A DEEP DIVE INTO SMART SUPPLY CHAIN EFFICIENCY. Petr NOVOTNY, Martin FOLTA

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1 A DEEP DIVE INTO SMART SUPPLY CHAIN EFFICIENCY Petr NOVOTNY, Martin FOLTA Škoda Auto University, Mlada Boleslav, Czech Republic, EU, Abstract This article addresses the main factors permitting to achieve supply chain efficiency. From the point of view of smart supply chain optimization, it is crucial to develop a framework for identifying important trade-offs between production, storage, merchants and distributors, with the purpose to develop a solvable optimization problem. In order to control the most impacting factors, it is essential to define and evaluate them in an expert manner. The aim of this paper is to decompose individual SCM capabilities until measurable level. On the basis of multiple worldwide sources and expertise the following resilience capabilities are identified as major soft influencers: supply chain visibility, collaboration, adaptability, agility, and Smart Supply Chain competitiveness. Our analysis emphasises effective information flow, increased supply chain reactivity and flexibility. Keywords: Resilience, Supply Chain Visibility, Competitive Ability, SCM Capabilities, Collaboration, Agility 1. INTRODUCTION In today s environment, managing and mitigating supply chain risks constitute top priorities [1]. As companies go increasingly global they become more vulnerable to various supply problems. Thus, the next mission for supply chain management is to control the ever-growing frequency and intensity of economic disruptions such as currency fluctuations, forecast accuracy, commodity price evolution and people capacity. Last but not least, because of the increasing centralization natural disasters can have a strong impact even upon the world s biggest car manufactures. There is evidence that the tendency of many companies to seek low-cost solutions, due to pressure on margin, may eventually result into a leaner and thus more vulnerable supply chain [2]. 2. RESILIENCE CAPABILITIES ANALYSIS The concept of resilience capabilities analysis is divided into three phases. First, based on an overall literature review, it is possible to compile quite a long list of resilience capabilities. The next step in our approach is an expert selection of appropriate resilience capabilities that have a direct impact on the key indicators for the supply chain management performance. The selection process is executed at two levels involving questioners as well as direct discussion with top managers of leading vehicle manufactures and Tier 1 Automotive Suppliers (e.g. Skoda Auto, Volvo, Knorr-Bremse, Valeo, Honeywell, etc.) on the one hand, and on the other with the world s largest logistics providers (UPS, DHL, CEVA Logistics, Expeditors, etc.) on the other. The third and final part presents a list of major resilience practices as found in the literature [5],[6],[7] Resilience capabilities analysis Each individual feature of resilience capability which is considered as key indicator for further supply chain robustness and supply chain performance is thoroughly analysed [3], [4]. Adaptability Capacity Agility Collaboration Anticipation Dispersion

2 Efficiency Financial Strength Flexibility Market Position Organization Quick Response Recovery Security Visibility 2.2. expert selection of resilience capabilities Any smarter automotive supply chain recognizes the critical business need for supply chain visibility. It regards visibility as the key building block for responding to the other top challenges, including cost containment, risks, customer and globalization issues. ADAPTABILITY is the ability to modify one s operations in response to challenges or opportunities [4]. Lead time reduction, learning from experience. AGILITY is the capability of firms to quickly respond to changes in both supply and demand [10] COLLABORATION is absolutely necessary as any single firm cannot possibly be knowledgeable in all potential disruptions that may occur throughout the Supply Chain [6] while being able to manage them. Collaboration with upstream suppliers can reduce supply (disruption) risk and similarly downstream collaboration with customers can reduce demand risk [11]. Collaborative forecasting, customer management, postponement of orders, product life cycle management, risk sharing with partners. Table 1: Expected benefits of collaborative SCM systems [12]. BENEFIT Phone Offline auctions Web based entry Elec. Hub portal 3P El. Market EDI Shared collabor. Systems Cycle time reduction Low Low Medium High High High High Service level Low Low Medium High High High High Market intelligence Low Low Medium Medium Medium Medium High Process cost reduction Low Medium Medium High High High High Inventory cost reduction Low Low Low Medium Medium High High Product cost reduction Low Medium Medium High High Medium Medium Overall benefit Low Low Low High High High High COST Integration cost Low Low Low High High Medium High Data translation cost Medium Medium Medium Medium Medium High Medium Switching cost Low Low Low High High High High Partnership instability cost Low Low Low Medium High Medium Low Overall cost Low Medium Low Medium Medium High Medium FLEIBILITY is one of the key components which can be used in order to resilient disruption within any supply chain. The main idea is that resources should serve to handle a broad variety of different tasks. Flexibility increases a company s competitiveness during normal operations while protecting it against disruptions [14]. SUPPLY CHAIN VISIBILITY means the traceability of products within the course of their transit from the manufacturer or supplier to their final destination [11]. Business intelligence, Information technology, Products, Assets and People visibility, Information exchange.

3 Fig. 1: Maturity of SCM [15] Information is the power that not only drives business, but given the tools available within our Supply Chain IT world, it also drives efficiency, profit and makes it possible to expand the horizons of productivity which in today s competitive environment represents an inevitable approach to survive in a global market Resilience Supply CHAIN management practices Prior to focusing on Resilience SCM practices, Azevedo and Machado present Agile Approach toward SCM. The Agile Supply Chain Management Approach is designed to develop an ability to respond rapidly and cost effectively to unpredictable changes [6]. Table 1 shows the main Agile Supply Chain Management Practices as described in literature [5, 6, 7]. Table 1: Agile practice in the supply chain context [2]. : Agile supply chain management practice Literature Daily internal operations [5] [6] [7] Use of IT to coordinate/integrate activities in manufacturing Centralized and collaborative planning To produce in large or small batches To accommodate changes in production mix To reduce manufacturing throughput times to satisfy customer delivery To reduce development cycle times Facilitate rapid decision-making Agile practices deployed [5] [6] [7] Use of IT to coordinate/integrate activities in Logistics and distribution To alter deliver schedules to meet customer requirement Speed in adjusting delivery capability Speed in improving - customer service - delivery reliability - responsiveness to changing market needs Speed in increasing levels of product customization

4 Resilient approach is the system s ability to return to its original state or into one requested in the future after overcoming a disturbance and avoiding the occurrence of failure modes [10]. Metaphorically speaking, resilience in the supply chain can be expressed as the ability of a material to absorb shock without any permanent deformation. Table 2 shows a set of principal resilient practices in SC as described in literature [8, 9, 10]. Table 2: Resilient practices in the supply chain context [2]. : Resilient supply chain management practices Literature Daily internal operations [8] [9] [10] Multi-skilled workforce Excess of capacity requirements Postponement Minimal batch size Strategic stock Make/Buy strategy To Create Supply chain visibility Lead time reduction Supply chain risk management approach Develop Collaboration across SC Resilient practices deployed [8] [9] [10] Flexible transportation Demand-based management 3. CONCLUSION The ability to make right decisions on short notice in order to coordinate a complex array of activities among various partners is of great importance. This has a major influence on a company's productivity, profitability, and its ability to remain competitive in the long run. The next step to be taken by manufacturers is to understand their needs and weaknesses in order to improve their operations performance and effectiveness while being able to move forward from reactive mode of dealing with disruption toward proactive planning and proactive management. ACKNOWLEDGEMENTS The work was supported by the Internal Grand Agency of ŠKODA AUTO, a.s. No.IGA/2012/3. REFERENCES [1] WRIGHT, J.: Outlook on the Logistics & Supply Chain Industry 2012, World Economic Forum, Geneva, 2012, REF [2] AZEVEDO, S.G., MACHADO, V. H.: Agile and resilient approaches to supply chain management: influence on performance and competitiveness. Logist. Res. 2012,4:49-62 [3] Miller K. A.: Framework for integrated risk management in international business. Journal of International Business Studies, Vol. 23, No. 2, 1991, pp [4] Pettit T. J., Fiksel J.: Ensuring Supply Chain Resilience: Development of a Conceptual Framework. Journal of Business Logistics, Vol. 31, No. 1, 2010, pp

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