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Comparison of Supply Chain Models

Info: 4988 words (20 pages) Assignment
Published: 1st Dec 2020 in Assignment

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Part of: Globalisation

Introduction

The notion of ‘supply chain management’ was first used by consultants in the 1980s (Oliver & Webber, 1982), however, other scholar would argue that supply chain management arose from the logistical processes, costing methods, transportation and physical distribution (Croom, et al 2000). The term supply chain management is a relatively new phenomenon but has become one of the most crucial components for a business success. Author Croom et al, 2000, categorised the subject area of supply chain management into six categories: Strategic Management, Relationships and Partnerships, Logistics, Best Practises, Marketing and Organisational Behaviour.

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(Ho, Au and Newton, 2002) argued that scholars have approached supply chain management from a restrictive functional view and operationally integrated linkages (between buyers and suppliers) to an end-to-end management of, example, information and material flows, quality and design. Supply chain management has been also been referred to using terms such as ‘distribution channels’, ‘network sourcing’, ‘supply pipeline management’, ‘value chain management’ and ‘value stream management’ (Croom et al., 2000; Harland, Lamming, Zheng & Johnsen, 2001). Many scholars even today would dispute over just what supply chain management is and with various conceptual models with many different supply chain frameworks, often this poses the question as to which is the most optimal one for a company.

Supply chain models came into full force when the Japanese car company Toyota revealed their ‘lean manufacturing’ (Womack et al, 1990), processes to the world. As a result of their lean concept which focuses on the reduction of waste within the manufacturing environment (Ohno, 1988), automotive companies around the world have aimed to perfect their manufacturing processes and many companies, like Nissan, aim to maximise efficiency and effectiveness of their processes.

As with many industries, the automotive industry, especially in the modern era, relies heavily on suppliers in their manufacturing processes, long gone the days of Henry Ford’s mass production days where most cars were made in house. As a result of economies of scale, labour costs, production costs, technical know how and globalisation, many car companies now consider outsourcing for many components of their manufacturing process, this making supply chain management a vital component of their business. For this paper, one can argue the “efficient” supply chain model is the driving model behind the Nissan – Renault- Mitsubishi alliance and manufacturing of the Qashqai car.

The Efficient Supply Chain Model

The “efficient” supply chain model one could argue is the driving model behind the Renault-Nissan and Mitsubishi alliance. The efficient supply chain model outlines how managers should focus on maximising end-to-end efficiency including high rates of asset utilisation in a bid to lower costs (Magaya, 2019). As to how effective this model is and how closely these companies follow this model is under scrutiny by academics and will be critically evaluated in this paper.

Reflection to the Case Study

The logic behind the conclusion that this case study is an example of an efficient, although failed, supply chain model will be outlined in this report. One of the main factors of this case study that can lead one to draw this conclusion is the agreement which all three automotive companies aim to meet that is ‘each company acts in the financial interest of the other – while maintaining individual brand, identities and independent corporate cultures’ (WMG, 2019).

Unlike Toyota which adopted a Lean manufacturing process, this case study had a completely different aim and set of parameters. This case involved three leading car companies to work together to develop a new car, the Qashqai. The Toyota Model works well and lean generally is a lot easier to manage where it is one OEM and the suppliers of the OEM are all focused on that OEM. Toyota installed Lean thinking in its company culture, heritage and suppliers which all work together and is proven to be very effective. Toyota’s lean concept focuses on eliminating waste throughout the organisation and supply network.  The elimination of waste is designed to reduce cost and save time. Cost and Time being crucial elements. In this case study, cost sharing is the crucial element not cost elimination, this is the major difference between the two conceptional models. One model eliminates waste and reduces cost, the other aim to utilise assets throughout the end-to-end supply chain and share costs in a way to reduce the cost for each individual company.

According to the  Industrial Marketing and Purchasing (IMP) Group, ‘organizational efficiency is defined as an internal standard of performance’. Supply chain efficiency is related to whether a company’s processes are harnessing resources in the best way possible, whether those resources are financial, human, technological or physical (Morse, 2018). However, the definition of efficiency does not include customer satisfaction. There may be a very efficient supply chain that minimizes costs for materials and packaging, but as in the case of the Qashqai car model, faulty components were installed into the car which meant that more than 25,000 cars were recalled due to a brake fault problem.

The objective of the alliance was to create a product that meant that customers would pay less for fuel as this car would use ‘cutting edge technology’ to be fuel efficient. By using lighter and more innovative components, the car should ‘reduce fuel consumption by 20%’ (WMG, 2019). Coming back to the point made in the previous paragraph, whilst aiming to achieve this objective, the development lead time from 20.75 months was to be reduced to just 10.50 moths and reducing costs from 10 billion euros to 4 billion euros. To achieve this at the time of ‘launching the Qashqai, they relied on the adoption and adaptation of other organisations best practises’ (WMG, 2019). This is another reason why one could conclude that the supply chain conceptional model used by the alliance was the “efficient supply chain model”. The companies aimed to utilise the assets of each company, i.e. best practises, to develop this cutting-edge technology.

In addition, it can be concluded from the actions and strategies from the alliance that efficiency in terms of the supply chain model, does not always mean it is effective as stated previously the reduction in development time and cost was an internal strategy using internal standards, which didn’t actually benefit the end user as the car was faulty.

The Customer Driven Supply Chain Model

A customer-driven supply chain is the concept that aims to enhance efficiency of operations in business by synchronizing activities such as planning, production and deliveries in order to appropriately react to the customer requirements. (Lyons et al., 2012). The objective outlined in the case study which is what the alliance was aiming to achieve was reducing fuel consumption, increasing comfort and drivability and increasing the degree of smoothness when travelling to and from destinations. This is very similar to the lean process model used by Toyota such as synchronisation of activities, however this model doesn’t place a strong emphasis on waste elimination where lean does, this model places the customer requirements as higher regard and in the case study this is apparent where the use of company best practises and innovative new designs is being utilised to react to customer requirements for the need to fuel reduction and improving driving experience.

This conceptional model also differs from the efficient model which places a stronger emphasis on internal processes and in this case study ‘reducing lead time and costs’ not necessarily paying as much attention to creating a product that meets requirements and safety checks.

Reflection to the Case Study

The customer driven supply chain model relies on the company’s ability to identify the customer needs and how to deal with these needs effectively. For the automotive industry there are many requirements to meet. The reliability of manufacturer, design, function and cost are purchasing decisions which a customer will use to decide on which car/ product to buy (Stringfellow & Bowen, 2004). A customer is more likely to put cost and function as their core concern.

It can be said that the NMUK alliance tried to respond to this by manufacturing a car that met both the cost and functional aspect. By manufacturing a car which would reduce fuel consumption by 20% by using lightweight materials and by manufacturing a car that felt and drove much more comfortably for even greater distances. This is the general theme which was picked up and used as a focal point when establishing the alliance. Customers are more likely to place cost and functionality as primal categories in their decision-making process.

To achieve this NMUK’s corporate suite strategy was to ‘systematically reduce development lead time from 20.75 months to 10.50 months, reducing costs from 10 billion euros to 4 billion euros’ (WMG, 2019). By setting this strategy NMUK was aiming to reduce the costs drastically which potentially could be passed on to the end-customers. Therefore, achieving one of the major purchasing decisions that customers base their decisions on, cost. Secondly, the other strategy NMUK used to meet the customers second decision making aspect, functionality, NMUK designed the Qashqai using ‘cutting edge and innovative lightweight components and materials’ (WMG, 2019).

These two objectives can be argued acted as the primary focus which all other decisions were based around. The idea of reducing cost while increasing functionality. NMUK adapted and adopted the best practises of its partner companies whilst on one hand from the previous chapter this was considered an efficient conceptional framework. On the other hand, one can argue this was based around the customer driven supply chain model. NMUK sourced tier one suppliers that could achieve further cost savings of 10%, thus reducing the overall cost even more. It can be argued that NMUK’s procurement decisions was based around this concept of delivering better materials which had the positive effect of cost minimisation.

Another decision NMUK made which could be interpreted as a customer driven supply chain model concept was the use of offshoring and outsourcing. Offshoring and Outsourcing are inevitable, some scholars would argue. In this case study NMUK outsourced the materials and even the technology in a bid to increase and maximise its functionality and reduce cost. However, this created a drastic consequence for NMUK, which will be discussed later in the report where a detailed analysis of the supply chain decisions will be evaluated.

To conclude the point, these strategies although driven by customer decisions of cost reduction and improved functionality, led to what many scholars argue as a tremendous hindrance for the effectiveness of this supply chain and overall performance. NMUK’s decision to outsource as much as ‘45% of complicated modular components’ (WMG, 2019) led to lower production control, lower quality checks and increased risk and delays.

Conclusion

In conclusion, as discussed in the previous chapters two supply chain models could be drawn from this case study one being the efficient supply chain model, the other being customer driven supply chain model. Possibly, others could argue that this is an example of a lean supply chain model, however evidence from the case study suggests that the alliance group, although targeted to reduce lead time from 20.75 months to 10.50 months and reduce costs from 10 billion euros to 4 billion euros, they did not adopt a kaizen or waste management strategy when transforming their process. Kaizen ‘refers to continuous accumulations of small betterment activities rather than innovative improvement’ (Hamada et al, 2001) and will be referred to in the supply chain operational process chapter.

Therefore, in this paper, this supply chain model is disregarded as evidence shows from Toyota’s manufacturing process this incident wouldn’t have happened. In a lean process system, all possibilities of waste would be targeted and eliminated. Continuous improvement would occur, where as Nissan decided to innovate rapidly and outsource unproven technology.

Furthermore, as suggested in the previous chapters this case study demonstrates two supply chain models and one could argue that these models intertwine with one another, meaning there is no one such sole model which Nissan was based on. On one hand, Nissan and the alliance were attempting to meet customer demands for innovate products at a lower cost and enhance functional ability. On the other hand, they attempted to achieve this through an efficient supply chain model where they attempted to utilise of assets from each company and adopt a cost sharing platform to reduce costs for each company. Which could be said is an example of an efficient supply chain model.

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Therefore, an analysis of this case study suggests that this supply chain model was a combination of a customer driven and efficient supply chain model. As proven in the case study, this may not be the most effective model as it is often difficult to meet one criterion whilst achieving another.

Question 2

Supply Chain Strategy, Structure and Organisation

‘A supply chain is about the management of relationships across complex networks of companies that whilst legally independent are inter-dependant’ (Christopher, 1998). This can be argued is one of many leading definitions of what supply chain management is, supply chain management is dynamic function that acts as an operational model or conceptional model which relies on congruence and transparency through the end-to-end supply chain. Supply chain management one can argue provides a snapshot of the whole process and identifies key issues such as what and why. Supply Chain is the functional and structural behaviour within supply chain management. Supply chain is the application of the conceptional models, which in this case study is a combination of efficient supply chain and customer driven supply chain.

As mentioned in the previous chapter, the conclusion drawn from the case study is that Nissan adopted an efficient supply chain model. Evidence from this has already been drawn from one consideration that this model relies on cost sharing and asset utilisation. As discovered one of the underlying agreements in the alliance was that costs would be shared with all companies where each company acts in the financial interest of the other whilst also being independent corporate cultures. Or as Christopher, 1998 would refer to as being inter-dependant.

Another factor which one can use to conclude that the supply chain management conceptional model used in this case study was an efficient model is the asset utilisation or the sharing of ‘organisation’s best practises’ (WMG, 2019). In the case study NMUK attempted to adapt and adopt the ‘Renault New Product Development Model’. Renault had successfully developed a product development funding model that was to achieve three things, first to reduce cost, second to improve productivity and third to increase product quality. This model was called the Dassault Systems V6 PLM. “The Dassault Systèmes platform provides the unique ability to allow close collaboration across divisions, align expertise from all domains and share data effectively” (Lomangino,  2010). This statement was made by another car company Tesla motors, further demonstrating the effectiveness of this model. Coming back to one of the key features of the efficient supply chain conceptional model was the concept of asset utilisation. NMUK aimed at utilising this system which was tried and tested.

In addition, not only did NMUK aim to utilise the best practises of Renault, NMUK also decided to outsource and offshore some of the key manufacturing components of its manufacturing process. NMUK again according to the efficient supply chain model aimed to utilise the assets of other companies whether design, development or manufacturing advantages. However, this according to industry specialists increased the level of risk for the alliance. The efficient model that was used according to conclusions from the case study, may not necessarily been the correct model to use. Another way of viewing this strategic decision was that this could have been an example of a lean model, one could argue which will be discussed next.

It is clear from the case study that although their target of reducing time and cost was paramount, the strategies in place and rapid need for innovative processes meant that issues would arise. What Nissan attempted to do was to shift much of their processes to tier one supplier, despite doing this which one could argue is an example of a lean supply chain model, it is important to consider the Pareto principle, Nissan must have set a strategy to focus on the 20% of input that accounts for 80% of the output and outsource, offshore 80% of rest parts that relatively less important. (Hassan, 2019).

Pareto Principle

What Nissan did was outsource 45% including large complicated modular components and had plans to move towards 100% local sourcing content. To make issues worse, Nissan outsourced unproven technological innovation increasing the risk dramatically due to loss of control and quality. This is one of the reasons, one could argue against the idea of this case study being a lean supply chain model. Another factor further criticising this concept is that this strategy to outsource unproven technology and material did not place quality control measures in its process. Which as stated by many sources and academics is one of the fundamental philosophies of a lean model. Nissan’s disregard to keep the innovation process under greater control meant that they lost ability to oversee the manufacturing process and necessary safety checks ‘ignorant toward increased risk of unforeseen problems due to the use of lightweight components and composite materials’ (WMG, 2019)

However, the case study does offer some interesting insight and important considerations to consider. While on one hand, their outsourcing and offshoring method did not align with the pareto principle and shed no light on a lean supply chain model, on the other hand, the reasoning behind this process or operational decision was actually due to a ‘lack of in-house expertise and the fact that many businesses cannot cover all areas of expertise’ (WMG,2019). Nissan did not have the in-house expertise. Instead of using labourers for in-house production, it is possible to transfer them to allocate to the suppliers where they demonstrate their abilities. This can reduce “skill” waste significantly. Likewise, it is also able to develop new products with shorter cycle as it has emulated a Toyota’s modular assembly outsourcing model. Skill waste is one of the 8 wastes outlined in the lean supply chain model. There are 8 waste sectors that can be reduced within supply chain. (Upton, 2019)

  • Waiting & Delays
  • Movement of People
  • Transport
  • Inventory
  • Overproduction
  • Over processing
  • Defects
  • Skills

However, waste reduction does not always bring benefits. Drastic reduction might cause disruption in the supply chain model. Which became clear in this case study. As mentioned, Nissan outsourced and offshored much of their processes partly due to the inability to have the in-house expertise. On the other hand, it could be a strategy Nissan took in order to reduce time and cost. If Nissan were to invest in research and technology and further increase development costs for in house training, the time delay would have been greater, and the cost would have been more significant. However, as proven in the case study it may be necessary for companies to do this as seen in a more recent case with Jaguar Land Rover and other companies heavily investing in R&D in new areas of technology such as driverless/ autonomous cars.

 

Although one could argue this operational decision was driven by a lean thinking process, one could strongly argue that this strategic decision does not fall into the lean supply chain conceptual model since Nissan outsourced unproven technology and components. Lean supply chain management focuses on eliminating waste, one on hand by outsourcing you eliminate skill waste from your in-house operations, on the other hand this increases risk of actual product failures which in a lean supply chain model, would be non-existent as quality control measures are paramount and the process is well defined and transparent.

Operational Failures

Another operational decision which does align with a lean model but follows the efficient model more is the strategy to adopt the best practise two approach and emulate the Renault Outsourcing model. Renault one can argue does adopt a lean supply chain process as Renault reduced its development cycle time by outsourcing 70% of its production to a tier 1 supply chain. One important consideration and crucial difference between Nissan and Renault is that Nissan did not remain in control of the process, where as Renault maintained ‘tight control of the overall design and engineering of all vehicles’ (WMG, 2019). As noted previously in the 8 wastes of lean, one waste eliminated is skill waste from in-house operations, Renault outsourced this to utilise this problem.

Another key difference between Renaults model success and Nissan failing is that Renault focused on their tier 1 suppliers with a ‘proven track record in delivery based on quality, time and continuous innovation and improvement and cost reduction’ (WMG, 2019) These qualities are all examples of a lean supply chain conceptional model. Which is why Renault’s model worked. Nissan although aiming to follow this model, which under the agreement of best practises was allowed, failed to do so due to poor operational and strategic decisions. The structure of the supply chain network was based on poor contractual agreements and ultimately this supply chain was only as good and quick as its weakest link. Nissan did not adopt a lean supply chain management strategy, and therefore this further provides evidence that the model used was the de facto model of an efficient supply chain as oppose to the de jure lean supply chain model. Many of the tier 1 and tier 2 supplier became inundated with capacity issues, time delays and poor-quality checks.

In addition, as a result of the strategic decisions mentioned previously, an underlying issue started to rise, this was the increasing tensions and hostility within the supply chain. These poor operational decisions and disregard for appropriate tier 1, tier 2 suppliers led to a ‘hostile environment’ (WMG, 2019) and in many cases in other case studies and also in this case study, this leads to poor products, drastic cost increases, ‘Qashqai project went several millions of euros over budget’ (WMG, 2019) and increased time delays, two months delay for pre-order customers.

Conclusion based on operational decisions and supply chain

In conclusion, much of the evidence in this case study can lead one to derive various conclusions as to what conceptional model was adopted as much of the decisions, directives and strategies do align with various supply chain management models. It has been evaluated the evidence to suggest that the underlying conceptional model or the de facto model of this case study was an efficient, although failed, supply chain model. Despite some evidence suggesting the model used was an example of a lean supply chain model, as evaluated and as evidence suggests some of the technical decisions did not align with the Lean thinking basis and certain key elements and criteria was over-looked. If Nissan had adopted the Renault’s Best practise two model which is also Renault’s outsourcing model, then Nissan potentially could had made a fantastic car at minimal cost and reduced time delays.

However, strong evidence in the case study does suggest that Nissan was striving for efficiency within its own processes which is an underlying philosophy of the efficient supply chain model. Nissan attempted to utilise the assets of Renault such as their outsourcing model, however, due to failed decisions and overlooking key criteria, meant that errors and incidents arose. As suggested in the first two chapters this case study provides strong evidence for two supply chain conceptional models, the efficient model and the customer driven model. Based on the critical analysis and evaluation of this case study, the conclusion could be made that the conceptional model is a efficient and customer driven model which is not that much different from a Leagile model, but as outlined previously the notion of a lean model is not apparent due to poor decisions and leading away from the core philosophy of a lean supply chain system.

Improvement for this case study could see this project adopting a leagile supply chain conceptional model. Where the customer needs are met with rapid response, and the production process is lean with very little waste. In order to achieve this model increased transparency is required amongst the supply chain, possibly adopting big data analytics and using artificial intelligence in order to detect where problems arise in the supply chain network so that responses to these problems could be met quicker and thus achieving a lean production process.

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