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For some companies, one supply chain with a single set of physical assets, processes, and information systems makes the most sense, even with different products, suppliers, and customers. A company with very flexible operations can design anywhere, build anywhere, so product assignments are made based on available capacity, product costs, and target markets. Some companies, however, find that they can serve their markets better with separate supply chains. Why Different products, market segments,
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CHAPTER 1 Core Discipline 1: View Your Supply Chain as a Strategic Asset
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or regions may call for very different approaches. Or separate business units may want their own supply chains so that they can have the business control needed to achieve their specific business objectives. There are inherent risks in trying to manage disparate requirements such as increased complexity, increased costs, or unmanageable processes, organizations, and information systems in one total supply chain. When managed correctly, however, these risks can be mitigated while achieving significant benefits through tailoring key supply chain steps to enhance specific business unit (or product line) performance. One positive example of this approach is Seiko Epson Corporation s (Epson s) European Group company. Epson is a global leader in printer and imaging products for both home and business based on its strong technology, brand recognition, and reputation for quality. Behind Epson s overall leadership on imaging products there is a wide range of diversity of technology within its product portfolio. Products include inkjet printers, scanners, laser products, ink and toner cartridges, point-of-sale printers, and liquid-crystal display (LCD) projectors, to name a few. The back-end supply chain for these various product lines and businesses is often made up of separate global supply chains, each with its own suppliers, factories, and logistics routings. But the front end of the supply chain encompassing the processes that touch the customer, such as order management and distribution is common. This derivative approach allows Epson to optimize its back-end supply chain and gain substantial efficiencies in the production processes of its varied products. It also ensures that its customers interact with one Epson at the front end and can easily do business with Epson regardless of the mix of products they wish to purchase. According to Ramon Oll , Epson Europe chairman and chief executive officer (CEO), this combination allows Epson to achieve an overall efficiency in its end-to-end supply chain while increasing customer satisfaction. Another example is Michelin. A capital-intensive manufacturer, Michelin uses the same factories for customers in both its automobile makers segment and the after-market segment to increase capacity utilization, along with a single production planning process. Once the tires leave the factory, however, everything else from demand planning, order entry, and shipping to invoicing and warehousing is different. The company uses two separate supply chains to meet the needs of two different markets. For automobile makers, the company delivers tires to mounting centers, which move them directly to the assembly line, because timeliness and reliability are critical. By contrast, tires for the after-market are
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Strategic Supply Chain Management
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shipped to distributors and a variety of retailers, such as auto repair shops, car dealerships, and other retail outlets, where on-time delivery is less critical because most hold some level of inventory. Companies with both new product sales and after-sales support businesses often have different supply chains. Besides managing different activities, such as returns, repairs, and refurbishment, the after-sales support supply chain must meet very different customer service expectations. Although new product sales and after-sales support are usually structured as two distinct business units, both typically use the same production centers to gain economies of scale. Yet customer-facing processes, including demand planning, order entry, and invoicing, are tailored to the two different markets. If your company has multiple business units, identify your greatest point of shared leverage and use that as a starting point. For Michelin s passenger car business, the answer was raw materials and manufacturing assets, so the company structured its supply chains accordingly. If you can standardize within a single supply chain and avoid additional fixed assets and unnecessary variations in processes and information systems, do so. If different processes or multiple locations performing similar activities are the result of acquisitions or historically independent geographic or business units, check to see if these duplications are still needed. In many industries, converging customer requirements and the emergence of regional and global logistics service providers have opened the door to more streamlined and standardized supply chains. Leverage any synergies that you can. Here s a general rule of thumb: If you can meet the needs of your most profitable customer segments at an acceptable service level and at a reasonable cost with a single supply chain, then do so. If supply chain performance targets such as cost, lead time, and delivery for different products or market A good supply chain segments are truly at odds with each other, or if business control is an issue, then constrategy is grounded sider partially or completely separate supply in an understanding chains.
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