Strategic Sourcing and Supply Chain Design1. Fruit Flies & Temporary AdvantageStrategic Sourcing and Supply Chain Design 1. Fruit Flies & Temporary Advantage 2. Supply Chain Design & 3-DCE 3. eBusiness Phenomena: Business Model Innovation 4. Technology Roadmapping: A telecom exampleBusiness System Design in a Fast-Clockspeed World: Evolution in the industrial world: INFOTAINMENT is faster than MICROCHIPS is faster than AUTOS evolve faster than AIRCRAFT evolve faster than MINERAL EXTRACTION THE KEY TOOL: Cross-INDUSTRY Benchmarking of Dynamic Forces Study the Industry Fruitflies Evolution in the natural world: FRUITFLIES evolve faster than MAMMALS evolve faster than REPTILES THE KEY TOOL: Cross-SPECIES Benchmarking of Dynamic ForcesCisco’s End-to-End Integration for its Fulfillment Supply Chain Cisco Customers Contract Manufacturers ComponentSuppliers &Distributors • New product development on-line with supply base • Technology Supply Chain Design: Innovation through Acquisition • Single enterprise information system • Dynamic replenishment, direct fulfillment,merge in transit • Customer orders through Cisco Connection online Finished Product flows direct to customer via logistics supplier Order info flows direct to Cisco and suppliers Basic Design Principle: Arm’s length Relationship with Fulfillment Chain PartnersCisco’s Strategy for Technology Supply Chain Design 1.Integrate technology around the router tobe a communications network provider.2. Leverage acquired technology with - sales muscle and reach - end-to-end IT - outsourced manufacturing - market growth3. Leverage venture capital to supply R&D Basic Design Principle: Acquisition Relationship with Technology Chain PartnersVolatility Amplification in the Supply Chain: “The Bullwhip Effect” Customer Retailer Distributor Factory Tier 1 Supplier Equipment Information lags Delivery lags SOLUTIONS: Over- and underordering Countercyclical Markets Countercyclical Technologies Lumpiness in ordering Misperceptions of feedback Collaborative channel mgmt. (Cincinnati Milacron & Boeing)Chain accumulationsSupply Chain Volatility Amplification: Machine Tools at the tip of the Bullwhip “We are experiencing a 100-year flood.” J. Chambers, 4/16/01 See "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," E. Anderson, C. Fine & G. Parker Production and Operations Management, Vol. 9, No. 3, Fall 2000, pp. 239-261.LESSONS FROM A FRUIT FLY: CISCO SYSTEMS 1.KNOW YOUR LOCATION IN THE VALUE CHAIN 2. UNDERSTAND THE DYNAMICS OF VALUE CHAIN FLUCTUATIONS 3. THINK CAREFULLY ABOUT THE ROLE OF VERTICAL COLLABORATIVE RELATIONSHIPSINDUSTRY CLOCKSPEED IS A COMPOSITE: OF PRODUCT, PROCESS, AND ORGANIZATIONAL CLOCKSPEEDS Mobile Phone INDUSTRY CLOCKSPEED THE Mobile Phone product technology THE Mobile Phone PRODUCTION PROCESS process technology THE Mobile Phone MANUFACTURING COMPANY organizationMobile Phone SystemCLOCKSPEED is a mix of Transmission Standards, Software and Handsets HAND SET Mobile Phone System TRANSMISSION STANDARD slow clockspeed SOFTWARE APPLICATIONS medium clockspeed OPERATING SERVICES fast clockspeed SYSTEM fast clockspeedslow clockspeed ISSUE: THE FIRMS THAT ARE FORCED TO RUN AT THE FASTEST CLOCKSPEED ARE THE MOST LIKELY TO STAY AHEAD OF THE GAME.Clockspeed drives Business Strategy Cadence Dynamics between New Projects and Core Capability Development: PROJECTS MUST MAKE MONEY AND BUILD CAPABILITIES CORE CAPABILITIES NEW PROJECTS (New products, new processes, new suppliers) See Leonard-Barton, D. Wellsprings of KnowledgeThe Strategic Leverage of Supply Chain Design: Who let Intel Inside? 1980: IBM designs a product, a process, & supply chain Customers IBMIntel Inside Intel Microsoft The Outcome: A phenomenally successful product design A disastrous value chain design (for IBM)LESSONS FROM A FRUIT FLY: THE PERSONAL COMPUTER 1. BEWARE OF INTEL INSIDE (Regardless of your industry) 2. MAKE/BUY IS NOT ABOUT WHETHER IT IS TWO CENTS CHEAPER OR TWO DAYS FASTER TO OUTSOURCE VS. INSOURCE 3. SUPPLY CHAIN DESIGN CAN DETERMINE THE FATE OF COMPANIES AND INDUSTRIES, AND OF PROFIT AND POWER 4. THE LOCUS OF VALUE CHAIN CONTROL CAN SHIFT IN UNPREDICTABLE WAYSVertical Industry Structure with Integral Product Architecture Computer Industry Structure, 1975-85 IBM DEC BUNCH Microprocessors Operating Systems Peripherals Applications Software Network Services Assembled Hardware All Products All Products All Products (See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)Horizontal Industry Structure with Modular Product Architecture Computer Industry Structure, 1985-95 Microprocessors Operating Systems Peripherals Applications Software Network Services Assembled Hardware Microsoft Mac Unix Intel Moto AMD etc HP Seagate etcEpson etc Microsoft NovellLotus etc AOL/Netscape EDS etcMicrosoft HP Dell etcIBMCompaq (See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)THE DYNAMICS OF PRODUCT ARCHITECTURE AND VALUE CHAIN STRUCTURE: THE DOUBLE HELIX See Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”Shimano InsideTHE DOUBLE HELIX IN OTHER INDUSTRIES • TELECOMMUNICATIONS--– “MA BELL” was Vertical /Integral – BABY BELLS & LONG LINES & CELLULAR are Horizontal/Modular – Today’s Verizon is going back to Vertical /Integral • AUTOMOTIVE--– Detroit in the 1890’s was Horizontal/Modular – Ford & GM in the mid 1900’s were Vertical /Integral – Today’s Auto Industry is going back to Horizontal/Modular • TELEVISION--– RCA was Vertical /Integral – 1970’S THROUGH 1990’S were Horizontal/Modular – Today’s media giants are going back to Vertical /Integral • BICYCLES--– Safety Bikes to 1890’s boom to Schwinn to Shimano InsideControlling the Chain Through Distribution: The End of P&G Inside ? • Controlling the Channel Through Closeness to Customers: • consumer research, pricing, promotion, product development Customers Retailer Retailer Retailer P&GControlling the Chain Through Distribution: Beware of Walmart Outside Controlling the Channel Through Closeness to Customers: Chain Proximity Retailer Retailer Retailer Customers P&G WalMart WalMart Private Label Vertical Growth on the Double HelixVolatility Amplification in “The Bullwhip Effect” and Clockspeed Amplification in “The Speedup Effect” Customer Retailer Distributor Factory Tier 1 Equipment Inventories & Orders fluctuate more as you look