Chapter 2

Supply chain: The downstream portion of the value chain, the channel from suppliers to producers.

Supply Chain Management Process

1. Selecting and qualifying desired suppliers

2. Establishing and managing inbound logistics

3. Designing and managing internal logistics

4. Establishing and managing outbound logistics

5. Designing workflow in product-solution assembly

6. Running batch manufacturing

7. Acquiring, installing, and maintaining process technology

8. Order processing, pricing, billing, rebates, and terms

9. Managing (multiple) channels

10. Managing customer services such as installation and maintenance to enable product use

The Impact of Digital Transformation on Supply Chains

Digital Transformation Impact on Supply Chain It allows business to collect, monitor and analyze data to anticipate issues
and proactively respond. • Optimize supply chain. • Control cost. • Customer satisfaction.

Value Webs: is a complex model that describes an interconnected, unpredictable and multimodal set of
relationships.

Aim: To put the customer in the center and provide them with a unique customer experience and not just a
finished product.

Value ecosystem: connecting brands and their customers and business partners in a direct, non-linear fashion.

Value chain: an integrated supply chain in which transactions are conducted electronically.
  OTIS

According to Otis, the system identifies most problems before they occur, minimizing elevator downtime. By
analyzing each of the hundreds of systems in an elevator, the company also maintains them so that the number of
service calls is minimized and performance is optimized. Reports covering both scheduled and REM-based
service calls are available to the customer online. Remote monitoring also illustrates how value can be added by
improving product performance and thereby improving customer service, and lowering customer costs.

 Firms’ success factors of Digitization

1. Define the precise outcome to be achieved. They give as an example a bank that digitized its mortgage
application and approval process. In so doing they cut the cost of each new mortgage by 70 percent
while reducing the time for preliminary approval of the mortgage from days to just a minute.
2. Create a seamless, end-to-end customer experience. This takes the cooperation of every part of the
business that is part of a customer touchpoint.
3. Build an in-house team that has the skills and commitment to advance the digitization process over the
long term. McKinsey points out that digitization skills are in short supply in today’s workforce.
4. Move quickly. End-to-end processes can take years to configure and install, incurring costs but
providing no payback. Like CRM systems, to be discussed in Chapter 14, projects that develop
modular components that can be installed and begin to show positive outcomes in a year or less have
two advantages. First, they are more likely to work than larger, more complex systems. Second, they
are much more likely to generate support among management, board members, and other stakeholders.
5. Do not follow the traditional roll-out process. Digitized systems are often resisted by work units in the
current organization. For instance, the mortgage officers in the bank may not trust the digitized system
and may continue to review mortgage applications manually, negating all the benefits of the system. It
may take a new mortgage unit to prove the worth of the digital process and integrate it into the existing
workflows in the bank.
The Virtual Value Chain

In order to create optimal value, a company must examine the entire supply chain, from initial production to final
consumption, in order to understand where costs are incurred in the process. Consultants at Bain & Company
liken it to a Swahili game called Jenga. In this game, each player must remove as many blocks as possible from a
tower, using them to build additional structures, all without causing the original structure to come crashing down.
This seems an apt analogy.

They identify four key factors in this effort:

 Information search costs

 Transaction costs

 Fragmentation of the customer marketplace

 Standardization of products

-Dell’s Direct Model

Dell Computers is one of the classic examples of creating a value chain in the internet space, one that is not a
series of links but a network of interconnected enterprises, both supplier and customer. Before Dell’s direct
model became a force in the industry, personal computers had important issues in all four of the categories
established by Bain.

Search and transaction costs were high, especially for the small business or individual customer. The
fragmented market ranged from the individual customer buying a single unit to the very large corporation
which might purchase several hundred computers each month. Even very large customers tended to settle for
a standard product because it was cheaper to buy in a large, standardized lot, until Dell.

In its early years, Dell enjoyed great success as a result of its build-to-order model which featured a
streamlined supply chain and careful financial control of manufacturing and distribution operations. Touting
Dell’s success in 2004, Fast Company magazine stated that “Dell has replaced inventory with information,
and that has helped turn it into one of the fastest, most hyper-efficient organizations on the planet.”

Integrated value chains represent an important step in managing both the supply facing and the customer-
facing sides of the business. An integrated value chain operating extensively in the internet space is referred to
as a virtual value chain. ‘’An integrated value chain that operates exclusively on the internet’’

Objectives • Revenue generation. • Cost reduction.

The business must focus on co-creating value for customers at each stage to achieve these objectives and
satisfy customers.
 Technologies that Enable Value Chains and Ecosystems

Electronic Data Interchange EDI: general term used to describe the digitizing of business information like
orders and invoices so that they may be communicated electronically between suppliers and customers.

Enterprise resource planning ERP: implementation of processes and software that integrates all aspects of the
business from manufacturing, resource planning. and scheduling through service functions like human resources.

Radio frequency identification Technology RFID: technology that allows the identification of tagged goods

from a distance with no intervention by human operation.

There are a number of newer technologies that are integral to the development and functioning of integrated value

chains and ecosystems.

They are as follows:

 Software-as-a-Service (SaaS)
 Cloud computing
 Smart devices
 Mobile apps