The Supply Chain Challenge "Supply Ireland"

Transcription

1 I N T E R T R A D E I R E L A N D TRADE & BUSINESS DEVELOPMENT BODY The Suppy Chain Chaenge "Suppy Ireand" A Discussion Paper on the North-South Dimension Od Gasworks Business Park, Newry, County Down BT34 2DE Contact: Dermot O Doherty e-mai dermot.odoherty@tbdb.org or Bernard McKeown e-mai bernard.mckeown@tbdb.org Teephone October 2000

2 The Suppy Chain Chaenge Suppy Ireand Contents 1. Introduction Description of Suppy Chain Issues Critique of Current Suppy Chain Activities North-South Enhancing Suppy Chain Activities North-South Concusion Introduction InterTradeIreand Trade and Business Deveopment Body InterTradeIreand Trade and Business Deveopment Body is one of six 'Impementation Bodies' estabished under the British-Irish Agreement Act, Its focus is on promoting business deveopment opportunities in the Repubic of Ireand (RoI) and in Northern Ireand (NI), by seeking areas of cross-border cooperation, which can add vaue to each other's industria competitiveness. There has been an increasing emphasis on purchase/suppy as an area where strategic competitive advantage may be enhanced - identified within this area is increased coaboration through suppy chain management 1. This ceary contributes to the objectives of InterTradeIreand as its roe is to identify issues and areas for strategic coaboration where an activity coud add vaue to the competitiveness of indigenous industry in particuar in both jurisdictions. InterTradeIreand intends to come forward with a number of specific proposas regarding good practice and recommendations for piot actions in suppy chain initiatives arising from its consutation process: this wi incude initiatives in the areas of network deveopment, suppier deveopment and reationship deveopment Management of tiers of suppiers incorporating the fow of raw materias from sub-suppiers to suppiers to customers to end user. A network of tiers of suppiers Increase the sophistication of indigenous suppiers to best in cass. Purpose This discussion paper is based on a review of theory and practice associated with suppy chain management on behaf of InterTradeIreand. The review consisted of extensive research on deveopments in suppy chain management since the introduction of new wave manufacturing practices and their increased focus on suppier quaification criteria. It aso covered an anaysis of agency activities identifying possibe gaps, opportunities and actions to improve suppy chain deivery for InterTradeIreand to consider. This paper deveops a number of proposas to improve suppy chain management across the isand of Ireand. Its objective is to encourage debate among government bodies, industry and business organisations to assist in the identification of specific areas which might improve mutua competitiveness through increased coaboration in suppy chain management, subsuppy 2 and suppier deveopment 3. page 2

3 2 Description of Suppy Chain Issues IMPORTANCE AND BENEFITS OF SUPPLY CHAINS During the 1990s the Major Origina Equipment Manufacturers (OEMs) have been impementing strategies that pass a arge proportion of market pressures through to their suppiers. The objective of such strategies is a reduction in the number of suppiers, a coser examination of suppiers' manufacturing operations and the imposition of demanding suppier quaification criteria. To deveop ong term strategic reationships with their customers, suppiers must be competitive internationay across a range of factors incuding price, deivery, quaity, design, performance, service and probem soving capabiities. Effective Human Resources Management (HRM) poicies with regard to training and staff deveopment must be in pace to enabe purchasers' criteria to be met. Suppy encompasses everything it takes to satisfy customers, from determining which products they wi buy, to deciding how to produce them and panning for their deivery. Every suppier performs these tasks, but those who co-ordinate and execute them most effectivey are, and wi continue to be, the eaders in their industries. The critica importance and purpose of suppy chain management is the provision of customer satisfaction through an effective suppy chain service. Creating conditions for the enhancement of suppy chain management and inkages represents a major opportunity to improve industria competitiveness and economic deveopment. These are important areas of common strategic interest North-South (N-S) in the fied of suppy chain management. Some of the key benefits and conditions for success are iustrated beow: Key Benefits of Emphasis on the Suppy Chain INDIGENOUS SUPPLIERS Increased market share and profitabiity of the indigenous suppy industry. Suppy chain deveopment - increased number and depth of the indigenous suppier base. Custer deveopment - improved inkages between suppiers, trainers, business support providers, research institutes, centres of exceence, etc. INWARD INVESTORS Attracting new inward investors. Retaining inward investors. Encouraging second generation inward investment. page 3

4 The Suppy Chain Chaenge Suppy Ireand Conditions for Success in Suppy Chain Incorporation of the totaity of features associated with a suppy network. Focus on the roe of communication and socia interaction in shaping innovative behaviour through suppy networks. Deveopment of word cass indigenous suppiers. Concentration on key sectors for economic growth and on companies who strive and who have the abiity to meet purchaser, suppy standards. Commercia sources of information that are precise and detaied enough for industry needs. RATIONALE FOR SUPPLY NETWORKS It is cear that the suppy chain management concept has been externaised beyond the boundary of the firm to a more hoistic concept of managing operations across inter-organisationa boundaries. Suppy networks can be seen as constituting a specific type of network, describing the fow of goods from raw materias' suppiers at one end to the fina customer at the other end. Purchasing companies are often buying assembed systems or compete subassembies, rather than individua components, thus, introducing another eve to the suppy chain. This concept is iustrated in Figure 2.1. Since the introduction of these poicies, sub-contractors are now commony referred to as first-tier suppiers and are usuay responsibe for co-ordinating the required standard of suppy from second, third and fourth tier suppiers. In summary, there is a compex network of suppiers feeding into each other in order to contribute to the deveopment of the fina product. Figure 2.1 Tiers in the Suppy Chain PURCHASER First Tier Suppier S2 S2 S2 S3 S3 S3 S3 S3 S3 S3 S3 S3 page 4 S2 = Second Tier Suppiers S3 = Third Tier Suppiers

5 The Suppy Chain Chaenge Suppy Ireand The channe is recognised as a singe chain, incuding sub-suppier, suppier, deaer, customer and end-user. Horizonta inks with competitors and reguatory agents are aso incuded in the environment. This is represented in Figure 2.2 beow which provides a comprehensive view of the vertica structure of suppy chain inkages combined with horizonta inkages. Figure 2.2 Environment of a Suppy Network MACRO ENVIRONMENT INPUT ENVIRONMENT COMPETITIVE ENVIRONMENT Suppier Suppier Suppier Suppier Suppier SECONDARY TASK ENVIRONMENT Potentia Competitor Competitor Foca Firm Reguatory Agent Interest Aggregator COMPETITIVE ENVIRONMENT Customer Customer REGULATORY ENVIRONMENT Customer Customer Customer OUTPUT ENVIRONMENT MACRO ENVIRONMENT Firms associate for mutua strategic competitive advantage through a number of mechanisms such as consortia and other strategic aiances, which can be undertaken in an informa or forma business arrangement. Proximity often has an impact on communications between firms but the principa factor mitigating the adverse impact of distance on suppy network deveopment is information technoogy. New management approaches combined with new information technoogies are making it easier for companies to co-ordinate their activities. Eectronic Data Interchange (EDI), Eectronic Point of Sae (EPOS), Eectronic Funds Transfer at Point of Sae (EFTPOS) Radios, Ceuar Phones and Eectronic Markets are concepts that invove rapid inter-organisationa computer to computer exchanges of business documentation. These aow companies to react immediatey to changes in customer requirements. 'EDI networks in the automotive industry substantiay decreased the number of recorded errors in transactions between purchasers and suppiers'. page 5

6 3 Critique of Current Suppy Chain Activities North-South The current focus of the agencies N-S are based on simiar strategies argey operating independenty of each other. These incorporate the foowing: suppier deveopment programmes; and sourcing opportunities. SUPPLIER DEVELOPMENT PROGRAMMES Previous studies carried out on the isand have highighted that athough improving, there is sti a ow eve of ong-term purchase / suppier reationships in many sectors. In summary, the findings concuded that poor inkage deveopment amounted to ack of manageria, technoogica, and ski sophistication by suppiers - eading to poor quaity and unreiabe suppy. There were aso a number of purchasing-company constraints not reated to the capacity of suppy companies, i.e. poicies on diversity of suppy. In response the agencies in both jurisdictions have impemented a number of suppier deveopment programmes, and mentoring initiatives based on business panning, research, deveopment and design, production operations, marketing, human resource deveopment and finance for growth. These initiatives have been impemented by the agencies in order to increase the efficiency and effectiveness of suppiers whether Sma to Medium Sized Enterprises (SMEs) or arger indigenous suppiers in the two jurisdictions. Gaps Identified in Programme Deveopment - two considerations have been highighted with regard to operationa aspects of the programmes conducted on behaf of the agencies: the content of the programmes tend to focus on genera business improvement issues rather than the specific suppy chain needs of businesses; and the agencies operating in each jurisdiction appear to have minima communication or information exchange on the benefits of these initiatives providing imited opportunities to expoit good practice and earn from each other. SOURCING OPPORTUNITIES Inward Investment. An inward investor usuay arrives at the new ocation with an imperfect knowedge of the suppy base in the region, or possiby the whoe country. There are ikey to be significant barriers to the exchange of market information between the inward investor and the region's suppy base. These may incude: page 6

7 The Suppy Chain Chaenge Suppy Ireand (i) (ii) the inward investor has to make suppy chain decisions quicky - these wi be key decisions and there wi be a reuctance to take unnecessary risks - hence the tendency to use suppiers with which they aready have estabished reationships; and oca/regiona suppiers wi ack knowedge of the inward investor's suppy requirements in terms of product type, voumes, performance standards, deivery requirements, etc. In these circumstances inward investors and indigenous suppiers are ikey to make decisions based on imperfect market knowedge and this wi most ikey be to the disadvantage of the oca economy. Not ony wi the region's suppiers be ess ikey to be seected, but aso once the inward investor has estabished its suppy chain it becomes much more difficut to break into. In effect, there is a short "window of opportunity" for indigenous suppiers to estabish themseves with an inward investor ocating on the isand. The government agencies N-S wi aready have an estabished reationship with the inward investor and wi therefore be in a strong position to infuence its purchasing function. The structures that have been put in pace by the agencies both N-S are based on the deveopment of sourcing opportunities and the enhancement of the suppier base separatey within each jurisdiction. Throughout the estabishment of the inward investor the agencies often provide a brokerage service between the inward investors and reevant indigenous suppiers. The agencies source and identify key suppiers within their own jurisdiction; they hod databases of companies which are research driven; have a range of technoogica expertise; are fexibe and have the capabiity to respond to fast turnaround times. Suppiers of items, whether strategic, everage or commodity are evauated during a visit or phone ca from an agency representative and determined "eigibe to suppy". The agencies have companies registered on databases for a number of sectors. Whie operating comprehensive databases either in-house, with the assistance of purchased databases or through the use of private directories the agencies ony register with suppiers which are ocated within their own jurisdiction. The databases maintained N-S are in amost identica sectors, which incudes: Aerospace Agricuture Automotive Texties Eectronics & Engineering Software Food Timber Pharmaceuticas Print & Packaging Teecommunications page 7

8 The Suppy Chain Chaenge Suppy Ireand When suitabe suppiers are identified the agencies faciitate introductions and organise face-to-face meetings with major purchasers. In addition, they are avaiabe for advice throughout the negotiation process if required. The agencies aso market and run initiatives for exampe "Meet the Buyer", where they bring together a number of "eigibe suppiers" to meet with purchasers that may be considering opportunities for deaing with oca or regiona suppiers. Each agency faciitates meet-the-buyer initiatives for companies they have registered on their individua databases. Gaps Identified in Sourcing Opportunity - the foowing considerations have been highighted with regard to operationa aspects of sourcing activities conducted by the agencies: current approaches may not be fexibe enough to match the specific needs of purchasing organisations in terms of capacity provision and network deveopment; activity is focused to a arge extent on meeting the sourcing needs of inward investors at the expense of services aimed at enhancing the performance of the indigenous suppy network; the ack of a comprehensive initiative with the authority to increase fexibiity with regard to suppy chain management through the faciitation and coordination of efforts of the agencies N-S. This woud have the benefit of assisting the economic/industria deveopment agencies N-S to se the isand and its products as part of an estabished package of assistance; imited evidence of a shared vision and goas and a wiingness to work across the two jurisdictions; there is itte to no measurement of quantitative success rates or economic vaue to the oca economies; and accreditation or "eigibiity to suppy", are determined by ad-hoc procedures. Agencies N-S have improved the deveopment of sourcing opportunities and enhanced suppier bases. However, they have focused their efforts on suppier deveopment through interna organisationa improvements, sometimes at the expense of cost and efficiency improvements which can be achieved through the integration and synchronisation of deveopment support throughout the suppy chain network. This is where the potentia impact on company competitiveness is greatest, yet it is the most negected part of their service. page 8

9 4 Enhancing Suppy Chain Activities North-South Irish industria deveopment has been predominanty based on inward investment. Evidence suggests that the production units estabished have often faied to reaise their fu economic potentia due to weaknesses in sub-suppy inkages to the economies N-S. The consequence of this is that the embededness of overseas firms is ower than it otherwise shoud be. A key factor for success in inkage deveopment woud be the wiingness of purchasers and suppiers to work at a truy nationa eve (reference to the isand not just N-S) rather than the oca/regiona focus which predominates at present. A parochia approach towards suppy chain deveopment wi resut in sub-optima matches and a faiure to maximise suppy chain opportunities. Currenty there is a modest amount of N-S coaboration in suppy chain management. Any activity that does occur appears 'ad hoc' and poory focused on the rea issues invoved with taking a strategic overview of the suppy chain. STRATEGY APPROACHES In addressing the prospects for enhanced coaboration throughout the suppy chain the foowing strategic approaches must be considered: Estabish a Suppy Ireand faciity deivered by a new unit, which may be either a virtua or a 'bricks & mortar' organisation, but must be independent of existing government agencies to ensure consistency and objectivity in the services which it provides. A key feature of this faciity is effective communication between Suppy Ireand and the government agencies N-S. Rationaise and enhance existing agency programmes of suppier deveopment and sourcing in Northern Ireand (NI) and the Repubic of Ireand (RoI) onto an N-S basis to avoid dupication of effort and provide a benchmark for best in cass on the isand. It wi take some time for programmes to be aigned and guideines to be drawn up. Both mechanisms have very different impications for fexibiity, administration and accountabiity etc. In our view it woud be essentia that they are both fuy expored as part of the deveopment of any programme initiatives outined beow. PROGRAMME RECOMMENDATIONS At this eary stage gaps have been identified where opportunities exist for intervention. From these gaps themes of action can be identified for increased focus on suppy chain coaboration. These are: Centra Contro A Structured Accreditation Programme N-S Sub-Suppy Deveopment Programme Operationa Enhancements to Existing Programmes Information Technoogy (IT) Communication System page 9

10 The Suppy Chain Chaenge Suppy Ireand Centra Contro When matching purchasers and suppiers there needs to be tight centra contro to ensure that a consistent service is deivered across the isand. This shoud incude as a minimum: a strategic focus for the service - marketing, recruitment of companies, databases, matching process, customer foow up and aftercare; charging poicy; IT systems; and meaningfu performance measures. A key feature of this contro is effective communication between Suppy Ireand and government agencies in the RoI and NI. In operationa terms centra contro woud oversee the monitoring and contro of government agency work with regard to suppy chain deveopment, carry out ad-hoc impact surveys, co-ordinate the business panning process and assist with the on-going deveopment of operationa systems. Suppier Accreditation Before submitting a suppier's name to a purchaser the suppy chain service team, must confirm that the suppier is abe to meet the purchaser's requirements. This confirmation shoud, at a minimum, invove a teephone discussion with the potentia suppier (non-critica items) and in other instances necessitate a site visit and detaied capabiity and capacity review (everage items). The eve of detai probed for in terms of vaidating suppiers often varies depending on the scae of an enquiry. When visiting a suppier an audit must be conducted with the objective of estabishing whether or not the suppier can meet the purchaser's requirements. This wi invove examining the production processes and contros, quaity, capacity, ogistics, inventory, management structures, cost structures, packaging, environment etc. of the firm in order to estabish the company's abiity to provide, the 'tota purchase package', i.e. required products within the required timescae. The audits wi aso hep to estabish the suppier's interest in the contract. The resuts of the audit wi aso identify and promote best practice, identify continuous improvement across the two jurisdictions and may act as a benchmarking too for companies within specific sectors. Our recommendation woud be to offer two eves of accreditation N-S: a non-accredited service provided free to major purchasers for commodity, non-critica items which woud be cost-effective to provide; and an accredited service for everage items which woud be at the required standard and shoud incur a charge to the purchaser. This woud sort out the serious enquiries from the superficia; it woud minimise dead-weight assistance; and it woud reduce the voume of vaidated enquiries to a manageabe number, aowing staff more time for suppier deveopment. page 10

11 The Suppy Chain Chaenge Suppy Ireand Suppier Deveopment Programme Government agencies need to increase substantiay the amount of time they devote to suppy chain deveopment and the enhancement of the suppier base both upstream and downstream in terms of both customers and sub-suppier focus (networks). This is where the potentia to impact on company competitiveness is greatest, yet it is the most negected part of their service. To achieve this goa the foowing recommendations are put forward: (i) (ii) (iii) (iv) (v) ring-fence a proportion of the government agencies' budgets; programmes taiored to sub-suppier regiona needs shoud be deveoped and ed by the government agencies (in contrast to the matching service, suppier deveopment requires decentraised management and contro); priority sectors within the regiona economy shoud be identified for intervention; promote and increase awareness of the suppy chain concept as the totaity of features associated with a product or service that wi ead to increased efficiency and overa customer satisfaction; enhancing the interface between hosts/oca partners is critica - probems of overap have to be addressed such as with oca inward investment groups; professiona bodies who co-ordinate aspects of purchasing and suppy; trade associations, chambers of commerce; and (vi) identify and promote best practice on the isand in terms of suppiers and tiers of suppiers. Operationa Enhancements Suggestions to enhance the effectiveness of the agencies' matching service incude: wider catchment - there is some evidence that the government agencies are starting to work more and more with the suppiers that they know rather than widening the search out to new suppiers in their own jurisdiction. Increasingy the evidence has shown that agencies work amost excusivey with suppiers from either NI/RoI depending on their remit. In both cases the advisors are working with a reativey sma cadre of companies with which they are famiiar, possiby at the expense of better suppiers esewhere. This is a ogica trap to fa into - "better the devi you know" syndrome; short-isted suppiers - where possibe, the objective is to introduce to purchasers approximatey five word cass suppiers for any purchase enquiry - these suppiers may be ocated N-S; and networked enquiries - the system for networking enquiries N-S needs to be reviewed to ensure consistency across the suppy chain. This wi invove the incorporation of aspects such as infrastructure, services and ogistics in addition to the deveopment of custers faciitating innovation, increased capacity and best practice dissemination. page 11

12 The Suppy Chain Chaenge Suppy Ireand IT Systems Trading partnerships based on inter-enterprise computing are fourishing. Improved teecommunications serve to narrow the gap, both rea and perceived, between the periphery and the core, thus enhancing the opportunities for persona contact between buyers and suppiers. The roe of teecommunications is strengthening the competitive position of many businesses. However, suppiers have been sow to recognise the many advantages associated with e-business - they appear uncear as to how it wi shape their reationships with customers and fear that the use of IT wi add to the downward pressure on profit margins. The rues of the e-business marketpace have yet to be worked out: hence, there is a roe in infuencing the deveopment of this process. Business thinking must incorporate the vaue of e-business. Costs reductions are attainabe as schedues are ined up over two or three tiers of the suppy chain and inventory visibiity runs across a systems. In addition, a nationa IT network must be deveoped to assist communication between existing government agencies N-S. In such a network it is essentia that compatibe software is used for individua databases and operationa systems. Incuded in this must be the aignment of data sets coected for individua purchase and suppier organisations. 5 CONCLUSION There is a cear opportunity for InterTradeIreand to improve the economic performance of Ireand N-S through the deveopment of an integrated suppy chain management initiative. Entited "Suppy Ireand", the objectives of this new body woud be to: co-ordinate the suppy chain work of the different agencies N-S; undertake a suppier audit and accreditation process for priority sectors in the economy; ro-out an incusive and enhanced Suppier Deveopment Programme across Ireand N-S; improve the agencies' purchaser-suppier matching service; deveop an IT patform across the agencies N-S to support their suppy chain work. 7 Donega Square West, Befast BT1 6JE Te Aso at Birmingham, Bristo, Cardiff, Dubin, Edinburgh, Leeds, London, Manchester and Reading page 12