SUPPLY CHAIN MANAGEMENT

SUPPLY CHAIN MANAGEMENT Processes, Partnerships, Performance Third Edition Douglas M. Lambert, Editor Fisher College of Business The Ohio State University SUPPLY C H ^ MANAGEMENT I N S T I T U T E Supply Chain Management Institute Sarasota, Florida www.scm-institute.org

1. Supply Chain Management Overview 1 Introduction 2 What SCM Is Not 3 Just What is Supply Chain Management? 5 Business Process Management 7 The Supply Chain Management Processes 9 Customer Relationship Management 10 Supplier Relationship Management 11 Customer Service Management 11 Demand Management 11 Order Fulfillment 12 Manufacturing Flow Management 12 Product Development and Commercialization 12 Returns Management 12 The Requirement for Standard Business Processes 13 Achieving Cross-Functional and Cross-Firm Involvement Using the Supply Chain Management Processes 14 The Critical Supply Chain Linkages 15 Measuring the Financial Impact of Customer Relationship Management and Supplier Relationship Management 18 Building High-Performance Relationship in the Supply Chain 20 The Partnership Model 21 The Partnership Building Session 22 Summary of the Supply Chain Management Framework 22 Conclusions 23 2. The Customer Relationship Management Process Overview 25 Introduction 25 Customer Relationship Management as a Supply Chain Management Process 27 The Strategic Customer Relationship Management Process 30 Review Corporate and Marketing Strategies 30 Identify Criteria for Categorizing Customers 31 Provide Guidelines for the Degree of Differentiation in the Product and Service Agreement 31 Develop Framework of Metrics 32 Develop Guidelines for Sharing Process Improvement Benefits with Customers..34 The Operational Customer Relationship Management Process 36 Segment Customers 36 Prepare the Account/Segment Management Team 37 xiii

Internally Review the Accounts 38 Identify Opportunities with the Accounts 39 Develop the Product and Service Agreement 39 Implement the Product and Service Agreement 39 Measure Performance and Generate Profitability Reports 40 Conclusions 40 Appendix: Customer and Product Profitability Reports 41 3. The Supplier Relationship Management Process Overview 53 Introduction 53 Supplier Relationship Management as a Supply Chain Management Process 55 The Strategic Supplier Relationship Management Process 56 Review Corporate, Marketing, Manufacturing and Sourcing Strategies 56 Identify Criteria for Categorizing Suppliers 57 Provide Guidelines for the Degree of Differentiation in the Product and Service Agreement 60 Develop Framework of Metrics 61 Develop Guidelines for Sharing Process Improvement Benefits with Suppliers...63 The Operational Supplier Relationship Management Process 64 Segment Suppliers 64 Prepare the Supplier/Segment Management Team 65 Internally Review the Supplier/Supplier Segment 65 Identify Opportunities with the Suppliers 66 Develop the Product and Service Agreement and Communication Plan 66 Implement the Product and Service Agreement 68 Measure Performance and Generate Supplier Cost/Profitability Reports 68 Conclusions 68 4. The Customer Service Management Process Overview 69 Introduction 69 Customer Service Management as a Supply Chain Management Process 71 The Strategic Customer Service Management Process 74 Develop Customer Service Management Strategy 75 Develop Response Procedures 76 Develop Infrastructure for Implementing Response Procedures 78 Develop Framework of Metrics 78 The Operational Customer Service Management Process 80 Recognize Event 80 Evaluate Situation and Alternatives 81 Implement Solution 82 Monitor and Report 82 Examples of the Operational Customer Service Management Process 82 Standardized Response Procedures at Gillette Argentina 83 Standardized Response Procedures at Shell 84 Conclusions 86 xiv

5. The Demand Management Process Overview 87 Introduction 87 Demand Management as a Supply Chain Management Process 88 The Strategic Demand Management Process 89 Determine Demand Management Goals and Strategy 90 Determine Forecasting Procedures 91 Plan Information Flow 93 Determine Synchronization Procedures 95 Develop Contingency Management System 97 Develop Framework of Metrics 98 The Operational Demand Management Process 99 Collect Data/Information 99 Forecast 100 Synchronize 101 Reduce Variability and Increase Flexibility 102 Measure Performance 104 Conclusions 104 6. The Order Fulfillment Process Overview 105 Introduction 105 Order Fulfillment as a Supply Chain Management Process 106 The Strategic Order, Fulfillment Process 107 Review Marketing Strategy, Supply Chain Structure and Customer Service Goals 108 Define Requirements for Order Fulfillment 109 Evaluate Logistics Network 110 Define Plan for Order Fulfillment 111 Develop Framework of Metrics 113 The Operational Order Fulfillment Process 114 Generate and Communicate Order 116 Enter Order 117 Process Order 117 Handle Documentation 118 Fill Order 118 Deliver Order 118 Perform Post-Delivery Activities and Measure Performance 119 Conclusions 119 7. The Manufacturing Flow Management Process Overview 121 Introduction 121 Manufacturing Flow Management as a Supply Chain Management Process 123 The Strategic Manufacturing Flow Management Process 125 Review Manufacturing, Sourcing, Marketing, and Logistics Strategies 126 Determine Degree of Manufacturing Flexibility Required 129 Determine Push/Pull Boundaries 132 Identify Manufacturing Constraints and Determine Capabilities 134 Develop Framework of Metrics 136 xv

The Operational Manufacturing Flow Management Process 138 Determine Routing and Velocity through Manufacturing 138 Plan Manufacturing and Material Flow 139 Execute Capacity and Demand Plans 140 Measure Performance 141 Conclusions 142 The Product Development and Commercialization Process Overview 143 Introduction 143 Types of Product Development Projects 144 Product Development and Commercialization as a Supply Chain Management Process 146 The Strategic Product Development and Commercialization Process 147 Review Corporate, Marketing, Manufacturing and Sourcing Strategies 147 Develop Idea Generation and Screening Procedures 149 Establish Guidelines for Cross-Functional Product Development Team Membership 149 Identify Product Rollout Issues and Constraints 150 Establish New Product Project Guidelines 151 Develop Framework of Metrics 151 The Operational Product Development and Commercialization Process 153 Define New Products and Assess Fit 153 Establish Cross-Functional Product Development Team 153 Formalize New Product Development Project 155 Design, Build and Test Prototypes 155 Evaluate Make/Buy Decision 156 Determine Channels 156 Rollout Product 157 Measure Performance 157 Conclusions 158 9. The Returns Management Process Overview 159 Introduction 159 Types of Returns 160 Consumer Returns 161 Marketing Returns 161 Asset Returns 161 Product Recalls 162 Environmental Returns 162 Summary 162 Defining Returns Management 163 Returns Management as a Supply Chain Management Process 164 The Strategic Returns Management Process 165 Determine Returns Management Goals and Strategy 165 Develop Returns Avoidance, Gatekeeping and Disposition Guidelines 168 Develop Returns Network and Flow Options 171 Develop Credit Rules 172 Determine Secondary Markets 1 72 xvi

Develop Framework of Metrics 1 73 The Operational Returns Management Process 174 Receive Return Request 1 74 Determine Routing 175 Receive Returns 176 Select Disposition 176 Credit Customer/Supplier 1 77 Analyze Returns and Measure Performance 177 Conclusions 178 10. Conducting Assessments of the Supply Chain Management Processes Overview 1 79 Introduction 179 Conducting an Assessment 180 Gain Commitment for an Assessment 181 Select the Process to Assess 181 Choose the Participants for the Assessment 182 Schedule the Assessment 182 Acquaint Participants with the Framework and the Supply Chain Management Process that will be Assessed 184 Complete the Assessment Tool Individually 184 Summarize Responses to Use for Discussion in the Consensus-building Meeting 186 Hold the Consensus-building Meeting 187 Prepare a Summary of Score, Importance, Justification and Potential Action Items 188 Develop a Plan for Action 188 Conclusions 190 Appendix: Example Report of a Cross-Functional Assessment 191 11. Mapping for Supply Chain Management Overview 197 Introduction 197 Relationship-based Maps 198 Multiple Views of the Relationship-based Map 200 The Structural Dimension of the Network 202 Complexity in a Supply Chain 202 Examples of Relationship-based Maps 203 Type of Business Process Links 206 Activity-based Maps 208 Time-based Process Mapping 209 Pipeline Inventory Process Mapping 211 Extended Value Stream Maps 212 Facilitating the Development of a Relationship-based Map 213 Conclusions 216 xvii

12. Lean Thinking and Supply Chain Management Overview 217 Introduction 217 Fundamentals of Lean Management 218 Applying Lean Principles to Supply Chain Operations 220 Extended Value Stream Mapping 221 Lean Thinking and Supply Chain Management 224 A Broader View of Waste 226 Cost Allocations for Decision Making 228 Missed Opportunities for Value Creation 228 Disconnects between Promise Making and Promise Keeping 229 Unclear Expectations in Business Relationships 230 Late Detection of Action Required 231 Misalignment of Incentives 231 Excessive Product Proliferation 232 Conclusions 233 13. Implementing and Sustaining the Supply Chain Management Processes Overview 235 Introduction 235 Structural Management Components 236 Planning 236 Control Methods 238 Workflow Structure 239 Organizational Structure 241 Communication Structure 242 Knowledge Management 242 Behavioral Management Components 243 Management Methods 243 Power and Leadership 244 Risk and Reward 245 Culture and Attitude 245 Trust and Commitment 246 Process Implementation and Maintenance 247 Select Process 248 Build Team 249 Review Sub-processes 251 Assess Performance 251 Gap Analysis 252 Implement Improvements 253 Validate 254 Conclusions 254 14. Developing and Implementing Partnerships in the Supply Chain Overview 255 Introduction 255 What is a Partnership? 257 Development of the Model 259 The Partnership Model 260 xviii

Preparation for Meeting 262 The Partnership Meeting 263 Applications of the Model 279 Establishing a Partnership with a Supplier or Customer 279 Assessing an Existing Relationship 280 Resolving Conflicts in a Relationship 280 Creating a Common Partnership Vision 281 Institutionalizing the Partnership Process 281 Conclusions 282 15. Supply Chain Management Performance Measurement Overview 283 Introduction 283 Problems with Existing Metrics 284 Why Supply Chain Metrics 289 Relationship Between Supply Chain Metrics and Strategy 290 Framework for Developing Supply Chain Management Metrics 293 Map the Supply Chain 294 Analyze Each Link 295 Develop Profit and Loss Statements 297 Realign Supply Chain Management Processes 298 Align Non-Financial Measures with P&Ls 298 Compare Across Firms and Replicate 300 Conclusions 302 16. Supply Chain Management: The Next Steps Overview 303 Introduction 303 Process-Based Frameworks for Supply Chain Management 304 The GSCF Framework 304 The Supply-Chain Operations Reference (SCOR) Framework 305 Strength and Weaknesses of the Two Frameworks 306 Focus 307 Strategic Alignment 307 Breadth of Activities 308 Cross-Functional Involvement 309 Process and Performance Benchmarking 310 Value Creation 312 Summary 313 Guidelines for Implementing the GSCF Framework 314 Assessment of the Supply Chain Management Processes 314 Change Management 31 6 Conclusions 319 Appendix A: Assessment Tool for the Customer Relationship Management Process 321 Appendix B: Assessment Tool for the Supplier Relationship Management Process 331 xix

Appendix C: Assessment Tool for the Customer Service Management Process 341 Appendix D: Assessment Tool for the Demand Management Process 353 Appendix E: Assessment Tool for the Order Fulfillment Process 365 Appendix F: Assessment Tool for the Manufacturing Flow Management Process 377 Appendix G: Assessment Tool for the Product Development and Commercialization Process 387 Appendix H: Assessment Tool for the Returns Management Process 407 Author Index 419 Company Index 425 Subject Index 427 xx