ean Enterprise Value Lean Supply Chain Management Principles and Practices 1-Bozdogan -Lean Supplier Networks, September 2002 @2002 Massachusetts Institute of Technology
1 - Bozdogan -Lean Supplier Networks, September 2002 © 2002 Massachusetts Institute of Technology Lean Enterprise Enterprise Value Lean Supply Chain Management Principles and Practices
ean Enterprise Lean Supply Chain Management Value Basics Learning Points Lea a new Lea rela nd com Coc colla mec sup repr mar e- Bozdogan -Lean Supplier Networks. September 2002 2002 Massachusetts Institute of Technology
2 - Bozdogan -Lean Supplier Networks, September 2002 © 2002 Massachusetts Institute of Technology Lean Enterprise Enterprise Value Lean Supply Chain Management Basics Learning Points Lean supply chain management represents a new way of thinking about supplier networks Lean principles require cooperative supplier relationships while balancing cooperation and competition Cooperation involves collaborative relationships & coordination mechanisms Supplier partnerships & strategic alliances represent a key feature of lean supply chain management a spectrum of
ean Enterprise Theory: Lean Represents a"Hybrid Approach to Value Organizing Interfirm Relationships “ Market Firm Input Pric∈ a"Hierari coordina Firm Input and」 Lean efficient Firm buys both customized standardized inputs Customized inputs often involve dedicated investments Partnerships strategic alliances provide collaborative advantage Dominant conventional approach: Vertical integration, arm's length relationships with suppliers 3-Bozdogan -Lean Supplier Networks, September 2002 @2002 Massachusetts Institute of Technology
3 - Bozdogan -Lean Supplier Networks, September 2002 © 2002 Massachusetts Institute of Technology Lean Enterprise Enterprise Value Theory: Lean Represents a “Hybrid” Approach to Organizing Interfirm Relationships “Markets” (Arm’s Length): Lower production costs, higher coordination costs Firm buys (all) inputs from outside specialized suppliers Inputs are highly standardized; no transaction-specific assets Prices serve as sole coordination mechanism “Hierarchies” (Vertical Integration): Higher production costs, lower coordination costs Firm produces required inputs in-house (in the extreme, all inputs) Inputs are highly customized, involve high transaction costs or dedicated investments, and require close coordination “Lean” (Hybrid): Lowest production and coordination costs; economically most efficient choice-- new model Firm buys both customized & standardized inputs Customized inputs often involve dedicated investments Partnerships & strategic alliances provide collaborative advantage Dominant conventional approach: Vertical integration, arm’s length relationships with suppliers
ean Enterprise Lean Supply Chain Management Differs Value Sharply from Conventional Practices ILLUSTRATIVE CONVENTIONAL MODEL LEAN MODEL CHARACTERISTICS Number&structure I Many, vertical Fewer: clustered I Procurement personnel Large Outsourcing I Cost-based I Strategic Nature of interactions Adversarial: zero-sum Cooperative positive-sum Relationship focus Transaction-focused I Mutually-beneficial Selection criteria I Lowest price Performance I Contract length Short-term Long-term I Pricing practices I Competitive bids LTarget costing L Price changes Downward Quality Inspection-intensive Delivery Large quantities Smaller quantities JIT Inventory buffers Large I Minimized; eliminated Communication Limited: task-related Extensive;multi-level Information flow I Directive; one-wa Collaborative;two-way Role in development I Limited: build-to-print Substantial I Production flexibilit Low very limited; nonexistent Exte I Dedicated investments Minimal-to-some Mutual commitment very limited; nonexistent I High Governance I Market-driven Self-governing Future expectations No guarantee I Considerable 4-Bozdogan -Lean Supplier Networks, September 2002 @2002 Massachusetts Institute of Technology
4 - Bozdogan -Lean Supplier Networks, September 2002 © 2002 Massachusetts Institute of Technology Lean Enterprise Enterprise Value Lean Supply Chain Management Differs Sharply from Conventional Practices ILLUSTRATIVE CHARACTERISTICS CONVENTIONAL MODEL LEAN MODEL Number & structure Many; vertical Fewer; clustered Procurement personnel Large Limited Outsourcing Cost-based Strategic Nature of interactions Adversarial; zero-sum Cooperative; positive-sum Relationship focus Transaction-focused Mutually-beneficial Selection criteria Lowest price Performance Contract length Short-term Long-term Pricing practices Competitive bids Target costing Price changes Upward Downward Quality Inspection-intensive Designed-in Delivery Large quantities Smaller quantities (JIT) Inventory buffers Large Minimized; eliminated Communication Limited; task-related Extensive; multi-level Information flow Directive; one-way Collaborative; two-way Role in development Limited; build-to-print Substantial Production flexibility Low High Technology sharing Very limited; nonexistent Extensive Dedicated investments Minimal-to-some Substantial Mutual commitment Very limited; nonexistent High Governance Market-driven Self-governing Future expectations No guarantee Considerable
ean Enterprise Lean Supply Chain Management Principles Value Derive from Basic Lean Principles FoCu Elim Synd Minir Esta coop Enst Deve Man Aliar capa Fost 5.Bozdogan -Lean Supplier Networks, September 2002 2002 Massachusetts Institute of Technology
5 - Bozdogan -Lean Supplier Networks, September 2002 © 2002 Massachusetts Institute of Technology Lean Enterprise Enterprise Value Lean Supply Chain Management Principles Derive from Basic Lean Principles Focus on the supplier network value stream Eliminate waste Synchronize flow Minimize both transaction and production costs Establish collaborative relationships while balancing cooperation and competition Ensure visibility and transparency Develop quick response capability Manage uncertainty and risk Align core competencies and complementary capabilities Foster innovation and knowledge-sharing