The following topics are discussed in this section:
- A business plan is a written document that describes the overall direction of the firm and what it wants to become in future.
(Definition) Business Plan is a statement if long-range strategy and revenue, cost and profit objectives usually accompanied by budgets, a projected balance sheet and a cash flow (source and application of funds) statement. A business plan is usually stated in terms of dollars and grouped by product family. The business plan is then translated into synchronized tactical functional plans through the production planning process (or the sales and operations planning process). Although, frequently stated in different terms (dollars vs units), these tactical plans should agree with each other and with the business plan.
- Key function such a finance, engineering, marketing and operations typically have input into the plans.
The finance function manages and tracks the sources of funds, amounts available for use, cash flows, budgets, profits and return on investment.
The Engineering function is responsible for research and development and the design and redesign of products that can be made most economically.
The Marketing function focus is on analysis of the market place and how the form positions itself and its products.
The goal of the operations function is to meet the demands of the market place via the organization’s product. Operations also manage the manufacturing facilities, machinery, equipment, labor and materials as efficiently as possible.
- The functional roles collectively support the success of the supply chain.
Supply Chain Strategy
- Functional strategies underlying supply chain management must articulate with the business plan.
- The purpose of supply chains is to be globally competitive.
- Time, distance and collaboration are basic elements in modern supply chains that impact the chains ability to respond to competitive changes in the global market place.
- In the virtual corporation and virtual networks, we can and therefore we must share ideas and data to be competitive.
- What do these strategic partnerships look like in action? Suppliers, manufacturers and customers all come together on design teams to create products that will not only satisfy customer demand but will be efficient to produce, assemble, transport and store.
Seven factors need to be carefully researched and considered when forming a supply chain strategy:
- Add value.
- Improve Market Access.
- Strengthen Operations.
- Add Technological Strength.
- Enhance Strategic Growth.
- Share Insights and Learning.
- Increase Financial Strength.
- Every potential partner organization has its strengths or core competencies.
- It’s only a successful strategic alliance if the partnership results in a “win-win” for both parties.
- Effective partnerships are a combination of shared risks, resources, rewards, vision and values.
Building Collaborative Relationships
In order to build the foundation of collaborative partnership, the partners must:
- Initiate management tasks.
- Overcome barriers to collaboration.
- Build levels of communication.
- Determine levels of collaborative intensity.
- Examine strategic importance versus difficulty to determine product categories.
Initiate Management Tasks
- Once the collaboration is official, it’s critical that top management demonstrate their enthusiastic commitment to the partnership.
- This process begins with determining the specific contribution of each party and the criteria for measuring that contribution.
- In early stages, relationships should emphasize equity in profits among all parties. Equity will help motivate all parties to work toward the good of the whole.
- The next talk is to define roles for each party, taking care to avoid redundant efforts. Conflicts can occur if these roles make one party more dependent upon another than they wish to be. To alleviate this common problem, networks should avoid sequential interdependence, in which the second party cannot begin work until the first party is done. Instead, they should establish reciprocal interdependence, in which the exchange of tasks and services occur in both directions. Examples of this include CPFR (Collaborative Planning, Forecasting and Replenishment).
- Since no contract can cover all contingencies, the next task is to create a policy for resolving conflicts.
Overcome Barriers to Collaboration
Building successful collaboration requires overcoming predictable obstacles, including the following challenges:
Sub optimization refers to a solution to a problem that is best from a narrow point of view but not from a higher or overall company point of view.
- Individual Incentives that Conflict with Organizational Goals
- Incentives, such as sales force bonuses, structured without thought for the supply chain strategy, can often be counterproductive.
- These practices create a great deal of excess inventory as well as variability in demand that the manufacturer must then deal with. Instead sales goals must be aligned with actual demand.
Working with Competitors
One firm may try to win market share at the expense of the other. Such relationships should be kept at arm’s length to ensure fairness and extra caution must be devoted to sharing information. Companies may pretend to embrace collaboration when they really only want access to information for their own benefit.
Bottlenecks Caused by Weak or Slow Partners
If the firm is not willing to invest un a technical and social change process, the only alternative may be to find a more willing or able partner who can keep up with the networks collaboration curve.
- Technology Barriers
- When potential partners have incompatible systems, it increases the difficulty of sharing data.
- Incompatible and / or antiquated hardware infrastructures can also prove a barrier to collaboration.
- Power-Based Relationship
- Rather than building relationships based upon trust and mutual benefit, the nucleus firm may use its leverage to dedicate the terms of relationships to other members.
- While the profits of the nucleus firm increase, other members of the network may suffer losses. When this occurs, the disadvantaged partner may rebel.
- Resistance may result in redundancy, loss of overall profitability for the chain or an actual reversal of the power relationship. Once in power, the mistreated party may retaliate instead of using the opportunity to develop equitable relationships along the chain.
- Underestimated Benefits
- When collaboration is viewed as another type of process reengineering, the partners generally measure the results in reduced cost and cycle time rather than return on investment (ROI), which is a better long-term indicator.
- Simply measuring efficiency increases will fail to account for some of the true long-term benefits or collaboration.
- This may lead managers to reject a collaborative venture based on a failure to see gains such as removal of reduplicated efforts, enhanced innovation and better use of total system assets and processes.
- Culture Conflicts
- Cultures tend to be egocentric and thus tens to resist external collaboration. They feel that their ways are the best ways of doing things and will often reject a different way without even considering it.
- Culture conflicts are increased when each company relies on its own sources of information and unable to see the impact of its choices on other areas of the network. When companies don’t see the negative results of their actions, they can’t learn from their mistakes.
- Another potential culture conflict can arise when managers delay or prevent collaboration. Such managers generally have safeguarded their positions by not sharing information so that they may be sought for their expertise.
- Others feel that collaboration is a fad or a bad idea altogether. Still others talk about collaboration, but they are only interested in receiving the benefits from a partner without reciprocating.
Build Levels of Communication
Communication between partners can take place on different levels; not all collaborations dependent upon the same degree of intensity of communication.
Four levels of communication:
Transactional with Information Sharing
At this level of communication, each partner has access to a single source of data about matters such as workflow, forecasts and transactions. Contracts are generally medium term.
Shared Processes and Partnership
At this level, partners collaborative in specific processes such as design. They share knowledge across the network, contracts are longer term.
Linked Competitive Vision and Strategic Alliance
At this level, supply chain partners function as virtual entity, working out even the highest level of strategy together. The partners develop considerable trust and achieve social and cultural understanding as well as information sharing. Strategic alliances may last for decades.
- Backward Integration (Mergers and Administrations)
- Outsourcing current functions isn’t the only way to forge links in a chain. Mergers or acquisitions may involve two companies in the same till rather than horizontal supplier-customer partners.
- Although mergers would seem to provide the deepest level of trust and communication, the sudden clash of business, regional and national cultures involved often requires years of work to align attitudes, technology and business practices.
Determine Levels of Collaborative Intensity
- Determining the level of collaborative intensity that each relationship requires depends on cost, quality, delivery, reliability, precision and flexibility.
- Cost speaks for itself, but cost and quality often are inversely proportional.
- Quality and delivery reliability are usually measured by number of defects allowed or late orders and are often collectively rated by members of an exchange using supplier history.
- Precision is measured as degree of variance from specifications.
- Flexibility is the ability of the supplier or manufacturer to deliver in varying quantities when given a specific number of days’ notice.
These criteria are strongly influenced by four factors related to the product or service:
- Strategic Importance
- Number of Suppliers
Examine Strategic Importance vs Difficulty to Determine Product categories
If a partnership requires more than one of the intense collaboration levels – for example, when there is a limited number of suppliers and uncertainty about an item’s availability – then the need for higher collaborative intensity can be turned as “high strategic importance”.
This model can be used to determine which suppliers are most appropriate for each of the four types of goods:
- Commodity Materials
- Low strategic importance
- Low supply chain difficulty
They require suppliers whose priority is cost reduction. These item are best purchased at arm’s length. Which of your suppliers can provide the best cost reduction on the commodity items you need?
- Bottleneck Materials
- Low strategic importance
- High supply chain difficulty
Efforts must be made to ensure that the need for these items is fulfilled. Therefore, some level of ongoing relationship with a particular supplier may be called for.
- Leveragable Materials
- High strategic importance
- Low difficulty levels
They call for collaboration to maximize both cost savings and reliability through means such as bulk purchasing by multiple members of the supply chain.
- Direct or Core Competency Materials
- High strategic importance
- High difficulty
Require strategic partnerships for longer periods of time to ensure availability and quality.
Features and Benefits of Collaboration
|Collaborative Relationship Features||Benefits|
|Joint development of shared processes.||Lower costs.|
|Open sharing of information and knowledge.||Improved quality.|
|Jointly developed performance metrics.||Better customer service.|
|Open two-way communications.||Reduced inventories.|
|Network wide visibility.||Rapid project results.|
|Clear roles and responsibility.||Reduced cycle times and lead times.|
|Joint problem solving.||More effective working relationships.|
|Commitment to the relationship.||Enhanced commitment to one another.|