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Change is a given. Market conditions shift, business strategies evolve, and new technologies emerge. If you re not paying attention, your supply chain can get out of sync. Your supply chain strategy, just like your business strategy, has Your supply chain to adapt. Although change is constant, the frestrategy, just like your quency of significant change will differ by business strategy, industry. In the PC industry, companies make fundamental changes to their supply has to adapt. chains about every three to five years, driven
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CHAPTER 1 Core Discipline 1: View Your Supply Chain as a Strategic Asset
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by the constant pursuit of lower costs and the need for rapid new product introductions. Companies have adopted new operating strategies such as make to order, white-box packaging, and resale from low-cost producers and are opening their own stores, selling directly through the Internet, and exploring other new channels. In other industries, such as aerospace, fundamental supply chain changes can occur less often every 10 years or so and have major consequences. Consider the supply chain strategies of Boeing and Airbus. Airbus s network of partners delivers finished subassemblies direct to the company s assembly line in Toulouse, France, where fewer than 500 workers do final assembly.13 Airbus s production model requires lower capital spending, spreads development risks, and leverages the know-how of many partners. Boeing today is in a state of continual change. The company is achieving marked improvements in efficiency by reducing its supply base and is working within the company and with suppliers to implement techniques of lean manufacturing. At the same time, the company is involving more risk-sharing supplier partners in its business and making great progress toward large-scale systems integration. Given the major changes experienced by the airline industry in the late 1990s and early 2000s, including bankruptcies, mergers, and acquisitions, and the impressive growth of low-cost carriers, it is likely that the supply chain strategies of major commercial aircraft manufacturers will evolve further to meet the airline industry s demand for cost-efficient solutions and to deliver profitable growth. Both internal and external factors determine your supply chain s shelf life and can trigger a need for a change in configuration. These factors include
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A new technology that transforms the dynamics of your industry. The Internet, for instance, created a direct link to customers so that companies such as Amazon could sell direct and cut out the middleman. A change in the scope of your business. If your company is offering new products or services, targeting new markets, or expanding geographically, you may need to expand your manufacturing capacity, add new distribution capabilities, develop new channels, find new suppliers, and rethink your supply chain strategy overall. A change in your basis of competition. Perhaps a new competitor has emerged with a stronger value proposition, or you need to
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Strategic Supply Chain Management
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change the type of service you offer to increase market share, or you want to compete in a new market that requires faster delivery, greater flexibility, or higher quality. Any major change to your company s basis of competition should drive a reexamination of your supply chain strategy and components. The need to assimilate a new acquisition. Mergers and acquisitions can create a need to reconfigure the supply chain. You ll have to see where it makes sense to eliminate redundancies, where to keep operations separate, and where to integrate.
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A company s growth trajectory can have major implications, too. Is your sales volume increasing or decreasing Is your industry expanding or contracting An organization and processes designed to manage and support a growing company may no longer be appropriate during retrenchment, when the focus is on cost control. In either case, your company may need to adjust supplier requirements and resize fixed assets. As an example, consider Nokia. Nokia Mobile Phones was facing a crisis in 1995 1996. After ending 1995 with a massive shortfall in profits versus plan, the business was operating at a loss in early 1996, with costs spiraling out of control. Business conditions weren t good either, with a sales slowdown and continuing handset price erosion. Pekka AlaPietala, Nokia s president, announced the need to move the company s focus from market share to profitability. Specifically, the company had to review its product portfolio with a critical eye and take actions on a number of supply chain issues, including product quality, forecasting, and manufacturing productivity. As Nokia discovered, producing 100,000 mobile phones a month is not the same as producing 100,000 phones a day. Explained Pertti Korhonen, vice president of global logistics at the time, We weren t ready for the transition to a high-volume business and rapidly found ourselves with excess inventory and quality problems with key suppliers. Nokia turned the situation around by implementing new supply chain disciplines in Europe, Asia, and the United States that included improvements in manufacturing productivity and quality, supplier development, supply chain planning, and integration. The results were impressive. For example, on-hand inventory was reduced from 154 to 68 days in nine months, releasing 450 million in cash. Taken together, these actions put the company back on track for profitable growth. Supply chain expertise was developed and maintained to build a foundation for future growth. Today, Nokia s supply chain is recognized by the rest of the industry as a true source of competitive advantage.14
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