In this video, we examine several high levels strategic concepts for efficient and effective management of global supply chains. Through this, we construct a strategic pyramid consisting of four parts, strategy, tactics, operations and execution. Tip of the pyramid is strategy which answers the question what are we trying to accomplish by establishing objectives, policies in determining the scale and scope of supply chain operations. Deliverables a strategy are goals and objectives, supply policies, strategic service levels, and overall network design. The next level of the pyramid is tactics, which answers the question how much, by developing a plan to deploy resources that matches supply with anticipated demand. Deliverables are demand forecasts and logistics plans. The third level of the pyramid is operations, which answers the questions where an when by scheduling, monitoring, controlling, and adjusting production. Deliverables of operations include work center schedules, order tracking and inventory tracking. The base level of the pyramid is execution, which is not about answering questions, but about doing such as producing, transporting, delivering products and services. Besides actual production deliverables of this level are order processing and material movement. The remainder of this video, we'll focus on the top level of the pyramid, strategy. Taking a customer centric view of strategy, we first ask what do customers value and how can we add value for the customer. Value can generally be defined as the ratio of benefits and costs. Which in turn can be expanded to a list of desirable benefits such as quality, service, flexibility and so forth, all divided by the total cost of purchase and ownership. Graphically, the trade-off between benefits and costs can be represented as a balance where we want benefits to far outweigh costs. The difference between benefits and costs represent value for the customer. It's important to note that different customers will have different evaluations of costs and benefits, one size does not fit all. In the context of global supply chains that benefit cost ratio can be framed equivalently as a trade-off between efficiency and responsiveness. Where global supply chain efficiency represents the cost to customers for their desired benefits. And where global supply chain responsiveness is measured by the speed and flexibility of supply chain operations. The balance between efficiency and responsiveness will of course depend on the needs and requirements of the customer. In general, a global supply chain can either be highly efficient or highly responsive. It cannot be both, since they requirements for efficiency and responsiveness are mutually exclusive as we shall see. Of course the supply chain can have some combination of efficiency and responsiveness. But the appropriate balance between efficiency and responsiveness will depend on the industry, customer in the firms, global supply chain strategy. Let's compare the requirements of efficiency versus those of responsiveness. The focus of efficiency is largely to reduce costs, including the costs of raw materials, manufacturing, inventory holding, transportation, distribution, operations, and overhead. In contrast, the focus of responsiveness is on speed and agility with the ability to respond quickly to variable order quantities, short delivery times, a variety of products, product customization, innovative products. High on-time service levels and the ability to cope with uncertainty. From these lists, it should be clear that the requirements for efficiency and responsiveness are very different, and in most cases are mutually exclusive. The necessary trade-offs between efficiency and responsiveness obviously will impact global supply chain strategy, as shown in this table. Proficient operations, the primary goal is the lowest possible cost. For responsible supply chain to primary goal is the first fastest possible response. For efficiency product design should minimize product costs for responsiveness we want to maximize flexibility. For pricing we want lower margins for efficiency and higher margins for responsive supply chains. For production, for efficient supply chain we want high utilization, for responsive supply chains we like capacity flexibility. For inventory, if we want to be efficient, we want to minimize inventories. And to be responsive we want to keep buffer inventories to supply unexpected demand. Regarding lead times, if we want to be efficient, we want to reduce lead times if cost efficient. If we want to be responsive, we aggressively reduce lead times. And suppliers, OK quality is good at the lowest cost for efficiency and if we want to be responsive we look for speed, flexibility and reliability with our suppliers. And finally thinking about transportation, lower and cost efficient is good for efficiency and faster and flexible is good for responsiveness. The choice of strategic focus on either efficiency responsiveness will in turn have a large impact on global supply chain operations. For product design, if we want to be efficient, we have standard models and designed for low cost. If we want to be responsive, we have modular designs that are designed for flexibility and adaptability. Regarding production, if we want to be efficient, we have high volumes, scale economies and probably consolidate our production facilities. If we want to be responsive, we want flexible facilities able to adapt quickly to product changes. Regarding inventories, if we want to be efficient, we want to minimize raw materials, inventories work in progress and finish good inventories, and we probably want those inventories to be centralized. If we want to be responsive, we maintain buffers of raw materials, work in process and finished goods. Probably localized near the point of demand. For transportation to be efficient, we want high volumes, full loads and value cost over speed. If we want to be responsive, we want fast delivery will deal with their put up with partial loads and we value speed over costs. And finally, regarding information, if we want to be efficient, we probably will be okay with aggregate information and data and periodic reports. If we want to be responsive, we want detailed information and data, frequently updated and easily accessible. In summary, global supply chain strategy can be conceptualized as a pyramid. Addressing the tip of the pyramid, global supply chain strategy must be focused on adding value for customers. And must balance efficiency and responsiveness depending on the needs of the customer, noting that this balance is a trade off. A global supply chain cannot simultaneously be highly efficient and highly responsive, they mutually exclusive. As with any strategy, a global supply chain strategy will inform and determine lower level tactics, operations and execution. Including product design, production inventories, transportation information systems, and so forth. In the next video, we'll focus on the three lower levels of this strategic pyramid tactics, operations, and execution. Will see you there. [MUSIC]
