Design of a Global Supply Chain-Issues and Concerns

Transcription

1 Design of a Global Supply Chain-Issues and Concerns Raj V. Amonkar (raj@gim.ac.in) Goa Institute of Management Abstract Purpose: In a supply chain network, facilities are the primary components where a product is manufactured or stored. During the phase of design of a supply chain network, a company decides how to configure the supply chain over the next several years. Key driver of supply chain performance in terms of responsiveness and efficiency will be taken into consideration in the decision process and the decisions include the role assigned to each facility, its capacity to perform the assigned role, the number and location of the facilities. Since supply chain design decisions pertaining to facilities are typically made for the long term and are very expensive to alter on short notice, the decisions must take into account uncertainty in anticipated market conditions over the next few years. Decisions regarding facilities are therefore a crucial part of supply chain design. The decision regarding the facility capacity and the actual number and the physical locations of the facilities in the supply chain network is based on the use of frameworks and tools. The key challenge is to assign the role of each facility that is aligned with market requirements. In this paper, the author explains how global supply chain network design decisions could be made in terms of facility roles aligned with market requirements and with uncertainty in market conditions. Design/methodology/approach: Case study approach was utilized to understand the issues and concerns in the design of a global supply chain. ABC, one of the world s leading agribusiness 1

2 companies with global operations that has made a successful foray in emerging markets was chosen for the study with the use of ABC s actual operating data. Certain names and other identifying information were disguised to protect confidentiality. Findings: Based on the study carried out, it was inferred that the unique classification of facilities in conjunction with the Puttick Grid (developed by John Puttick at the University of Warwick) has helped ABC make sound global supply chain network design decisions in terms of facility roles aligned with the market requirements. It was also inferred that ABC has used the Risk Mitigation tool to mitigate the risks associated with the markets. Research limitations/implications: Study carried out is limited to products manufactured by a single company in agribusiness with the objective of market expansion. Future studies can be carried out for different companies, businesses, products and objectives. Practical implications: This study will be of considerable interest to industry practitioners as it explains key issues and concerns in the design of global supply chains and suggests means of overcoming the issues and concerns. This study will also help other researchers in the critique of supply chain designs with varying products and businesses. Originality/value: According to the author s knowledge, it is believed that this is the first study carried out to understand the issues and concerns in the design of a global supply chain in the context of one of the world s leading agribusiness companies making a successful foray in emerging markets. Keywords: global supply chain design, emerging markets, agribusiness, issues and concerns 2

3 ABC s Foray in the Emerging Markets ABC is one of the world s leading agribusiness companies with a broad range of safe and efficient crop protection products that improve crop yields and health in all stages of plant development. The emerging markets of Asia, Brazil, Central Europe and South East Europe have played a major role in growth across the business. These markets have offered tremendous opportunity to ABC in terms of strong demand potential for its products, low cost sourcing option and macroeconomics factors (favourable tax incentives and tariffs). The stated emerging markets have also posed challenges and uncertainties to ABC with regards to performance of supply chain partners, logistics complexity and lack of transport regulations. Design of ABC s Global Supply Chain Network-Issues and Concerns Design decisions pertaining to its global supply chain network were crucial to ABC s successful foray in emerging markets. The use of readily available tools and concepts such as SAP Advanced Planning Optimizer and Framework for Network Design Decisions facilitated decisions in terms of the capacity of the facilities and the number and location of the facilities. The key challenges were in terms of decision making pertaining to the roles to be assigned to the facilities proposed in the emerging markets and products to be migrated to such facilities with the objective of ensuring that the decision is aligned with market requirements. Moreover the design decisions were required under the prevailing uncertainties in case of the emerging markets such as performance of supply chain partners, logistics complexity and the challenges with transport regulations. 3

4 Assigning facility roles aligned with market requirements and with uncertainty in market conditions ABC addressed the Issues and Concerns with the design of its global supply chain network by means of classification of its facilities in the global supply chain network, use of the Puttick Grid and use of the Risk Mitigation Tool. Classification of facilities. ABC classified the facilities in its global supply chain network into three categories and configured the resources of each facility accordingly. The classification is as follows: New Product Introduction facility: The facilities in this category were expected to perform the role of a Lead facility with focus on creation of new products, processes, and technologies for the entire network. Low Cost Receiver: This category comprised of facilities that would perform the role of a Source facility as a primary source of product for the entire global network after absorption of the technology from the New Product Introduction facility. Lean facility: This category constituted the facilities that would perform the role of a Server facility to supply the market where these are located. Some of facilities in this category were also earmarked as low cost supply sources for markets located outside the country where the facilities are located and would perform the role of an Offshore facility. Use of the Puttick Grid. It is imperative that the company s competitive strategy is based on how the customer views and appreciates the products it wishes to acquire, rather than how the company as an organisation views its own products. For this purpose the Puttick Grid (developed 4

5 by John Puttick at the University of Warwick) is often used to position products for manufacturing and supply chain requirements. ABC successfully adapted and used the Puttick Grid to position its various products and to make various decisions including the selection of products for allocation to facilities. The use of the Puttick Grid is illustrated in Table 1 through Table 4. Table 1-Key to Product Complexity s Number of Variants of the product Not more than 4 1 Between 4 and 10 2 At least 10 3 Number of Layers in bills of materials pertaining to the manufacture of the product Not more than 2 1 At least 3 3 Number of Tiers in supply chain pertaining to the manufacture of the product Not more than 2 1 Between 2 and 5 2 At least 5 3 Table 2-Key to Product Uncertainty s Number of changes in product specifications Nil 1 At least one in two years or more 2 At least one per year 3 Demand forecast accuracy for the product At least 80% 1 Between 70% and 80% 2 Note more than 70% 3 Table 3-Product Complexity s Product Complexity Product1 Product2 Product3 Variants of the product Layers in bills of materials pertaining to the manufacture of the product Tiers in supply chain pertaining to the manufacture Total score

6 Table 4-Product Uncertainty s Product Uncertainty Product1 Product2 Product3 Product Specifications Level of demand Total score The data from Table 3 and Table 4 is plotted in the Puttick Grid as shown in Figure 4. High Complexity Low High Super Value Fashion/Jobbing Uncertainty Product3 Consumer Durable Commodity Product1 Product2 Low Figure 4-Puttick Grid Plot for Product 1, Product 2 and Product 3 As evident from Figure 4, Product 1, Product 2 and Product 3 fall in the Consumer Durable, Commodity and Super Value quadrants respectively and are allocated to a Low Cost Receiver facility, Lean facility and New Product Introduction facility respectively. 6

7 Use of the Risk Mitigation Tool. The Risk Mitigation Tool in its simplest form leads to a twodimensional diagram of probability of occurrence measured against the severity of the consequences if it did occur. The technique works by assigning values to probability of occurrence and the severity of the outcome to give a two-dimensional view. This is followed by decision-making activities that result in action (Risk Reduction) or justified inaction (Risk Acceptance). The use of the Risk Ranking and Filtering tool is illustrated in Table 5 and Table 6. Table 5-Key to Probability and Severity Value Probability Severity Low Virtually impossible Insignificant financial loss and/or Insignificant regulatory/legal implications and/or No loss of company reputation and/or image Medium Only remotely possible Significant financial loss and/or Significant regulatory/legal Implications and/or No loss of company reputation and/or image High Almost certain; might well be expected High financial loss and/or Serious regulatory/legal implications and/or Loss of company reputation and/or image Table 6-Scenario Probability, Severity and Risk s Scenario Probability (I) Severity (II) Risk (I*II) Scenario 1 Low (1) High (3) Medium (3) Scenario 2 Medium (2) Low (1) Low (2) Scenario 3 Medium (2) Medium (2) Medium (4) Scenario 4 Medium (2) High (3) High (6) Scenario 5 Low (1) Low (1) Low (1) Scenario 6 High (3) High (3) High (9) Scenario 7 Low (1) Low (1) Low (1) 7

8 The data from Table 6 is in turn plotted in the Risk Ranking and Filtering tool as shown in Figure 5. Increasing Probability High Scenario 6 Medium 2 Scenario 2 4 Scenario 3 6 Scenario 4 Low 1 Scenario Scenario 1 Scenario 7 Low Medium High Increasing Severity Figure 5-Risk Ranking and Filtering Tool Plot for Scenario 1 through Scenario 7 As evident from Figure 5, Scenario 4 and Scenario 6 are in the High category. Risk Reduction is applicable in case of Scenario 4 and Scenario 6 (reducing Probability or Severity in case of Scenario 4 and reducing Probability and Severity in case of Scenario 6). On the other hand, no action need be taken in case of the other five Scenarios. 8

9 References 1. Gunther Kruse, FIOM, Supply Chain Analytics Limited (2004), Managing The Extended Supply Chain, Opportunities and Solutions For Manufacturing Migration available at: (accessed 6th.April 2014) 2. Sunil Chopra, Peter Meindl, D.V.Kalra (2010), Supply Chain Management Strategy, Planning and Operation, Dorling Kindersley (India) Pvt.Ltd. 3. Risk Ranking and Filtering, Manufacturing Technology Committee-Risk Management Working Group, Risk Management Training Guide, Product Quality Research Institute available at: (accessed 14th.June, 2013) 4. Transforming Capability Support Materials Leads Value Creation, Warwick Manufacturing Group, University of Warwick available at: rl=http%3a%2f%2fwww2.warwick.ac.uk%2ffac%2fsci%2fwmg%2feducation%2ftranscap %2Fsupportmaterials%2Fhandbooks%2Flvc%2Fgeneral%2Fputtick_grid.ppt&ei=Ltc7U- 2iMcWWrgfS-4GwAQ&usg=AFQjCNE2USzvMYgyWc4gw8sGI89zGsXy0g (accessed 11 th.june, 2013) 9