Value Creation 09 04 Wash U version

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Information about Value Creation 09 04 Wash U version

Published on April 17, 2008

Author: Malden


Supply Chain Performance Based Strategies for Customer Value Delivery:  Supply Chain Performance Based Strategies for Customer Value Delivery Morris A. Cohen Matsushita Professor of Manufacturing and Logistics Co-Director Fishman Davidson Center for Service and Operations Management The Wharton School & Chair, MCA Solutions Inc. September 2004 Agenda:  Agenda Value creation is a service The shift towards a service-centric strategy Dynamic Asset Deployment (DAD) strategies A risk based approach to effective service delivery Implementation Observations Key takeaways Slide3:  Products are acquired to generate value through their use It is not necessary to own a product to derive value from it Product performance throughout the period of ownership and use is necessary to generate value Supply chains support the generation of such value at each stage in a product’s life cycle and throughout each stage of each customer’s relationship cycle Focus on after-sales service supply chain Value Creation What are Service Supply Chains?:  What are Service Supply Chains? Service supply chains consist of all assets needed to manage the availability of service to support maintenance contracts and warranties. Assets include parts, warehouses, call centers, repair depots, customer engineers, etc. Supplier Network Repair Network OEM Network Field Network Customer Network Slide5:  Strategic Challenges Margin pressure on sale of products  commoditization in some industries Service provision at little or no profit no longer viable  Design and deliver high margin service products  Retain market share for after-sales business Develop service centric go-to-market strategy - differentiate service market segments - outsource decisions (3PL, 4PL, repair, etc.) - optimize material and human asset management - implement dynamic, intelligent execution systems Evolution of service-centric strategies:  Evolution of service-centric strategies Product Centric Customer Centric Product Focus Service Focus PRODUCT SERVICE Source: M. Cohen, N. Agrawal, V. Agrawal, V. Deshpande Aftermarket service represents a tremendous opportunity:  Aftermarket service represents a tremendous opportunity Service revenue contribution is growing. Revenue over the Service Life of a Installed Product is high margin, low risk. Pressure continues to mount on Service Revenue streams to match “Product” profit contributions. In many industries Service lags. While pressure mounts for Service to achieve the same contribution, investment in IT Solutions lags. Service contribution provides some down cycle - insulating performance. Source of differentiation, customer acquisition & retention Source: AMR Research “Delivering profitable customer satisfaction in the service supply chain is the key to competitive success.” … Service Function Manager, Semiconductor Equipment Manufacturer Source: M. A. Cohen After-Sales Service Profitability:  Relationship Time Sales relationship Service relationship While sales interaction peaks over a short time, the service relationship is ongoing. < Total Profit From Sales < Total Profit From Service After-Sales Service Profitability Xelus Systems Labor productivity growth in services lags that in goods:  Labor productivity growth in services lags that in goods Manufacturing output per hour up 50% since 1992 All non-farm businesses’ output per hour up 25% since 1992 Source: US Bureau of Labor Statistics. Slide10:  Poor performance in spite of substantial technology investments in the last two decades However, performance in service supply chains remains a challenge Source: MCA Solutions Benchmark Study, 2001 Slide11:  Service Business Models Are Changing So why are service supply chains complex to design and manage?:  So why are service supply chains complex to design and manage? Slide13:  UPS 1. Service is fundamentally different from a tangible product:  1. Service is fundamentally different from a tangible product Service products represent commitments to customers that installed product will be restored/maintained within specified response time, quality and cost targets Customer support is a product that cannot be stored in inventory Service products are produced at the time of consumption & customer is directly involved in production Service support is enabled by assets that must be deployed in advance of “service event” occurrence These assets are consumed/utilized in the production of a service product to fulfill service product demand (I.e. parts to repair a machine that is down) Source: M. A. Cohen Unscheduled Service Event :  Unscheduled Service Event 2. Demand profile mix is highly varied, and often consists of low consumption: Forecasting, therefore, is extremely challenging.:  2. Demand profile mix is highly varied, and often consists of low consumption: Forecasting, therefore, is extremely challenging. Of the 15,000 Active parts we plan 75% have had 1 demand or less in the last 12 months. Of the 5,000 Parts with demand, 3,000 have had 3 or less pieces requested in the last 12 months. High Mix, Low Volume Environment 20,000 Installed tools, 256 Models, 50,000 P/N’s Source: M. A. Cohen 3. Service SC are more complex than SC for direct materials:  3. Service SC are more complex than SC for direct materials Global Delivery Reach 116 Countries/ 40 Languages 24 X 7 Advance Service Parts Replacement 24 X 7 Tech Assistance 24 X 7 Self-service Software Range of Services: Traditional to Advanced Technical Assistance Center (TAC) Rapid Deployment Services Web-site Technical Assistance Engineering Staff Augmentation Advance Hardware Replacement Carrier Class Availability Software Updates & Upgrades Professional Services Consulting On Site Field Engineer Services Knowledge Transfer Services Contractual service levels supported: 2 to 4 hour delivery next business day delivery 8 to 10 day delivery 10 day delivery for return-to-factory consigned / on-site spares Service Delivery Capacities 600+ Replacement Inventory Locations (rapid fulfillment depots) 6 major depots 13 country depots Follow the Sun Technical/Logistics Centers- 5 major sites 180K cases/mo (70K via TAC) For example, at Cisco Systems: F-35 Joint Strike Fighter Autonomic Logistics Supply Chain: Lockheed-Martin:  F-35 Joint Strike Fighter Autonomic Logistics Supply Chain: Lockheed-Martin Prime Contractors Depots OEMs Pratt & Whitney General Electric BAE Northrop Grumman Lockheed Martin F-16 Locations F/A-18 Locations AV-8B Locations LM JSF Team Program Information Cleared for public release under the provision of PIRA AER200301010 Mmddyy-18 Briefing Name 4. High part variety with wide variations in part consumption/ failure, costs, lead times & criticality:  4. High part variety with wide variations in part consumption/ failure, costs, lead times & criticality e.g., Telco company 700 locations X 10K parts X 1000s customers X Millions of contracts This requires an exorbitant number of asset deployment decisions to be made frequently Slide20:  5. It is difficult to influence demand for service which is driven by equipment utilization e.g., advertising or pricing can not be used to stimulate demand as in case of original products 6. Dynamic customer specific parts network & product configurations, service entitlements subject to continuous engineering change and upgrades 7. It is crucial to manage detailed databases on installed base of equipment (current & past), location, machine type, repair histories and maintenance contracts 8. Intelligent planning/execution solutions are missing ERP based methodologies do not work Slide21:  Product Service Service On-time delivery Product up-time Metric Revenue Sale of product Service contract Source Parts & Labor sales Resources Material, Components Parts inventory Product inventory Service Logistics Manufacturing Process Field Engineers Inbound/Outbound Logistics Repair depots Flow of Goods One Way Multiple Directions Transportation Freight Same or Next Day Customer Days, weeks Years Interaction Profit Margin Low High Asset Utilization High Low Products vs. Services Supply Chains Key elements of Dynamic Asset Deployment (DAD) strategy:  Key elements of Dynamic Asset Deployment (DAD) strategy Service Asset Management Recognize and quantify the key tradeoffs associated with service delivery Understand how asset deployment influences these tradeoffs Service Demand Fulfillment Need dynamic and flexible demand fulfillment strategies Comprehensive, recourse-based asset planning Plan assets knowing in advance that contingent actions will be taken Service Product Design Key tradeoffs for service delivery:  Key tradeoffs for service delivery The Service Support Gamble:  The Service Support Gamble Place your bets – position resources throughout the supply chain You have limited resources to invest – inventory investment & new buy (cash flow) budgets Roll the dice – can’t forecast asset demand to a specific time and quantity Deal with the outcome event – re-deploy, pool, expedite Collect Payoff – Increased product availability with more efficient use of resources -> customer satisfaction Learn and survive to play again, (or quit) - adaptive models and systems Service Supply Chain Risks:  Product Field Failures Supplier Lead Time Delays Installed Base Changes (growth, replacement) Product Use Change (intensity, environment) New Product Introduction Part Re-engineering - (redesign – supercession) End of Support Life Cost Changes , , , Service Supply Chain Risks Service Planning & Optimization Suite (SPO) Interactive Decision Hierarchy:  Service Planning & Optimization Suite (SPO) Interactive Decision Hierarchy time X EVENT Global search and sourcing of resources required to restore customer. Automated detection, diagnosis, repair. BUDGET Design and pricing of service “products” Re-design of products. Re-design of processes. Outsourcing of non-core functions. TACTICS Control new buy & repair replenishment, incoming stock allocations, stock transshipments. STRATEGY Position inventory investment, field engineer capacity for all parts, locations, customers, contracts. T t Interaction of assets:  Interaction of assets End Product (Computer, Weapon System/Aircraft) Major Module (Field Replaceable Unit - FRU) Sub-Module (Shop Replaceable Unit - SRU) Piece Part (Consumable) PRODUCT HIERARCHY GEOGRAPHIC HIERARCHY The Service Engineer Network:  The Service Engineer Network Multi-echelon network Each node services tools installed within a pre-specified customer base The central node services its locally assigned tools as well as unmet demand from forward nodes. CENTRAL NODE FORWARD NODES INSTALLED TOOLS UNMET SERVICE DEMAND Event Complexity and Engineer Capabilities:  Event Complexity and Engineer Capabilities Service events can be classified into complexity categories There are multiple Levels of engineers, based on training, experience, certification High Level: certified to handle calls of high complexity Lower Level: certified to handle calls of category of lower complexity Thus, it is possible for high level engineers to substitute for a lower level engineer, but not the vice versa Complexity Level 1 Low Low Complexity Level n High High Degree of difficulty Degree of risk Flexible demand fulfillment:  Flexible demand fulfillment Design of Saturn System Facilitates Pooling :  Design of Saturn System Facilitates Pooling Suppler (plant) - SPO integration Dealer part stocking lists provided by Supplier Obsolescence protection for dealers All stock requirements are driven by real-time consumer demand Off-the-shelf availability is measured by repair type application by supplier at field locations Sharing of parts inventories among Dealers supported by Supplier through system-wide pooling groups © 2003 – Morris A. Cohen Service product design:  Service product design Optimize product portfolio Product rationalization Understand and classify customers based on service needs PLATINUM GOLD SILVER PRICE RESPONSE TIME Service products should be defined based on a price-service tradeoff MCA’s SPO Risk Management Approach:  MCA’s SPO Risk Management Approach 1. Determine Probability of Demand 2. Determine Optimal Inventory Position 3. Manage Risk by Re-Deploying / Executing the Optimal Plan Demand History Mean Slide34:  © 2003 M. Cohen, N. Agrawal, V. Agrawal, V. Deshpande - Do Not Reproduce or Distribute ﴀ 34 © 2003 MCA Solutions - Confidential Information Strategy Problem Formulation Decisions: - deployment of parts inventory - field engineer capacities - design of repair depot, warehouse and logistics system Goal: - minimize cost of service delivery - maximize customer service performance Constraints: - multi-echelon, multi-indenture relationships - probabilistic resource requirements forecasts - budget for parts and people - service agreement entitlements (availability, delay, fill) - engineering change (supercession) - … Tactics Problem Formulation:  Decisions: - Replenishment, Allocation and Trans-shipment requests - Material Flow Request Priorities, Alerts, Interventions - Customer Engineer dispatch, schedule and routing Goal: Minimize Total Cost (New Buy, Repair, Transportation, Shortage, Travel) Manage risk of shortage and delay Constraints: Confirmed Material Availability and pipeline status Service Targets (Up-time, Delay, Fill Rate) Target Stock Levels Engineering staffing Effectivity Availability of defective goods (reverse logistics Material flow constraints Vendor/Depot Capacity Tactics Problem Formulation Slide36:  Repair Lead Time Firm Orders Planned Orders Current Position Purchase Lead Time Expedite Tactics Risk Management Fill Rate/ Available MCA Product Suite Integration with Enterprise Systems:  Tactics Strategy MCA Product Suite Integration with Enterprise Systems Forecasting Inventory Optimization Replenishment, Allocation, and Transshipment MCA SPO Key Modules Legacy or ERP Systems OUTPUTS: Optimized Stock Levels Forecasts MTBF updates Stockout Risk OUTPUTS: New Buy Orders Repair Orders Replen. Orders Transshipments Boeing’s Supply Chain System Functionality (Key Capabilities) :  ERP Software Boeing’s Supply Chain System Functionality (Key Capabilities) Tactical Planning Strategic Planning Reliability-Based Logistics Transportation Demand Planning Warehouse Management Supply Transaction (inc. Inventory) SCM Work Queue Forecasting & Planning INTEGRATEDDATA SYSTEM Data Cleaning Total Asset Visibility Customer Collaboration Supplier Collaboration Source: Boeing Corporation Benefits of Deploying Dynamic Asset Deployment:  Benefits of Deploying Dynamic Asset Deployment Slide40:  Customer Value Creation Product Life Cycle Design Support Produce/Sale Impact of Managerial Actions on Customer Value Varies Across Product Life Cycle Slide41:  Service Centric Strategy: Requirements for Success Maximize customer value generation over use cycle: Use service metrics that drive satisfaction, e.g. product “up-time” Optimize asset management decisions to deliver maximum service at the lowest cost Risk management Integrated decision support tools End-to-end, real time visibility Feedback lifecycle support performance data to new product development – “Design for Service” Design, manage service supply chain to support long term strategy goals location, capacity facilities & infrastructure 3PL, 4PL “make vs. buy” Key takeaways:  Key takeaways Service delivery is different from original product delivery Profitability in the service supply chain requires Flexible demand fulfillment Comprehensive, recourse-based asset planning & management Effective product design

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