (cp. Levitt 1965, 1965, pp. 1151): • Strategy, processes and and tasks: this involves the provision of goods and services including all associated operational subtasks. • Organisational structure : this embraces the organisational structure, work processes, communication channels and role models. • People: in the first instance this mainly entails the observation of the persons involved. • Technology : this consists of all technologies used including informatio mation n and commun communica icatio tions ns techn technolo ologi gies es and system systems, s, and the technologies with which to measure work performance. If one transfers these system variables, which are now universal for an orga organi nisa sati tion on,, onto onto the the ar area ea of supp supply ly chai chain n mana manage geme ment nt,, the the following dimensions of supply chain design may subsequently be derived (cp. Poluha (cp. Poluha 2007, 2007, pp. 235):

4.3

The The Sup Supply ply Chain Chain Integr Integrati ation on Concep Conceptt and and Adapt Adaptive ive Busin Business esses es

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• Strategy: with this, the conceptual design of the supply chain is mad made poss possiible, le, based ased upon the busi busin ness ess goals als and and mar market ket requirements. • Processes and organisational organisational structure: structure: this describes the constitution of the organisation and the processes that are necessary for the operation and management of the supply chain, including the rela re lati tion onsh ship ipss betw betwee een n the the proc proces esse sess and and the the lead leadin ing g busi busine ness ss practices. • Technology: thi this embraces the supporting IT systems and applic applicati ation onss for plann planning ing,, execut execution ion and contro controll of the supply supply chain processes, workflows, material and information flows. • Staff: this describes the employees (Human Resources) required in order to handle all activities concerning the supply chain, and their impact within the context of the change process. The input contained in the first chapter is an introduction into an integration concept for the design of business processes as a reference framework for businesses, which has acted almost like a continuous thread throughout the entire book. The intention is now to metaphorically close the circle by including the aforementioned holistic perspective of supply chain design into this reference framework. The Business ss Proce Processss-Or Orien ientat tated ed Suppl Supplyy Chain Chain Integr Integrati ation on resulting Busine Concept is repres represent ented ed graphi graphical cally ly in Fig. Fig. 4.5 4.5.. Inpu Inputt and and outp output ut variables such as material and information flows and work processes, as well as activities and process stages, are not explicitly listed in the chart, but represent an inherent part of the business processes. The timeline is only designed to be an estimated guide. In actual fact fa ct smoo smooth th tran transi siti tion onss ar aree usua usuall lly y norm normal al.. Ther Theref efor oree we ar aree not not dealing purely with the spread of these technologies within business practice, but also with their availability. Their distribution and practical application will be discussed in greater depth in the following section. The design dimensions reproduced on the right hand side of the graph graph figurat figurative ively ly repres represent ent organi organisat sation ional al chang change, e, whils whilstt the left left hand hand side side re refe fers rs to the the spec specifi ificc desi design gn of the the assoc associa iate ted d chan change ges, s, i.e. the way in which the change process manifests itself in terms of the supply chain.

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Inno Innova vati tive ve Conc Concep epts ts for for Supp Supply ly Chai Chain n De Desi sign gn and and Opti Optimi misa sati tion on ) 7 3 2 . p , 7 0 0 2 a h u l o P ; 6 . p , 7 9 9 1 t b i e S . p c ( s n i a h c y l p p u s f o n g i s e d d e t a t n e i r o s s e c o r p s s e n i s u b e h t r o f t p e c n o c n o i t a r g e t n I 5 . 4 . g i F

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The supporting IT systems are, as already explained, of a complementary nature and accompany each other within a comprehensive E-business concept. This may be seen in similarity with the supply chai chain n stra strate tegy gy,, in whic which h the the cont conten ents ts of ea each ch prev previo ious us stag stagee of deve develo lopm pmen entt ar aree comp comple leme ment nted ed by othe otherr aspe aspect ctss as well well as the the various versions of the SCOR model, within which the later models are all based upon their predecessors. Because of its diffusion rate and its increasing importance as a “de facto” standard, SCOR has been described as an exemplary supply chain reference model, as described in the second chapter. The next section describes which results can be achieved, in practice, by using the correct application of the relevant components of the busine business ss proces process-o s-orie rienta ntated ted supply supply chain chain integr integrati ation on concep concept. t. Howe Howeve ver, r, an impo import rtan antt ques questi tion on must must be answ answer ered ed prio priorr to this this,, namely: how can a business be successful in attaining the transition into a process of continuous improvement in which, amongst other things, the supply chain practically and independently develops and optimises itself? For this purpose, an equivalent to the adaptive supply chain would be required on the part of the business’s operational influence factors, namely organisation and personnel—in the literal sense an adaptive organisation. Such an organisation would require the active involvement of all employ employees ees in the the contin continuou uouss improv improveme ement nt proces process, s, and allowi allowing ng them to become an integral part of the business culture. In this way, the intention is to set an organisational learning process in motion, whic which h make makess it poss possib ible le for for a busi busine ness ss to ac acqu quir iree a prev previo ious usly ly unknown potential for change. This in turn can constitute a decisive factor for the long-term business success. Since the learning process refers to both individual employees in addition to the organisation as a whole, the term Organisational Learning is also used. A learning organisation organisation is, in this sense, an adaptable organisation which responds to external and internal stimuli. In general, a distinction tion is made made betw betwee een n adaptable and learning organisatio organisations. ns. This dist distin inct ctio ion n re resu sult ltss from from the the fa fact ct that that a lear learni ning ng abil abilit ity y does does not not necessarily have to result in innovations, but can also lead to counterproductive behaviour such as resignation or resistance.

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On the one hand, Organisational Learning refers to the social scie scienc ncee topi topicc of the the so-c so-cal alle led d lear learni ning ng orga organi nisa sati tion on,, whic which h stud studie iess the patterns of activity, conditions and investigations on both a theoretical and a practical level. It attempts to clarify questions such as how an organisation must be made up in order to learn how this knowledge can be acquired and how it can ultimately be evaluated. On the other hand, organisational learning can also refe re ferr to the the pure pure lear learni ning ng proc proces esss at orga organi nisa sati tion onal al leve level, l, in whic which h the basic principle lies in the fact that not only the individual members learn the purpose of effectiveness and efficiency, but rather the entire organisation is collectively submitted to a continuous learning process. See in particular the standard work of Peter Senge on this subject (cp. Senge 2006 Senge 2006). ). Deiser (2009 (2009), ), may also be recommended. The term was originally introduced around 1990 by Peter Senge, who made the concept known and significantly promoted its distribution. He identifies five development stages or disciplines which are necessary for the creation and maintenance of learning organisations. The disciplines are mutually supportive and contribute to the gradual increase in capabilities and competences of the respective organisation within a development process (cp. Senge 2006 2006,, p. 20 ff):

Personall Maste Mastery ry: raising the skills of the members of an • Persona organisation through personal development. • Mental Models : explicit and implicit basic assumptions in order to explai explain n and descri describe be the surrou surroundi nding ng (organ (organisa isatio tional nal)) world world,, as well as to make the assumptions visible, discussable and thus the object of development. • Shared Visioning : collective visions arise when as many members of an organisation as possible understand and have a command of their common goals, and grasp the purpose as well as the tasks for the achievement of the common objectives. • Team learning: learning as a group takes place when the group members jointly understand issues.

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• Systems thinking : by using a holistic observation of the system, the working mechanisms and the expected behavioural patterns are descri described bed in a symbol symbolic, ic, formal formal langua language. ge. Typica Typicall behavi behaviour oural al patter patterns ns (Syste (System m Archet Archetype ypes) s) can thereb thereby y be recogn recognise ised, d, made made disc discus ussa sabl ble, e, and and work worked ed upon upon.. With With appr approp opri riat atee meth method ods, s, the the syst system em ca can n then then be simu simula late ted d and and pote potent ntia iall beha behavi viou ours rs ca can n be predicted. The The term term Knowled conjuncti ction on with with Knowl Knowledg edgee Knowledge ge Base Base in conjun Management embraces all data and information, and all knowledge and capabilities which an organisation requires in order to solv solvee its its vari variou ouss task tasks. s. Indi Indivi vidu dual al know knowle ledg dgee and and skil skills ls ar aree hereby systematically anchored into the organisation. Organisational learning is an integral prerequisite for the creation and maintenance of this knowledge base. Its primary tasks lie in the promotion of the knowledge base and the acquisition of competition-relevant competences, aiming at increasing the Organisational Organisational Intelligence, or Systems Systems Thinking Thinking ability ability (see for example Mella 2012 2012;; Wright 2013 Wright 2013). ). A learning organisation is ideally a system that finds itself constantly in motion. Events are conceived as challenges and used for development processes in order to adapt the knowledge base and the field of manoeuver to the new requirements. The fundament for this is an open open organi organisat sation ion marked marked by indiv individu iduali ality, ty, which which allow allowss and supp suppor orts ts inno innova vati tive ve meth method odss of prob proble lem m solv solvin ing. g. The The degr degree ee of learning capability of an organisation is also partially referred to as Organisational Intelligence . In this context, the knowledge management mentioned in the second chapter plays a central role, which serves to develop and implement knowledge within an organisation, and whose aim it is to promote the Knowledge Base of a business. In order to optimally support organisational learning and knowledge management a number of important requirements must be met:

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• Clea Clearr targ target ets, s, comm common on obje object ctiv ivee proc proces esse ses, s, and and orie orient ntat atio ion n towards the benefit of customers. • Cooperati Cooperation on and conflict conflict solving, solving, mutual mutual trust trust and team spirit. spirit. • Process Process orientatio orientation n and self-regu self-regulati lation on in groups. groups. • Democratic Democratic and participat participatory ory management management style style supporting supporting new, innovative ideas (especially by the business management), integration of personnel and organisational development. • Reward Reward for commit commitmen mentt and toleran tolerance ce of errors errors during during projec projects ts and activities with higher risks. • Abilit Ability y to monito monitorr (onese (oneself) lf) and evalua evaluate, te, with with well-f well-func unctio tionin ning g and integrated IT systems which can contribute to a faster and more accurate assessment. The type of learning in which digital media are used for the presentation and distribution of learning materials and/or for the support of interpersonal communication is known as Electronic 2011; Learning or E-learning E-learning (see for example Clark and Mayer 2011; Elkins and Pinder 2015). 2015). Due to the importance of organisational learning and the close conn connec ecti tion on with with the the chan change ge proc proces ess, s, an incr increa easi sing ng numb number er of businesses concentrate upon the issues related to this, such as the creation of a learning strategy, the development of educational content, and the technical support of learning processes. With regards to the latter-mentioned point, the implementation of info inform rmat atio ion n tech techno nolo logy gy play playss an incr increa easin singl gly y impo import rtan antt role role in supporting workplace learning in education and training, for example in the form of Electronic Electronic Learning , which is also simply referred to as E-learning. The corresponding tools supporting E-learning activities are known as the Learning Management System (LMS).

4.4

Practica Practicall Example Examples: s: Applica Applicatio tion n of Trendset Trendsetting ting Supply Chain Concepts

The following are examples presented from business practice which should clarify just which qualitative and quantitative benefits for an organisation can be attributed to the measurement of the performance

4.4

Practical Practical Exampl Examples: es: Appli Applicati cation on of Trends Trendsetti etting ng Supply Supply Chain Chain. . .

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capability of its supply chain, the optimisation of the related business processes by means of leading business practices, and the continuous adjustment of its supply chain to changing market requirements, with the the assi assist stan ance ce and and supp suppor ortt via via the the usag usagee of mode modern rn appl applic icat atio ion n solutions. In other words: it should be about the advantages which may arise if as many many comp compon onen ents ts of the the supp supply ly chai chain n inte integr grat atio ion n conc concep ept, t, introduced in the previous section, are put into practice. The Ameri was foun founde ded d in America cass ‘SAP ‘SAP User Users’ s’ Grou Group p (A (ASU SUG) G) was 1991 by cust custom omer erss of the the SAP SAP AG (ww (www.sap .sap..com) com),, as a non-pr n-pro ofit asso associ ciaation tion with the the prim rimar ary y goal goal of shar shariing experi experienc ences es and learni learning ng from from one anothe another. r. By 2015, 2015, ASUG ASUG comp omprise rised d more more than than 100 100,000 ,000 indi indivi vid dual uals withi ithin n 3,800 ,800 businesses and from more than 17 industries across the SAP ecosystem. The board consists of volunteers from its member busin sinesse esses, s, which ich ar aree elec electe ted d by the the mem members bers at re reg gular ular intervals. The administrative affairs are covered by a group of full-time employees who report directly to the ASUG Board. There are about 40 local chapters and over 90 Special Interest Groups (SIGs), whose activities are supported by 400 volunteer memb member erss in the the prep prepar arat atio ion n and and pres presen enta tati tion on of lect lectur ures es,, conf confer eren ence ces, s, gene genera rall meet meetin ings gs,, and and trai traini ning ng cour course ses, s, etc. etc. (www.asug.com).

4.4.1 4.4.1 ASUG Study Study for Performanc Performance e Benchmarkin Benchmarking g and Best Practices The Americas ‘SAP Users’ Group (ASUG) has worked closely with the SAP AG since 2004 to measure the performanc performancee of businesses businesses in, amongst other things, the field of supply chain management. Other areas include, for example, the financial and cost accounting, customer management and human resources.

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The Americas ‘SAP Users’ Group (ASUG) Benchmarking and Best Practices Program, a collaborative program between ASUG and SAP, has its focus on two critical business pursuits: how to put innovative ideas into action, and help businesses measure their operational progress. Its main intention is to help identify aspe aspect ctss of the the orga organi nisa sati tion onss that that exce excell and and thos thosee re requ quir irin ing g improvement. Benchmarking allows the tracking and comparison of performance to that of one’s peers and other SAP users, the determination of the value of adopting best practices, and an improved understanding of how IT drives performance. Relying on syst system emat atic ic surv survey eyss and and stud studie iess that that dete detect ct stre streng ngth thss and and vulnerabilities, the program also explores current and emerging best practices that can be integrated into operations (www.asug. com/benchmarking). The program runs under the name of ASUG Benchmarking and Best Practices Study. In total, 26 various business processes were covered and included at the time of the study, of which 10 were rela re late ted d to supp supply ly chai chain n mana manage geme ment nt (see (see Fig. Fig. 4.6 4.6). ). At that that time ime more more than than 2,600 2,600 parti particip cipant antss from from more more than than 1,000 1,000 busine businesse ssess in Nort North h Amer Americ ica, a, Lati Latin n Amer Americ ica, a, Asia Asia and and Euro Europe pe,, part partic icip ipat ated ed.. Although there are no fees to be paid for the participation in the

Fig. Fig. 4.6 4.6 Supp Supply ly chai chain n proc proces esse sess in the the ASUG ASUG stud study y for for perf perfor orma manc ncee benchmarking (cp. ASUG (cp. ASUG and SAP 2008/1) 2008/1 )

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study to ASUG, there is nevertheless a considerable effort in conjunction with the data collection and the completion of the respective questionnaires. The busin sinesses ses submitted the following reasons for their participation: • Comp Compar aris ison on of thei theirr pers person onal al perf perfor orma manc ncee with with that that of othe other r busi busine nesse ssess in the the same same indu indust stry ry or in othe otherr indu indust stri ries es (for (for the the various types of benchmarking see the comments in Sect. 3.2.1 Sect. 3.2.1). ). • Measuring Measuring their their personal personal perform performance ance over over a long period period of time. time. • Preparatio Preparation n of proposals proposals for for improvem improvement ent projects. projects. • Proof of the success success of improve improvement ment measure measures. s. After evaluating the results, the participants receive the following information: • Docu Docume ment ntat atio ion n of thei theirr perso persona nall perf perfor orma manc ncee over over a peri period od of several years. • Deta Detail iled ed desc descri ript ptio ion n of the the re resu sult ltss of the the pers person onal al perf perfor orma manc ncee comparison with other businesses within the same industry. • Descripti Description on of the results results of the personal personal perfor performance mance comparis comparison on with businesses from other industries and regions. • Summ Summar ary y and and eval evalua uati tion on of the the ef effe fect ctiv iven enes esss and and ef effic ficie ienc ncy y of business processes, spread across different business and process areas. • Notice Noticess for improve improvemen mentt by the applica applicatio tion n of leadin leading g busine business ss practices and modern IT application solutions. The information is treated confidentially and only in a neutral form, i.e. without mentioning names and without providing an indication of the businesses involved. Due to the content, the results are considered equa equall lly y re rele leva vant nt for for mana manage gers rs of the the indi indivi vidu dual al func functi tion onal al ar area eass (in this case purchasing, manufacturing, warehousing, inbound and outbound logistics, and information technology).

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4.4.2 4.4.2 Correlatio Correlation n Between Between Business Business Success Success and Performance Indicators The data, which provides the basis for the following explanations, has been taken from the presentation material during an Internet conference (webcast), jointly organised by ASUG and SAP (see ASUG and SAP 2008/1 SAP 2008/1 and 2008/2 and 2008/2). ). With With its definit definition ion of supply supply chain chain perfor performan mance ce indic indicato ators, rs, the study follows an approach similar to that shown within the context of the SCOR Model in Chap. 2 Chap. 2.. Likewise, it distinguishes between the (inter (internal nal)) efficie efficiency ncy and (extern (external) al) effect effective ivenes nesss (cp. (cp. SCC 2008, 2008, p. 1.2.5). The following performance indicators are specifically used: 1. Efficiency (business-internal, cost-related): • • • •

Employ Employees ees in rela relatio tion n to sales sales.. Invent Inventory ory range. range. Stor Storag agee cost costs. s. Supply Supply chai chain n plann planning ing cost costs. s.

2. Effectiveness (customer-orientated, market-focused): • • • •

Punctu Punctual al deliv delivery ery.. Order Order delivery delivery performanc performance. e. Delive Delivery ry time. time. Foreca Forecast st accura accuracy. cy.

In orde orderr to meas measur uree and and quan quanti tify fy the the perf perfor orma manc ncee indi indica cato tors rs,, questions have been developed which relate to the use of leading prac practi tice cess that that have have a dire direct ct or indi indire rect ct impa impact ct on the the re resp spec ecti tive ve perf perfor orma manc ncee indi indica cato tors rs.. In turn turn,, thes thesee busi busine ness ss prac practi tice cess re resu sult lt directly from the specific business processes in Fig. 4.6 4.6.. Behind it lies the assumption that the use of leading business practices can contribute to an increased performance of the supply chain. A comprehensive description of the common supply chain performance indicators can be found, for example, in the SCOR model description by the Supply Chain Council (cp. SCC (2008, pp. 2.1.1).

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An exam exampl plee will will help help to illu illust stra rate te the the meth method od of proc proced edur ure. e. Amongst others, the following criteria were used in order to measure the performance indicator known as “on-time delivery”: • Material Material Resource Resource Planning: Planning: globally globally integrat integrated ed processes—regu processes—regu-lar implementation of a formal, globally applicable requirement planning process with the inclusion of restrictions in availability. • Productio Production n Planning: Planning: simultane simultaneous ous material material and product production ion capaccapacity plan—carrying out a planning run several times a day with availability constraints. • Demand Demand Planni Planning: ng: foreca forecasti sting— ng—ini initia tiall foreca forecast st adjust adjusted ed to cater cater for for inte intern rnal al fa fact ctor orss such such as pric pricee chan change ges, s, sale saless plan plans, s, spec specia iall promotions, and for external factors suc such as custo stomers, competitors, economic trends, legal regulations and market trends. In the questionnaire there are a number of other questions regarding ing the the abov abovee thre threee busi busine ness ss proc proces esse sess as well well as the the addi additi tion onal al questions regarding each of the other seven SCM processes. This expl explai ains ns the the nece necess ssar ary y ef effo fort rt in data data coll collec ecti tion on,, whic which h occu occurs rs in conjunction with the participation in the study. Based on the information gathered and using statistical methods, the the busi usiness ness will will then hen be app apporti rtioned ned to one of the fol follow lowing categories in accordance with their performance and with regards to the above supply chain performance indicators: • Leading Businesses : highly effective and efficient. • Innovative Businesses : high effectiveness with simultaneous low efficiency. Renovating ng Business Businesses es : high • Renovati high ef effic ficie ienc ncy y with with simu simult ltan aneo eous us low low effectiveness. • Straggling Businesses : low effectiveness and efficiency. The leading businesses are also innovatively inclined. But since they they also also oper operat atee ef effic ficie ient ntly ly,, they they succ succee eed d in ac achi hiev evin ing g a high higher er cust custom omer er focu ocus and and cost cost adva advant ntag ages es.. This his ca cate tego gory ry incl nclude udes busi busine ness sses es whic which h have have set up elec electr tron onic ic busi busine ness ss netw networ orks ks with with suppliers, wholesalers, and retailers. The straggling businesses, however, not only fail to create competitive advantages in the market and use information technologies, but also do not have their financial

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situation under control. Due to the diversity of products and business proces processes ses there there will will contin continue ue to be a distin distincti ction on betwee between n proces processs industry, discrete industry, and consumer goods industry. The study comes to the following exemplary results: • Lead Leadin ing g busi busine ness sses es ac achi hiev eve, e, depe depend ndin ing g on the the sect sector or,, an 8 % (pro (proce cess ss indu indust stry ry), ), to almo almost st 32 % (dis (discr cret etee indu indust stry ry), ), high higher er for forec ecas astt ac accu cura raccy than han the stra strag gglin gling g busi usiness nesses es (76 (76.67 .67 % vs. 69.17 %, and 69.54 % vs. 37.8 %). • Expe Expend ndit itur uree on tran transp spor ort, t, measu measure red d as a perc percen enta tage ge of sales sales,, is abou aboutt twotwo-fif fifth thss lowe lowerr amon amongs gstt the the lead leadin ing g busi busine ness sses es than than amongst the straggling businesses (2.9 % vs. 1.7 %). • The missed missed revenues revenues due to non-d non-deli eliver verabl ablee items items is on average average more more than than two two and and a half half time timess high higher er amon amongst gst the the stra stragg ggli ling ng businesses than amongst the leading businesses (6.7 % vs. 2.5 %). • In the the cons consum umer er good goodss indu indust stry ry,, misse missed d re reve venu nues es amon amongs gstt the the straggling businesses due to non-deliverable items are even almost seven and a half times as high as those of the leading businesses, as the latter are able to succeed in almost completely avoiding supply shortages (7.5 % vs. 0.05 %). • Leading Leading businesses businesses have have about one-thi one-third rd lower lower sales expenses expenses than the straggling businesses (4.3 % vs. 6.2 %). • The duratio duration n requir required ed for re-pla re-planni nning ng is almost almost one third higher higher amongst the straggling businesses when compared with the leading businesses (80.5 h vs. 55.8 h). • The The use use of avai availa labl blee prod produc ucti tion on ca capa paci city ty amon amongs gstt the the lead leadin ing g businesses lies at around one fifth higher than amongst the stragglin gling g busi busine nesse ssess (pro (proce cess ss indu industr stry: y: 86 % vs. vs. 68.5 68.5 %, disc discre rete te industry: 82 % vs. 67 %). • The costs costs due to inventor inventory y obsolesc obsolescenc encee are nearly nearly four times times as high high among amongst st the the stragg stragglin ling g busine businesse ssess as amongs amongstt the leadin leading g businesses (3.38 % vs. 0.91 %). In order to continue the validation of the results, the businesses were correlated in accordance with their classification with the annual sales growth and annual earnings growth (as overriding figures for the business’s success). Figure 4.7 4.7 illustrates illustrates the result.

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) 1 / 8 0 0 2 P A S d n a G U S A . p c ( n i a h c y l p p u s e h t f o s r o t a c i d n i e c n a m r o f r e p d n a s s e c c u s s s e n i s u b n e e w t e b n o i t a l e r r o C 7 . 4 . g i F

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As ca can n be seen seen from from the the diag diagra ram, m, the the lead leadin ing g busi busine ness sses es ar are, e, withou withoutt except exceptio ion, n, clearl clearly y superi superior or to the the stragg stragglin ling g busin business esses es in all of the above industries, and are able to generate between 5.9 % and 12.4 % higher sales growth. Here, the better recognition and fulfilm fulfilment ent of custom customer er requir requireme ement ntss is precip precipita itated ted in compet competiti itive ve advantages. The difference in earnings growth is even more clearly evident: there, the leading businesses are between 12.4 % and 27.4 % higher. The reason is that the leading businesses are not only more effective but also more efficient, i.e. they show a better domination of the cost-related aspects. The influence upon profits seen as the difference between the sales and the cost cannot be overlooked. As the results show, the discernible trend is clear, unambiguous, and and confi confirm rmss the the unde underl rlyi ying ng assu assump mpti tion on,, name namely ly that that the the use use of leading business practices actually and significantly contributes to a higher higher perfor performan mance ce capabi capabilit lity y and thus thus to corpor corporate ate succes success. s. The The study highlights some of the innovative business practices as being particularly relevant: • The previousl previously y widespread widespread supply-pu supply-push sh approach approach to managing managing the supply chain described in Chap. 1 Chap. 1 is is used around three to four times more often by the straggling businesses than the leading businesses (60 % vs. 18.6 % in the processing industry and 50 % vs. 11, 7 % in the consumer goods industry). The least pronounced is the difference in the discrete industry (29.8 % vs. 24.3 %). • The The mor more re rece cent ntly ly int introd roduce ced d con conce cep pt of the the dem demandand-p pull approach also described in the first chapter is used up to twice as frequently by leading businesses as by straggling businesses (process industry: 81.4 % vs. 40 %, consumer goods industry: 91.3 % vs. 55.6 %). Here again the difference in the discrete industry is the least pronounced (75.7 % vs. 70.3 %). • The expenses expenses for for procuremen procurementt managed managed by the the concepts concepts of suppli supplier er managed inventory (SMI), and vendor managed inventory (VMI), as described in Sect. 4.1.2 Sect. 4.1.2 are are more than one third higher amongst the the lead leadin ing g busi busine ness sses es than than amon amongs gstt the the stra stragg ggli ling ng busi busine nesse ssess (consumer goods industry: 80 % vs. 45.5 %). It is worth noting that that the the diff differ eren ence ce from from the the re reno nova vati ting ng busi busine ness sses es is fa farr more more pronounced: in the discrete industry and in comparison, the concept is used more than twice as often by leading businesses (37 % vs. 15 %).

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Sinc Sincee the the inno innova vati tive ve busi busine ness sses es ar aree ahea ahead d of the the stra stragg ggli ling ng businesses in terms of effectiveness and thus also customer focus, the assumption could be made that they may have higher revenue growth. However, as can be seen in the diagram above, the straggling businesses have an almost identical and in one case (discrete industry), even superior sales performance. A very similar picture emerges for the growth in earnings. The obvious conclusion is that whilst the businesses concerned actually invest in improving their customer and mark market et focu focus, s, they they do not not go abou aboutt this this with with the the same same leve levell of competence as the leading businesses. In other words, whilst they must bear the cost of these investments, they are not however able to convert them into actual competitive advantage. The use of information technology is a very important aspect in conjunction with the business practices. The reason for this is that the execution of business processes is, in most cases, supported or even made possible by IT systems. This will be discussed in the following section.

4.4.3 4.4.3 Adoption Adoption of Supply Supply Chain Applicati Applications ons in Leading Businesses The data collected can also be evaluated in terms of the use of IT systems in enabling and supporting leading business practices. Hence conclusions can be drawn with regards to the practical implementation of adaptive supply chains and e-business networks. The diagram belo below w prov provid ides es a spec specifi ificc over overvi view ew of the the re resu sult ltss for for the the lead leadin ing g businesses. It incorporates the various development stages of supply chain application from the Supply Chain Integration Concept shown in Fig. 4.5 4.5.. As shown in the chart, only a quarter of the businesses surveyed are using a state-of-the-art SCDM application. It should also be noted that there are only leading businesses included, which are typically open to innovation. On the other hand, more than half of the businesses (55.8 %), are using other IT systems to support their supply chains. This number results from the incremental method of presentation: busi busine ness sses es that that use use Adva Advanc nced ed Plan Planni ning ng Syst System emss (APS (APS)) ar aree also also probably working with Enterprise Resource Planning systems (ERP systems). The various applications, as explained in Sect. 4.1.3 Sect. 4.1.3 are are of a comp comple leme ment ntar ary y natu nature re—t —tha hatt is they they buil build d upon upon ea each ch othe otherr and and

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Suppor ortt of supp supply ly chain chain mana manage geme ment nt by IT syst system emss in leadi leading ng Fig. Fig. 4.8 4.8 Supp businesses (cp. ASUG (cp. ASUG and SAP 2008/1) 2008/1 )

complement each other. The penetration of leading businesses by IT systems for the realisation of adaptive supply chains can therefore cert ce rtai ainl nly y be cons consid ider ered ed to be adva advanc nced ed.. The The same same appl applie iess to the the innovative businesses (Fig. 4.8 4.8). ). The picture is different as far as the renovating businesses and stragg stragglin ling g busine businesse ssess are concer concerned ned:: for exampl example, e, more more than than two thirds of innovative businesses use information and communication tech techno nolo logy gy syst system emss for for proc proces essin sing g the the conc concep eptt of Coll Collab abor orat ativ ivee Planning, Forecasting and Replenishment (CPFR), as described in Sect. 2.2 2.2.. In comp compar aris ison on,, the the prop propor orti tion on amon amongs gstt the the re reno nova vati ting ng businesses accounts for merely 2 %. In summary it can be stated, that based upon the results obtained in the study, the use of innovative supply chain applications verifiably helps businesses to be effective and efficient. This is consistent with the findings of a similar study, which was conducted by SAP together with with PRTM PRTM,, and and also also conc conclu lude dess that that the the use use of appr approp opri riat atee IT solu soluti tion onss for for supp supply ly chai chain n mana manage geme ment nt has has a sign signifi ifica cant nt impa impact ct upo upon the the effici fficien enccy and and the financ nanciial situ situat atio ion n of busine siness sses es (cp. Hofmann (cp. Hofmann 2004, 2004, pp. 82).

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References Ahlstrom, J. (2014). How to succeed with continuous improvement: A primer for becoming the best in the world . New York: McGraw-Hill. ASUG (Americas’ SAP Users’ Group) and SAP AG. (2008a, September 10). Impact of adopting supply chain planning best practices (Session 0302). ASUG and SAP benchmarking overview webcast . Newtown Square, PA: ASUG & SAP SE, 2008/1. ASUG (Americas’ SAP Users’ Group) and SAP AG. (2008b, September 10). Cros Crosss-fu func ncti tion onal al best best prac practi tice cess and and thei theirr impa impact ct on key key perf perfor orma manc ncee indicators (Session 0313). ASUG and SAP benchmarking overview webcast . Newtown Square, PA: ASUG & SAP SE, 2008/2. Bout Boutro ros, s, T., T., & Purd Purdie ie,, T. (201 (2013) 3).. The proces processs improv improveme ement nt handbo handbook: ok: A blueprint for managing change and increasing organisational performance (1st ed.). New York: McGraw-Hill. Chopra, S., & Meindl, P. (2015). Supply chain management: Strategy, planning & operations (6th ed.). Upper Saddle River, NJ: Prentice Hall. Clark, R. C., & Mayer, R. E. (2011). E-learning and the science of instruction: Proven guidelines for consumers and designers of multimedia learning (3rd ed.). San Francisco: Pfeiffer. Colehower, J., Matthews, P., Muzumdar, M., & Pernat, A. (2003). The adaptive supply chain: Postponement for profitability. In Cap Gemini Ernst & Young (Ed.), Study on understanding postponement as a supply chain strategy. New York. Deiser, R. (2009). Designing the smart organisation: How breakthrough cor porate learning initiatives drive strategic change and innovation (1st ed.). San Francisco, CA: Jossey Bass. Donovan, J. J. (1994). Business reengineering with information technology: Sustaining your business advantage: An implementation guide. Upper Saddle River, NJ: Pearson Prentice Hall. Elkins, D., & Pinder, D. (2015). E-learning fundamentals: A practical guide paperback . Alexandria, VA: ATD Press. Gleissner, H., & Femerling, J. C. (2014). Logistics: Basics – exercises – case studies (Springer Texts in Business and Economics). Heidelberg: Springer. Gunther, K. (2003). Supply chain assessments with ARIS EasySCOR – Introduction and case study, IDS Scheer, Inc. (Ed.), Webcast at Supply Chain World 2003. Berwyn, PA. Hamel, G. (2007). The future of management . Boston: Harvard Business School Press. Hamel, G. (2012). What matters now: How to win in a world of relentless change, ferocious competition, and unstoppable innovation. San Francisco, CA: Jossey-Bass. Hammer, M., & Champy, J. (2006). Reengineering the corporation: A mani festo for business revolution. New York: Harper-Collins.

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Hand Handfie field ld,, R. B., B., & Nich Nichol ols, s, E. L., L., Jr. Jr. (200 (2002) 2).. Supp Supply ly chai chain n rede redesi sign gn – Transforming supply chains into integrated value systems. Upper Saddle River, NJ: FT Press. Heinrich, C., & Betts, B. (2003). Adapt or die – Transforming your supply chain into an adaptive business network . Hoboken, NJ: Wiley. Hiatt, J., & Creasey, T. (2012). Change management: The people side of change (2nd ed.). Loveland, Loveland, CO: Prosci Prosci Research. Research. Hofman Hofmann, n, P. (2004) (2004).. SCM spotli spotlight ght:: Turn Turn supply supply chain chain ineffic inefficien iencie ciess into into concrete concrete bottom-line bottom-line dollar value. SAP AG: SAP Insider , 82–86. Hugo Hugos, s, M. H. (201 (2011) 1).. Essen Essentia tials ls of supply supply chain chain manage managemen ment t (3rd (3rd ed.). ed.). Hoboken, NJ: Wiley. Ijioui, R., Emmerich, H., & Ceyp, M. (Eds.). (2010). Strategies and tactics in supply chain event management . Berlin: Berlin: Springer. Springer. Jes Jeston, ton, J., & Nelis elis,, J. (201 (2014) 4).. Busines Businesss proces processs manage managemen ment t (3rd (3rd ed.) ed.).. New York: Wiley. John Johnst ston on,, G. (201 (2012) 2).. Busin Busines esss proc proces esss reen reengi gine neer erin ing: g: A simp simple le proc proces esss improv improveme ement nt approa approach ch to improv improvee busine business ss perfor performan mance ce (The Business Business Productivity Series Book). Seattle, Washington. Kotler, P., Berger, R., & Bickhoff, N. (2010). The quintessence of strategic mana manage geme ment nt:: What What you you real really ly need need to know know to surv surviv ivee in busi busine ness ss. Heidelberg: Springer. Kotter, J. P. (Ed.). (2011). On change management, HBR’s 10 must reads on change management (including (including featured article “Leading Change,” by John P. Kotter). Boston, MA: Harvard Business Review Press. Kotter, J. P. (2012). Leading change, with a new preface by the author . Boston, MA: Harvard Business Review Press. Lee, H. L. (2004). The triple-a supply chain (pp. 1–11). Boston, MA: Harvard Business Review OnPoint. Mella, Mella, P. (2012) (2012).. System Systemss thinki thinking: ng: Intell Intellige igence nce in action action (pers (perspec pective tivess in business culture). Heidelberg: Springer. O’Mara, P. (Ed.). (2013). TQM: Introduction to and overview of total quality management . Milwaukee, WI: ASQ Quality Press. Otto, Otto, A. (2003) (2003).. Supply Supply chain chain event event manage managemen ment: t: Three Three perspe perspecti ctives ves.. The International Journal of Logistics Management, 14, 1–13. Poluha, R. G. (2001). SCM in der Praxis – Projektmanagement komplexer SCM Projekte. In O. Lawrenz et al. (Eds.), Supply chain management. Konzepte, Erfahrungsberichte und Strategien auf dem Weg zu digitalen Wertschopo€p fungsnetzen (2nd ed., pp. 311–327). Braunschweig and Wiesbaden: Vieweg (German Edition). Poluha, R. G. (2007). Application of the SCOR model in supply chain management . Amherst, NY: Cambria Press. Radjou, N., Orlov, L. M., & Nakashima, T. (2002, February). Adaptive supply netw networ ork ks. In Forre orresster ter Res Resea earc rch h, Inc. Inc. (Ed (Ed.), .), TechStrategy (Brief). Cambridge, MA.

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SCC (Supply-Chain Council) (Ed.). (2008). Supply-chain operations referencemodel: Overview of SCOR version 9.0. Washington, DC: APICS. Segal, J. (2003). Adaptive supply chains: Why companies have to adapt or decline. In The National Computing Centre (NCC) Ltd. (Ed.), Management briefings—Supply chain & supplier relationship management . Amersham, Buckinghamshire. Seibt, Seibt, D. (Ed.). (Ed.). (1997) (1997).. CEBUSNET CEBUSNET consolidati consolidation on framework framework . In D. Seibt, P. Bielli, N. Bjørn-Andersen, A. Bolz, R. Borring-Olsen, G. Christensen, et al. Working Working paper series, series, University University of Cologne, Cologne, Department Department of Information Systems and Information Management, Working Paper 97/1, Cologne. Senge, P. M. (2006). The fifth discipline: The art & practice of the learning organizatio organization n paperback paperback (Revi (Revise sed d & Upda Updated ted ed.) ed.).. New New York York:: Rand Random om House. Taiichi, O. (1988). Toyota production system: Beyond large-scale production. Portland, OR: Productivity Press. Taiichi, O. (2015). Management lessons from Taiichi Ohno: What every leader can can lear learn n from from the the man man who who inve invent nted ed the the Toyo Toyota ta prod produc ucti tion on syst system em. New York: McGraw-Hill. Waller, M. A., & Esper, T. L. (2014). The definitive guide to inventory management: Principles and strategies for the efficient flow of inventory across the supply chain (Council of Supply Chain Management Professionals) (1st ed.). Upper Saddle River, NJ: Pearson. Watson, M., Lewis, S., Cacioppi, P., & Jayaraman, J. (2014). Supply chain network design: Applying optimisation and analytics to the global supply chain (2nd ed.). Upper Saddle River, NJ: Pearson. Wright, S. (2013). Competitive intelligence, analysis and strategy: Creating organisational agility (1st ed.). Abingdon: Routledge.

5

Conclusion: What Matters Is the Right Balance

The best supply chains aren’t just fast and costeffective. They are also agile and adaptable, and they ensure that all their company’s interests stay aligned. (cp. Lee (cp. Lee 2004, 2004, p. 2).

5.1 5.1

The Winne Winners rs in the Comp Competi etiti tion on of Su Supp pply ly Chains Chains

The The dema demand nd for for a stan standa dard rdis isat atio ion n of supp supply ly chai chain n proc proces esse sess and and business processes, material and information flows and workflows often has an ambivalent character. On the one hand, a number of businesses see great potential for optimisation in the harmonisation and improvement of their processes. However on the other hand, there are often concerns that the standardisation of structures and processes could cause strengths that result purely from the diversity and, as a result, uniqueness is lost. Ultimately, an over-extensive standardisation would lead to stagnation, because ultimately all competitors would have achieved the same performance level and there would be no more differentiation. In this case, Supply Chain Management would only contribute to a limited extent to the achievement of competitive advantages or, in extreme cases, could even lead to the contrary, and therefore result in competitive disadvantages. Thom Thomas as Dave Davenp npor ort, t, one one of the the lead leadin ing g expe expert rtss in the the field field of process optimisation and standardisation, has summarised it aptly: When it comes to the standardisation of their processes, businesses # Springer-Verlag Berlin Heidelberg 2016


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have have mixe mixed d fe feel elin ings gs for for a good good re reas ason on,, sinc sincee this this is also also alwa always ys connected, in some way, to certain interchangeability. This in turn can quickly lead to increased competition and pressure on prices and margins. On the other hand, standardisation is essential since it leads to benefits in many cases due to the associated efficiency and effectiveness it leads to benefits in many cases. In any case, it is better to partic participa ipate te early early and active actively ly in standa standardi rdisat sation ion activi activitie tiess and to “drive” these, as opposed to becoming forced into being “driven”. And it is of course always better to help shape a standard than to be put out of business by it (cp. Davenport (cp. Davenport 2005, 2005, p. 108). There herefo forre, a busi usiness ness must must find find the the right ight balan alance ce betw etween standardisation and customisation to sustainably improve its competitive position and to enable its expansion. A great benefit of supply chain management lies undoubtedly in the definition of a standardised, common language for communication between the various internal functional areas and the partners of the supply chain network. Only with a common understanding of all parties involved does an optimised design of the customer-supplier relationships along the entire supply chain no longer represent a problem. In conjunction with the activities related to the ongoing analysis and optimisation of the supply chain, the aspect of individualisation also comes into effect. Although this represents a major challenge, at the same time it constitutes a “larger than life” and also necessary condition in order to remain competitive. Businesses must continuously work on improving measures regarding functional, organisational and information technology levels to enable the flexible design and integration of enterprise-internal and cross-enterprise supply chain processes. Marlon Dumas, Marcello La Rosa, Jan Mendling and Hajo Reijers, who dealt in-depth with the subject of business process management, come to the conclusion that it is crucial to find the right balance between the inward and outward views. The enterprise and supply chain strategy on the one hand and the customer perspective on the other must be properly matched. In a unilateral focus on the customer there is a risk that businesses are based too much on the short-term operation operational al efficiency efficiency and provide provide insufficien insufficientt contribut contributions ions to the long-term development and expansion of the success potential and core competencies. Conversely, a one-sided focus on the business and

5.1

The Winners in the Competition of Supply Chains

145

sup supply chain str strategy can, figuratively speaking, resul sult in “overlooking the customer” and thereby missing the actual operational objectives (cp. Dumas et al. 2013 2013). ). Consequently, it is no longer just a matter of creating surplus value, but constantly redefining this added value across the entire supply chai chain. n. The The ulti ultima mate te goal goal is to cont contro roll a dyna dynami micc or evol evolut utio iona nary ry process that enables a balance between the requirements of customers on the one hand and the supply chain competencies on the other. For this purpose, it is necessary to transform static supply chains into adaptive networks that are business-related, event-driven and selfregulating. As a result, supply chain management best accomplishes its actual task: the continuous, proactive synchronisation of consumer demand and business value. Innovative approaches to implementing and supporting adaptive supply chains, such as the presented Supply Chain Design Management, advise of potential paths to the future of continuous adaptation to changing market requirements and value-based networks. They may, however, not be considered in isolation under any circ circum umst stan ance ces. s. Rath Rather er,, they they shou should ld be seen seen in a holi holist stic ic cont contex extt alon along g with with the the over overal alll corp corpor orat atee stra strate tegy gy,, the the inpu inputt and and outp output ut variab variables les,, the corpor corporate ate enviro environme nment, nt, employ employees ees,, organi organisat sation ional al structure, information technology and business processes. Paul Hofmann, Chief Technology Officer of Space-Time Insight, sees the combination of performance measurement and comparison and and the the evol evolut utio ion n towa toward rdss an adap adapti tive ve ente enterp rpri rise se as an esse essent ntia iall prerequisite, in order to enable businesses to implement and realise adaptive supply chains. He is of the opinion that supply chain design management will play an increasingly important role in the future, due due to the ac acce celler erat atiing ra ratte of cha change nge of the the sup supply ply chai chain n in businesses (cp. Hofmann (cp. Hofmann 2004, 2004, p. 86). Again, it is about finding the right balance. This allows the coordinated and optimised interaction within a business process-orientated supply chain integration concept, supported by a continuous improvement process. You may ask: on what score? The answer is obvious: in order to make a very worthwhile contribution to increasing the value and securing the long-term success of the business, thereby enabling your business to be amongst the winners in the competition of supply chains!

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References Davenport, T. H. (1993). Process innovation – Reengineering work through information technology. Boston, MA: Harvard Business School Press. Dumas, M., La Rosa, M., Mendling, J., & Reijers, H. A. (2013). Fundamentals of business process management . Heidelberg: Springer. Hiatt, J., & Creasey, T. (2012). Change management: The people side of change (2nd ed.). Loveland, Loveland, CO: Prosci Prosci Research. Research. Hofmann, P. (2004). SCM spotlight: Turn supply chain inefficiencies into 1084 concrete bottom-line dollar value. SAP AG, SAP Insider, pp. 82–86. Levitt Levitt,, H. J. (1965) (1965).. Applied Applied organi organisat sation ional al change change in indust industry: ry: Struct Structura ural, l, technology and humanistic approaches. In J. G. March (Ed.), Handbook of organisations (pp. 1144–1170) 1144–1170).. Chicago, Chicago, IL: Rand McNally.

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About the Author

Dr. Rolf G. Poluha holds

a Bachelor of Indust Industria riall Engin Engineer eerin ing g from from Aalen Aalen UniUniversit versity, y, Germa Germany ny,, a Master Master of Busine Business ss Admi Admini nist stra rati tion on from from the the Univ Univer ersi sity ty of Stuttgart, and a Ph.D. in Economics from the University of Cologne in Germany. He started his career as Project Manager with SAP in Germany. Thereafter, he managed managed intern internati ationa onall project projectss in Europ urope, e, USA and and Asia sia for for Bear Bearin ing g Poin Pointt (form (former erly ly KPMG KPMG Consu Consult ltin ing) g).. Since re-joining SAP in 2003, he has been been re respo spons nsib ible le for for manag managin ing g large large,, glob global al accou account ntss in Nort North h America and Europe. His custom customers ers compri comprised sed of leadin leading, g, multimulti-nat nation ional al compan companies ies fro from High Tec ech h Elec Electtron ronics, ics, Telec eleco ommu mmunica ication tions, s, Discr screte ete Manu Manufa fact ctur urin ing, g, Aero Aerosp spac acee & Defe Defenc nce, e, and and Cons Consum umer er Good Goodss Industries. In addition to his practical experiences with Supply Chain Management, he has studied the topic in the context of an in-service disser dissertat tation ion projec projectt at the Univer Universit sity y of Cologn Cologne, e, which which was also also published in the English language: • Application of the SCOR Model in Supply Chain Management , Cambria Press, Amherst, New York and London 2007 (recommended by the Supply Chain Council) Besi Beside dess his his Ph.D Ph.D.. thes thesis is,, he has has publ publis ishe hed d vari variou ouss arti articl cles es and and book bookss conc concer erni ning ng Supp Supply ly Chai Chain n Mana Manage geme ment nt,, one one of them them in # Springer-Verlag Berlin Heidelberg 2016


157

158

About the Author

coop cooper erat atio ion n with with Pete Peterr A. Bols Bolsto torff rff and and Robe Robert rt G. Rose Rosenb nbau aum, m, authors of the renowned book Supply Chain Excellence: A Handbook for Dramatic Improvement Using the SCOR Model . As co-author, he translated the original version into German language and furthermore adap adapte ted d the the cont conten entt to the the Germ German an busi busine ness ss envi enviro ronm nmen entt (see (see Bolstorff et al. 2007). He has been invited to be a speaker at business conferences and semi semina nars rs.. More Moreov over er,, he has has give given n lect lectur ures es on the the subj subjec ectt at the the Univer Universit sity y of Colog Cologne, ne, Aalen Aalen Univer Universit sity, y, Univer Universit sity y of Stuttg Stuttgart art,, Geor Georgi giaa Stat Statee Univ Univer ersi sity ty in Atla Atlant nta, a, Geor Georgi gia, a, and and Duke Duke Univ Univer er-sity—Pratt School of Engineering in Durham, North Carolina. Suggestions, comments and questions are always very welcome and can be sent by email to the author: [email protected].

About the Series Editor

Prof. Dr. Nils Bickhoff holds holds

an M.Sc. and a Ph.D. in business administration and and began egan his ca carree eerr as a con consul sultant tant with Roland Berger Strategy Consultants in 1995. He advised international clients on matt matter erss of stra strate tegy gy,, orga organi nisa sati tion on,, bran brandi ding ng,, and and corp corpor orat atee finan finance ce,, and and was also responsible for Roland Berger’s global research & development activities. In 2005 he founded his own comp compan any y and and has has sinc sincee been been advi advisin sing g top managers on all issues of strategic mana manage geme ment nt.. Nils Nils Bick Bickho hoff ff has has auth author ored ed and and publ publis ishe hed d seve severa rall mana manage geme ment nt book books, s, is edit editor or of the the “Qui “Quint ntess essen ence ce”” seri series es,, give givess lectures and seminars, and is Professor of Business Administration and Marketing at the European Distance University in Hamburg.



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Rolf G. Poluha, The Quintessence of Supply Chain Management, Springer, 2016

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