Rapid response capability in value chain design
Transcript of Rapid response capability in value chain design
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About the Research• General Motors Powertrain
– 20 engine sub systems– 20 transmission subsystems
1. Customer Importance – Customer preference assessment project
2. Technology Clockspeed3. Architectural Relationship
4. Supply Base Capability5. Competitive Position
Interviewed dozens of engineers in engg., mfg., procurement, financial analysis, benchmarking etc
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Chest X-Ray
Organizations today must quickly and continually assess which parts of their value chain are vulnerable, which parts are defensible, which alliances make strategic sense, and which threats are deadly.
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Key QuestionsWhere is value being created, and which activities are not adding to
overall enterprise value?
• Sourcing: What areas of the business should remain in-house versus being outsourced?
• Investments: Where should investments be made, and how should they be leveraged?
• Alliances: How can the value chain be organized to optimize existing and emerging alliances.
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Integral
Modular
NoneFewMany
AdvtgeParityDisadv
FastMedSlo
HiMedLo
Strategic Value Assessment
CUSTOMERIMPORTANCE
TECHNOLOGYCLOCKSPEED
COMPETITIVEPOSITION
CAPABLESUPPLIERS
ARCHITECTURE
POSSIBLE DECISIONS• Insource• Invest• Partial outsource• Partner/ acquire• Partial insource• Spin off• Develop suppliers• Outsource
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Synthesizing Strategic & Economic Elements
INSOURCELEVERAGE
OUTSOURCE HARVEST
Low(-ve)
High(+ve)
ECONOMIC VALUE ADDED
High
Medium
Low
STR
ATE
GIC
VA
LUE
AD
DED
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The objective is to define a target value-chain configuration on the basis of both strategic and economic analyses.
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The Value-Chain StrategicDecision-Making Framework
RECOMMENDATIONS• Sourcing
• Investment• Architecture
• Alliance InsightsSYNTHESIS
STRATEGICVALUEADDED
ECONOMICVALUEADDED
QUALITATIVEMODEL
QUANTITATIVEMODEL
• Cust. Imp.• Tech Clocksp.• Comp. Pos.• Cap. Supplr.• Architecture
• Cost• Assets• Revenues• Comp. Cost Structure
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Assets
Knowledge Assets Design & engg of
products, processes &
services
Supply Assets manufacturing
& deliverycapabilities
At a strategic level, every sourcing decision throughoutthe value chain, is a choice between dependence and independence for supply & knowledge.
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Hi customer importance+
Fast Clockspeed
HighStrategic
Value
InsourcingStrong competitiveposition
Supply-basecapability
Hi modularity inarchitecture
Outsourcing
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Customer ImportanceENGINES & TRANSMISSIONS
Pick-up Truck• superior acceleration• smoothness of engine
Minivan owners
• interiors
• reliable engine
Research unearths what product characteristics the customerwill trade-off or pay for.
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Technology Clockspeed
FRUITFLIES(Fast Product Life Cycle Changes)
MAMMALS(Medium PLC)
REPTILES( Slow PLC)
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Technology Clockspeed
CYLINDER BLOCK• slow change• outsourcing easier MICROCHIP CONTROLLER
• rapid change in technology• risky to outsource
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Competitive Position
Same component, same customer importance, same technology clockspeed, but different sourcing decisionsBased on competitive position.
Cost = industry avg.Outsource- cheaper
Cost = lowest in industryMfg. in house
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Capable Suppliers
InternationalAffiliates
CREATE INTERNAL MARKET PLACE
IndependentVendors
OR
EXAMPLE
ENGINE BLOCK at GM
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ArchitectureKarl Ulrich
STEREO SYSTEM - MODULAR
AUTO ENGINE - INTEGRATED
The best course of action is to retain independence forknowledge in the engineering & manufacturing domains,but allow significant dependence for supply in manufacturing capacity.
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For an organization whose annual investments in products,processes, capacity and technology are typically measuredin billions of dollars, the value-chain model provides a new
way too help direct these investments and related sourcing decisions.
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Applying the Framework:GM Powertrain’s
Exhaust System Engineering
EXHAUST SYSTEM- GM
• High customer value• Rapid Technology
clockspeed• Strong competitive
advantage• Weak supply base• Modular Architecture
CATALYTIC CONVERTER
What’s the sourcing decision?
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Applying the Framework:IBM’s Fateful Outsourcing Decision
• Customers don’t care if IBM made processor
• Fast clockspeed• Small supply base –Intel &
AMD• Modular architecture• Independent Wintel supply
base• Low entry barriers: Compaq,
Dell• Processor modular but integral
to Operating System
Where did IBM go wrong?
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Applying the Framework:Outsourcing Consumer Product Manufacturing
Think P&G or Unilever:• Brand image• Mixing & bottling mature
processes• Technology clockspeed –
slow• Many suppliers• Production of shampoo
modular
Should P&G outsource? Why?
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Applying the Framework:Napster’s Unrecognized Supply Chain Value
• Napster’s identity for sharing- important to customers
• Clockspeed – fast• Competitive position –
strong---------------------------------• Napster’s demise led to
multiple web sites devoted to sharing
• RIAA has made value chain difficult to control
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Building SWAT Capability in a Fast Clockspeed World.
• SWAT = Special Weapons & Tactics• Be prepared for rapid value-chain
transformations.• SWAT teams must rapidly assess which
parts of the chain are vulnerable, which parts are defensible, which alliances are palatable, and which threats are deadly.
• The value chain framework can help organizations build this critical capability.