Operations and Supply Management 4.0: Industry Insights, Case Studies and Best Practices (Future of Business and Finance) 3030686957, 9783030686956

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Future of Business and Finance

Marc Helmold Brian Terry

Operations and Supply Management 4.0 Industry Insights, Case Studies and Best Practices

Future of Business and Finance

The Future of Business and Finance book series features professional works aimed at defining, describing and charting the future trends in these fields. The focus is mainly on strategic directions, technological advances, challenges and solutions which may affect the way we do business tomorrow, including the future of sustainability and governance practices. Mainly written by practitioners, consultants and academic thinkers, the books are intended to spark and inform further discussions and developments. More information about this series at http://www.springer.com/series/16360

Marc Helmold • Brian Terry

Operations and Supply Management 4.0 Industry Insights, Case Studies and  Best Practices

Marc Helmold IU International University Berlin, Germany

Brian Terry Regents University London, UK

ISSN 2662-2467     ISSN 2662-2475 (electronic) Future of Business and Finance ISBN 978-3-030-68695-6    ISBN 978-3-030-68696-3 (eBook) https://doi.org/10.1007/978-3-030-68696-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Dedicated to Dr. Brian Terry

Progress cannot be generated when we are satisfied with existing situations. – Taiichi Ohno

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Abbreviations

5S Seiri, Seiton, Seiso, Seiketsu, Shitsuke 7R 7 Rights AI Artificial intelligence AM Additive manufacturing AR Augmented reality BME Bundesverband Materialwirtschaft, Einkauf und Logistik BMW Bayerische Motorenwerke BOS Bombardier Operating System BSC Balanced score card CSR Corporate social responsibility DIN Deutsche Industrienorm DSCM Downstream supply chain management ERP Enterprise resource planning EXW Ex works Glocal Global and local IoP Internet of People IoT Internet of Things IPO International Procurement Office ISO International Organization for Standardization IUBH International University Bad Honnef JIT Just-in-time KPI Key performance indicator MPS Mercedes-Benz production system OEE Overall equipment effectiveness OKR Objectives and key results PDCA Plan, Do, Check, Act PDSA Plan, Do, Study, Act PE Physical education PESTEL Macro analysis PPS Production planning system QR Quick response SCM Supply chain management SFM Shopfloor management TIMWOOD Seven types of waste in manufacturing ix

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TÜV Technischer Überwachungsverein UN United Nations USCM Upstream supply chain management USP Unique selling propositions VR Virtual reality VW Volkswagen

Abbreviations

Contents

1

Introduction: The Value Chain ����������������������������������������������������������������   1 1.1 Challenges and Trends in the Value Chain������������������������������������������   1 1.2 Input-Transformation-Output��������������������������������������������������������������   3 1.3 The Value Chain and Value-Added ����������������������������������������������������   3 1.4 Operations Management 4.0 ��������������������������������������������������������������   5 1.5 Supply Management 4.0 ��������������������������������������������������������������������   7 1.6 Focus on Value-Added Processes��������������������������������������������������������   8 1.6.1 Waste from Transportation������������������������������������������������������  11 1.6.2 Waste from Inventory��������������������������������������������������������������  12 1.6.3 Waste from Motion ����������������������������������������������������������������  12 1.6.4 Waste from Waiting����������������������������������������������������������������  13 1.6.5 Waste from Overproduction����������������������������������������������������  15 1.6.6 Waste from Overprocessing����������������������������������������������������  16 1.6.7 Waste from Defects����������������������������������������������������������������  16 1.7 Case Study: Supply Networks at BMW Group����������������������������������  17 References����������������������������������������������������������������������������������������������������  18

2

Operations Management 4.0 ��������������������������������������������������������������������  21 2.1 Introduction to Operations Management 4.0��������������������������������������   21 2.2 History of Operations Management 4.0����������������������������������������������   22 2.3 Elements of Operations Management 4.0������������������������������������������   23 2.3.1 Virtual Factory������������������������������������������������������������������������  23 2.3.2 Digital Value Chain Integration����������������������������������������������  24 2.3.3 Lean Simulations��������������������������������������������������������������������  24 2.3.4 System Integration������������������������������������������������������������������  25 2.3.5 Internet of Things��������������������������������������������������������������������  25 2.3.6 Cybersecurity��������������������������������������������������������������������������  26 2.3.7 Cloud Computing��������������������������������������������������������������������  26 2.3.8 Additive Manufacturing����������������������������������������������������������  26 2.3.9 Augmented Reality ����������������������������������������������������������������  26 2.3.10 Big Data����������������������������������������������������������������������������������  26 2.4 Principles of Operations Management 4.0������������������������������������������   27 2.4.1 Digital Synchronization of Networks ������������������������������������  27 2.4.2 7R Principle����������������������������������������������������������������������������  28 xi

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2.4.3 Gemba, Gembutsu und Genchi: Right Place of Happening ������������������������������������������������������  28 2.4.4 Muda, Muri, Mura������������������������������������������������������������������  30 2.4.5 Heijunka����������������������������������������������������������������������������������  31 2.4.6 Poka Yoke��������������������������������������������������������������������������������  31 2.4.7 Jidoka��������������������������������������������������������������������������������������  31 2.4.8 Chaku Chaku Line������������������������������������������������������������������  32 2.5 Case Study: Mazda Operations Management Strategy����������������������  32 References����������������������������������������������������������������������������������������������������  34 3

Supply Management 4.0����������������������������������������������������������������������������  35 3.1 Supply Side ����������������������������������������������������������������������������������������  35 3.2 History of Supply Management 4.0 (Fig. 3.4)������������������������������������  38 3.3 Supply Management Objectives ��������������������������������������������������������  39 3.4 Supply Management Process��������������������������������������������������������������  39 3.4.1 Six Phases in Supply Management 4.0 ����������������������������������   39 3.4.2 Supplier Strategy��������������������������������������������������������������������  41 3.4.3 Supplier Selection ������������������������������������������������������������������  48 3.4.4 Supplier Evaluation����������������������������������������������������������������  51 3.4.5 Supplier Development������������������������������������������������������������  56 3.4.6 Supplier Integration����������������������������������������������������������������  58 3.4.7 Supplier Controlling ��������������������������������������������������������������  60 3.5 Control Via Digital Supplier Dashboards and Cockpits ��������������������  61 3.6 Case Study: Apple’s Outsourcing Strategy ����������������������������������������  63 References����������������������������������������������������������������������������������������������������  64

4

 Lean Principles in Operations and Supply����������������������������������������������  65 4.1 5S Concept in Operations and Supply������������������������������������������������  65 4.1.1 Elements of Lean Principles ��������������������������������������������������  67 4.1.2 Zero-Defect Principle�������������������������������������������������������������  67 4.1.3 Pull Principle��������������������������������������������������������������������������  68 4.1.4 Flow Principle������������������������������������������������������������������������  68 4.1.5 Tact Principle��������������������������������������������������������������������������  69 4.2 Andon��������������������������������������������������������������������������������������������������  70 4.3 Poka Yoke��������������������������������������������������������������������������������������������  71 4.4 Gemba and Shop floor������������������������������������������������������������������������  71 4.5 Shadow Boards ����������������������������������������������������������������������������������  71 4.6 Health and Safety��������������������������������������������������������������������������������  72 4.7 Overall Equipment Effectiveness (OEE)��������������������������������������������  73 4.8 Kanban������������������������������������������������������������������������������������������������  74 4.9 Supermarkets��������������������������������������������������������������������������������������  74 4.10 Case Study: Porsche Production System��������������������������������������������  75 References����������������������������������������������������������������������������������������������������  76

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 Industry 4.0 and Artificial Intelligence (AI)��������������������������������������������  77 5.1 Industry 4.0 ����������������������������������������������������������������������������������������   77 5.2 Elements of Industry 4.0 ��������������������������������������������������������������������   78 5.3 Artificial Intelligence (AI)������������������������������������������������������������������  79 5.4 Case Study: Google’s Self-Driving Cars��������������������������������������������  80 References����������������������������������������������������������������������������������������������������  83

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Operations and Supply as Integral Part of the Corporate Strategy��������������������������������������������������������������������������  85 6.1 Definition of Strategic Management ��������������������������������������������������  85 6.2 Strategic Triangle��������������������������������������������������������������������������������  86 6.3 Strategic Analysis��������������������������������������������������������������������������������  87 6.4 Strategic Choice����������������������������������������������������������������������������������  88 6.5 Strategic Implementation��������������������������������������������������������������������  88 6.5.1 Assessment of Suitability, Acceptability, and Feasibility������������������������������������������������������������������������  88 6.5.2 Suitability��������������������������������������������������������������������������������  90 6.5.3 Acceptability ��������������������������������������������������������������������������  90 6.5.4 Feasibility��������������������������������������������������������������������������������  90 6.6 Strategic Pyramid��������������������������������������������������������������������������������  91 6.6.1 Lean Mission and Vision��������������������������������������������������������  92 6.6.2 Qualitative and Quantitative Lean Goals and Objectives ������  92 6.6.3 Core Competencies ����������������������������������������������������������������  92 6.6.4 Strategies��������������������������������������������������������������������������������  92 6.6.5 Strategic Architecture��������������������������������������������������������������  93 6.6.6 Control and Execution������������������������������������������������������������  93 6.7 Strategies Must Focus on Value-Creation ������������������������������������������  93 6.8 Case Study: Siemens Strategy������������������������������������������������������������  94 References����������������������������������������������������������������������������������������������������  95

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The Cultural Change Towards Operations and Supply Excellence ������������������������������������������������������������������������������  97 7.1 Lean Management as Part of the Organizational Culture ������������������  97 7.1.1 Stories and Myths ������������������������������������������������������������������  98 7.1.2 Rituals and Routines ��������������������������������������������������������������  98 7.1.3 Symbols����������������������������������������������������������������������������������  99 7.1.4 Control Systems����������������������������������������������������������������������  99 7.1.5 Organizational Structures��������������������������������������������������������  99 7.1.6 Power Structures ��������������������������������������������������������������������  99 7.1.7 Cultural Web to Change���������������������������������������������������������� 100 7.2 Need for Change of Organizational Culture �������������������������������������� 100 7.3 Creating a Logical and Open Mind���������������������������������������������������� 102 7.4 Leadership Development and Culture������������������������������������������������ 102 7.5 Emotional and Physical Strength�������������������������������������������������������� 103 7.6 Case Study: Toyota ���������������������������������������������������������������������������� 103 References���������������������������������������������������������������������������������������������������� 105

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 Global Supply Chain and Logistics���������������������������������������������������������� 107 8.1 Globalization and Global Supply Networks �������������������������������������� 107 8.2 Supply Risk Prevention and Mitigation���������������������������������������������� 109 8.3 Method of Global Risk Evaluation ���������������������������������������������������� 110 8.4 Fair Trade�������������������������������������������������������������������������������������������� 111 8.5 Glocal Supply Chains ������������������������������������������������������������������������ 111 8.6 Case Study: Lidl’s Glocal Supply Strategy���������������������������������������� 112 8.6.1 Grocer with Regional and Global Supply Chains������������������ 113 References���������������������������������������������������������������������������������������������������� 113

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 New Competencies and Skills in Operations and Supply���������������������� 115 9.1 Operations Managers as the Coordinator of Value-­Adding Activities������������������������������������������������������������������ 115 9.1.1 Overseeing Processes�������������������������������������������������������������� 116 9.1.2 Minimizing Operational Costs������������������������������������������������ 116 9.1.3 Developing Strategies ������������������������������������������������������������ 116 9.1.4 Product Design������������������������������������������������������������������������ 116 9.2 Competency Shift to the Innovative Supply Manager������������������������ 117 9.2.1 Supply Managers as Project Manager and Interface to Suppliers ������������������������������������������������������ 117 9.2.2 Supply Managers as Single Point of Contact�������������������������� 119 9.2.3 International and Intercultural Competencies������������������������ 121 9.2.4 Life-Long Learning and Training ������������������������������������������ 121 9.3 Case Study: Risk-Oriented Supply Management at Papenburg Shipyard������������������������������������������������������������������������ 122 References���������������������������������������������������������������������������������������������������� 123

10 Change  Management as Driver Towards Operations and Supply Management 4.0 ���������������������������������������������������������������������������������������� 125 10.1 Definition of Change Management�������������������������������������������������� 125 10.2 External and Internal Reasons for Change���������������������������������������� 126 10.3 Change Management Concepts�������������������������������������������������������� 127 10.3.1 Change Management Concept of Kurt Lewin���������������������� 127 10.3.2 Change Management Curve of Elisabeth Kübler-Ross�������� 128 10.3.3 Change Management Phase Model of Kotter ���������������������� 133 10.3.4 ADKAR Change Management Model���������������������������������� 135 10.3.5 McKinsey 7S Model ������������������������������������������������������������ 136 10.4 Case Study: Change Management in Nissan������������������������������������ 137 References���������������������������������������������������������������������������������������������������� 137 11 Lean Product Development���������������������������������������������������������������������� 139 11.1 Design for Lean Manufacturing�������������������������������������������������������� 139 11.2 Lean Management Concepts in Product Development�������������������� 140 11.2.1 Case Study: Apple’s Design Strategy ���������������������������������� 140 Reference ���������������������������������������������������������������������������������������������������� 143

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12 Performance  Management Cycle, KPI, and OKR���������������������������������� 145 12.1 The Performance Management Cycle���������������������������������������������� 145 12.2 Performance Excellence in Operations and Supply�������������������������� 147 12.3 Key Performance Indicators (KPI) �������������������������������������������������� 149 12.4 Objective Key Results (OKR)���������������������������������������������������������� 149 12.5 Case Study: Microsoft’s Strategy and Objectives���������������������������� 150 12.5.1 Applications and Infrastructure�������������������������������������������� 151 12.5.2 Data and AI �������������������������������������������������������������������������� 151 12.5.3 Business Applications ���������������������������������������������������������� 151 12.5.4 Modern Workplace���������������������������������������������������������������� 152 12.5.5 Gaming���������������������������������������������������������������������������������� 152 12.5.6 CSR�������������������������������������������������������������������������������������� 153 References���������������������������������������������������������������������������������������������������� 154 13 Sustainability  Management and Social Responsibility�������������������������� 155 13.1 CSR and Lean Management ������������������������������������������������������������ 155 13.2 CSR Maturity Levels������������������������������������������������������������������������ 157 13.3 Global Compact Principles �������������������������������������������������������������� 157 13.4 Case Study: Volkswagen’s Lean and Green Award�������������������������� 158 Reference ���������������������������������������������������������������������������������������������������� 159 14 Audits  and Quality Management Systems (QMS)���������������������������������� 161 14.1 Lean Audits �������������������������������������������������������������������������������������� 161 14.1.1 Audit Types �������������������������������������������������������������������������� 161 14.1.2 Quality Management Systems (QMS)���������������������������������� 161 14.2 Case Study: 5S Audits in Berliner Kindl Schultheiss Brewery�������� 162 Reference ���������������������������������������������������������������������������������������������������� 163 15 Outlook  of Operations and Supply Management 5.0 ���������������������������� 165 15.1 Trends and Impacts on Operations and Supply Management���������� 165 15.1.1 Flexible Sensors and Software���������������������������������������������� 165 15.1.2 Predictive Algorithms and Virtual Maintenance ������������������ 165 15.1.3 Digital Quality Systems and Poka Yoke ������������������������������ 166 15.1.4 Digital Human Resources and Automated Training ������������ 166 15.1.5 Digital Resource Planning and Sustainability���������������������� 167 15.2 Lean Management Integration���������������������������������������������������������� 167 15.2.1 Case Study: Lean Supply in Airbus Through AirSupply������������������������������������������������ 169 References���������������������������������������������������������������������������������������������������� 170 Glossary of Lean Management Terms ������������������������������������������������������������ 171

About the Authors

Marc  Helmold  is full-time Professor at IUBH Internationale Hochschule in Berlin. He teaches Bachelor, Master, and MBA in Performance Management, Lean Management, Procurement, General Management, Strategic Management, and Supply Chain Management. From 1997 until 2016 he had several positions in top management positions in the automotive and railway industry. Between 1997 and 2010 he worked in several companies like Ford, Ford-Mazda Japan, Porsche, and Panasonic Automotive in managerial functions and executed lean workshops throughout the value chain. From 2013 until 2016 he was the General Manager of Bombardier Transportation in China and led the sourcing and spare parts sales activities. Since 2016, he is Professor at the IUBH and has his own consultancy. In this capacity, he improves companies in performance. Brian  Terry  was a full-time academic at Imperial College London and University of California, Berkeley. He is now an academic at Regent’s University London and director at his own management consultancy. His expertise lies in supply chain management, IT and business process outsourcing, strategic and business consultancy, and transformation. Brian has worked throughout the world, including North and South America, Western Europe, Japan, and Australasia. His former roles span many sectors, including industry, IT services and outsourcing, consultancy, and education. Brian has been a director and board member at several multinational consultancies.

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1

Introduction: The Value Chain

Progress cannot be generated when we are satisfied with existing situations. Taiichi Ohno (1912–1990)

1.1 Challenges and Trends in the Value Chain Companies face significant challenges. The Covid-19 crisis, advancing globalization, the need for global digitization, and the urge for ever faster and new innovations are forcing companies to radically change their strategy and traditional models. The increasing global and above all digital networking of customers, manufacturing companies, suppliers and other interest groups, the almost unrestricted exchange of data and information and the associated maximum transparency over a large part of the value-adding activities within global supply chains raises the question of future generation of competitive advantages of manufacturing, trading and service companies. In this context, supplier management, i.e., the function that controls the entire value chain is of much more importance across the entire value chain than was the case in previous years. Because only the integrative approach from the customer order through the planning, procurement, production, logistics to the returns process gives companies the necessary basis for decision-making for their future actions. The tasks in supplier management have changed from a purely procurement function to a value-creating, leading, and value-adding function. By concentrating on core competencies and shifting services to supplier networks that are in competition with one another, new models, strategies, and processes emerge which lead supplier management into a central role in every company. For a long time now, the focus in the future has not only been on increasing company-internal cost advantages, but much more on the exchange of information and the exploitation of global cross-company potential. Scope of added value can no longer be dealt with by the

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_1

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1  Introduction: The Value Chain

2

manufacturer alone, but have to fall back on innovative, efficient, and flexible supplier structures. Increasing competition, global trends, the COVID-19 pandemic, sustainability elements, technological change, and shortened product life cycles place ever higher demands on companies and their suppliers in numerous industries. The increasing variety of products, shorter innovation cycles and cross-sector business models with digital business processes also increase the complexity of future management of value networks. However, the planning, control and monitoring of the upstream value creation networks, i.e., the supplier networks, becomes more difficult, so that these tasks have to be covered by holistic, standardized and innovative supplier management. But modern supplier structures are becoming increasingly volatile. The control of the external value-added networks must therefore also adapt to the new requirements. Risk prevention in the supply chain is therefore of central importance in every company, but only 17% of companies operate preventive supplier management with early and standardized integration of their suppliers, and more than two thirds only assess a selection of suppliers (Dust 2016). These alarming figures emerge from the study “Total Supplier Management—Strategic Competitive Advantages through Risk Prevention in Supplier Management.” The representative survey of 221 companies from different sectors from industry, trade, and services was created by the Technical University of Berlin in cooperation with the BME region Berlin-Brandenburg (Dust 2016). Figure 1.1 shows the proportion of peripheral skills being transferred to external suppliers to more than 80% (outsourcing). In contrast, own core competencies, i.e., processes and skills from which competitive advantages are developed for your own company are around 20%. As a consequence, it is important that enterprises are looking at their upstream activities (suppliers) and that these enterprises integrate them smoothly and digitally into their own operations (Helmold 2021). Only these companies that will be able to optimally drive their supply and integrate this supply into their operations will be able to gain a long-term competitive advantage. This is where Operations and Supply Management 4.0 come onto the spotlight as a new and integrated concept in the value chain. Operations Management 4.0 and Supply Management 4.0

External Value-adding Networks

Shifting Value-adding Activities to Suppliers Internal Value-added Activities 80% 20% 20 %

Enterprises Supply Side (Core Competencies) (Non Core Competencies)

80 %

Fig. 1.1  Input-transformation-output model. (Source: Author’s source)

1.3  The Value Chain and Value-Added

3

1.2 Input-Transformation-Output All operations in an organization produce products and services by changing inputs into outputs using input-transformation-output processes. Operations are processes that take a set of input resources which are used to transform themselves, into outputs of products and services (Grabner 2019). A transformation process is any activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides outputs for customers or clients. For example, a car manufacturer transforms raw materials and components into finished and assembled cars; a hospital transforms ill patients (the input) into healthy patients (the output). Transformation can also contain services like transforming students to skilled and graduated experts in their areas. To distinguish between these, input resources are usually classified as: transformed resources, those that are transformed in some way by the operation to produce the goods or services that are its outputs. Transforming resources are used to perform the transformation process. Conversion is the interaction of the people with the other components of the input to change the material into the output. Figure  1.2 depicts the input-transformation-output model (Helmold 2021). Transformation can be distinguished into: • physical transformation • informational transformation • possession transformation • location transformation • storage transformation • ownership transformation • physiological or psychological transformation

1.3 The Value Chain and Value-Added The value chain includes the supply chain, your own company, and customers, as Fig. 1.3 shows. The central task is to connect value-added networks and companies that are related to one another via upstream and downstream links. The supplier management has the task of planning, controlling, and executing the supplier side, so that activities and processes are integrated into the own company and synchronized with it. Upstream, the upstream part of the supply chain, encompasses the

Value Chain: Input-Transformation-Output

Input (Raw Materials, Materials, Resources, Human Resources, Money, Knowledge, Building etc.)

Transformation

Output

(Creation of Products and Services)

(Sales of Products and Services to Customers)

Fig. 1.2  Input-transformation-output model. (Source: Author’s source)

1  Introduction: The Value Chain

4 Tier 3

Tier 2

Tier 1

Tier 1

Tier 2

Supplier Supplier Supplier Supplier Supplier Supplier

Supplier Supplier

Supplier Customer

Customer

Supplier

Customer

Operations Management 4.0

Supplier Supplier

Supplier

Customer

Supply

Supplier

Customer

Management 4.0

Customer

Customer

Supplier

Downstream Supply Chain Management Demand or Customer Side

Upstream Supply Chain Management Supply Side

Fig. 1.3  The value chain. (Source: Author’s source)

Secondary Functions

Research and Development Finance and Controlling Human Resources

Supplier Supplier Supplier

Supply Management 4.0 Primary Functions

Supplier

Margin

Core Functions

Operations Management 4.0 Inbound Logistics

Assembly

Marketing & Sales

Outbound Logistics

After Sales

Enterprise Functions

Fig. 1.4  The value chain of porter. (Source: Author’s source)

company’s suppliers, processes, and relationships with them. The downstream part consists of the organizations and processes for the sale and delivery of products to end customers (Helmold 2020). In this context, value-added activities include integrative approaches to control the overall flow of a sales channel from the supplier to the end consumer. Every product and service has its own supply chain, which can be global, complex, or complicated. The creation of a distribution channel therefore also includes suppliers, manufacturers, dealers, and customers who are connected by a common process through a series of supportive connections in terms of location, transport, and other intermediaries. The value chain or value chain in Fig. 1.4 shows the stages of production as an orderly sequence of activities. These activities create value, consume resources, and

1.4  Operations Management 4.0

5

are linked in processes. The concept was first published in 1985 by Michael E.  Porter. According to Porter, there are five primary activities that describe the actual value creation process: internal logistics, production, external logistics, marketing & sales and service. There are also four support activities that complement the value creation process: corporate infrastructure, human resources, technology development, and procurement. Every company activity represents an approach to differentiation and makes a contribution to the company’s relative cost position in the competition.

1.4 Operations Management 4.0 The term “Operations Management” used in everyday life encompasses very different and multifaceted issues. You produce material goods such as vehicles, shoes, furniture, food, or machines. You also produce services such as performances, planning software, demonstrations, or consulting assignments. In addition, immaterial and ideal goods such as ideas or information are produced. This book focuses on the first meaning, “production in terms of material goods.”. For all production processes of material goods, it is imperative that goods have already existed for the provision of the service, as the following figure shows. In the production of material goods, one also speaks here of the output, products or output conditional on the use (English: input) of means of production. These funds are also called raw materials or input. If one describes input materials as input and the result of production as output, the considerations of the “input-output process” can be presented as follows. In addition to the term, the terms manufacturing and manufacturing are often used in practice and literature. While the concept of production encompasses all aspects of the transformation process, the concepts of production and manufacture are associated with immediate changes of a material nature. Thaler describes the objective of the production process as a business challenge to manufacture products or production orders (output) from the point of view of capacities, resources, deadlines (input), and customer requirements. Production processes for the manufacture of goods are very fragmented nowadays, especially due to the international division of labor and global value chains. Therefore, challenges in the production process can be derived, which usually not only include their own value creation process, but also upstream value creation networks. This topic is discussed in detail in the chapter on procurement and the subchapter on lean principles within production. In addition, production-related principles from the Toyota production system are described, which have had significant effects on production methods in the last few decades. Production can be seen as a process of manufacturing (production in the sense) or as a process of creation (production in the sense of the word). In production in the context of manufacturing, the technical aspect is particularly considered because raw and finished materials, the so-called production factors, are processed into semi-finished and finished products; a conversion takes place in the context of production or manufacture, which is usually associated with the creation of added

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1  Introduction: The Value Chain

value. A consideration of the production process from the operational point of view includes business questions such as the type and quantity of the products and the type of production type that must be answered within the service creation process. Production is therefore seen as one of the entrepreneurial and operational functions alongside procurement and sales. The term production encompasses all types of operational performance. Not only material goods can be produced, but also immaterial goods, i.e., services. The services also include non-material goods, such as Ideas. Production includes all upstream and downstream functions, such as procurement and storage. In addition to procurement and sales, production is seen as the main function of the operating process, whereas personnel management, financial management, or controlling are seen as support functions. Operations Management 4.0 is the digital transformation of manufacturing/production and related industries and value creation processes. It is used interchangeably with the fourth industrial revolution and represents a new stage in the organization and control of the industrial value chain. Cyber-physical systems form the basis of Operations Management 4.0 (e.g., smart machines). They use modern control systems, have embedded software systems, and dispose of an internet address to connect and be addressed via IoT (the internet of things). This way, products and means of production get networked and can “communicate,” enabling new ways of production, value creation, and real-time optimization. Cyber-physical systems create the capabilities needed for smart factories. These are the same capabilities we know from the industrial internet of things like remote monitoring or track and trace, to mention two. Operations Management 4.0 has been defined as “a name for the current trend of automation and data exchange in manufacturing technologies, including cyber-physical systems, the internet of things, cloud computing and cognitive computing and creating the smart factory.” The concept is a vision related to Industry 4.0 that evolved from an initiative to make the German manufacturing industry more competitive to a globally adopted term. Operations Management 4.0 is sometimes used interchangeably with the notion of the fourth industrial revolution. It is characterized by, among others, (1) even more automation than in the third industrial revolution, (2) the bridging of the physical and digital world through cyber-physical systems, enabled by Industrial IoT, (3) a shift from a central industrial control system to one where smart products define the production steps, (4) closed-loop data models and control systems, and (5) personalization/customization of products. However, Operations Management 4.0 is wider and more holistic than Industry 4.0, as it integrates the supply side (Helmold 2021). The goal is to enable autonomous decision-making processes, monitor assets and processes in real-time, and enable equally real-time connected value creation networks through early involvement of stakeholders, and vertical and horizontal integration. Operations Management 4.0 in combination with Supply Management 4.0 can therefore be regarded as a vision and concept in motion, with reference architectures, standardization, and even definitions in flux. Most Operations Management 4.0 initiatives are early-stage projects with a limited scope. The majority of digitization and digitalization efforts, in reality, happen in the context of third and even

1.5  Supply Management 4.0

7

second industrial revolution technologies/goals. In essence, the technologies making Operations Management 4.0 possible leverage existing data and ample additional data sources, including data from connected assets to gain efficiencies on multiple levels, transform existing manufacturing processes, create end-to-end information streams across the value chain and realize new services and business models. To understand Operations and Supply Management 4.0, it is essential to see the full value chain which includes suppliers and the origins of the materials and components needed for various forms of smart manufacturing, the end-to-end digital supply chain and the final destination of all manufacturing and production activities, regardless of the number of intermediary steps and players: the end customer. Enabling more direct models of personalized production, servicing, as well as customer/consumer interaction (including gaining real-time data from actual product usage) and cutting the inefficiencies, irrelevance, and costs of intermediaries in a digital supply chain model, where possible, are some goals of Operations Management 4.0 in this customer-centric sense of increasingly demanding customers who value speed, (cost) efficiencies, and value-added innovative services. In the end, it remains business, with the innovative twist of innovation and transformation of business models and processes: increase profit, decrease costs, enhance customer experience, optimize customer lifetime value and where possible customer loyalty, sell more, and innovate to grow and remain relevant.

1.5 Supply Management 4.0 Global trends, digitization, continuous technological innovations, shortened product creation cycles, and the development of new business models pose ever greater challenges for today’s companies (Bernardo 2020). The increasing digitization of products and processes is changing purchasing, procurement, and supply chain management in a sustainable manner. Information and communication technology, social media, big data, and networked systems through digitization are playing an increasingly important role for future business models. The added value not only takes place within the company, but is also provided to a large extent by supplier networks. This share of external added value will continue to increase in the future, so that the design and control of the partner networks that are created represent an increasingly critical success factor in companies. The resulting new opportunities and risks at the interface to the supplier side make it necessary to rethink almost all areas of the company. In the past, classic purchasing was defined by the focus on supplier management of material costs and purchase prices. Procurement was responsible for the operational execution. The focus here was on the contractual implementation of purchasing targets and purchase prices (Dust 2019). Supplier management, on the other hand, not only controls individual suppliers selectively, but also considers entire supply networks and supply chains, and does so preventively through the use of standardized tools (Helmold and Terry 2016).

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1  Introduction: The Value Chain

Purchasing and procurement of raw materials, components, and systems will continue in the future to be of great importance for the company’s results (Büsch 2019). However, due to the increasing complexity of the value-added networks, the far greater potential lies in efficient control of the entire value-added chain. The control and evaluation of these heterogeneous partner networks are becoming increasingly complex and difficult with conventional purchasing methods (Dust et al. 2011). As a result, companies are forced to consider not only material costs but also the control and process costs of the value chain (Helmold & Samara 2019). In contrast to supplier management, which plans and controls supply chains preventively, traditional purchasing and procurement have been more reactive. The holistic approach of modern supplier management therefore relates to quality, cost, delivery, and sustainability goals. The goals are implemented through a good relationship with the supplier. New products, which combine different technologies, result in new tasks. Environmental requirements and sustainability goals lead to new mobility concepts, which in turn lead to innovations in information and communication technology. This means that the innovation dynamics also create new ways of joint development and collaboration between customer and supplier. As a result, the dependency of individual companies on one another in global partner networks will continue to increase in the future, as only cross-sector cooperation can ensure the availability of the required production factors and technologies. Such trends have been observed for a long time. However, despite this change, the cooperation between buyers and suppliers is still partly shaped by traditional power relations. As a result, the suppliers have optimized their interface processes towards the customer to one (single point of contact, key account manager). Customers are also increasingly organizing their business relationships with a single contact for suppliers (supplier manager). Figure 1.5 shows the development from inbound logistics to the concept of Supply Management 4.0. Whereas the initial stages in the history of the concept deal with simple activities in terms of receiving materials in the first stage, Supply Management 4.0 considers the management of the entire supply and upstream value chain as external part of its own value chain.

1.6 Focus on Value-Added Processes In terms of optimal supplier management, it is important to optimize processes, throughput times, and activities through planning, control, and integration of supply chains, to eliminate waste and to synchronize processes with your own company. Due to the complete elimination of waste (Jap.: Muda), lead times are reduced. Types of waste can be divided into open and hidden waste, as shown in Fig. 1.6. The types of waste of overt (obvious) and hidden (hidden) waste are shown in the pie chart. Obvious (overt) waste includes all activities and activities that are obviously not necessary to add value to the product. The customer is not willing to pay a fee for these activities and to pay them. Overt waste includes activities that do not add value but must be done under the circumstances. The customer sees no reason to pay

1.6  Focus on Value-Added Processes

Supply Management 4.0 Supply Management

9

Supply Management 4.0 Integration of external suppliers into own operational activities and value chain Supply Management Managing external suppliers in a holistic way with a focus on value-added activities

Procurement

Purchasing Managing external suppliers including raw materials in terms of Quality, Cost, Delivery and alpha

Procurement Logistics

Procurement Securing external Supply with a focus on Cost, Quality and Delivery

Purchasing

Material Receiving

Procurement Logistics Managing external suppliers in terms of Delivery Material Receiving Securing Receipt of Materials ordered in the Enterprise

Fig. 1.5  Evolution to Supply Management 4.0. (Source: Author’s source) Fig. 1.6  Value-add and waste in Operations and Supply Management 4.0. (Source: Author’s source)

Hidden Waste (Reduction)

Value-added (Increase) Customer is willing to pay

Obvious Waste (Elimination)

for these activities either. All other aspects (activities adding value to the product) represent value-adding activities and are borne by the customer. The only effective way to eliminate waste is to remove the apparent safety (Fig. 1.7). By making the real problems transparent, the problem drivers can be easily identified, as is the need to find a quick solution. The long-term elimination of the causes of waste enables shorter throughput times and thus automatically lowers stocks. An essential

1  Introduction: The Value Chain

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Category Value add

Task

Hidden waste

Task

Obvious waste

Task

Impact

Principle

• Added value for products and services • Customer pays for it • Customer recognizes and perceives this a value add

Increase

• No added value for product or service • Task is necessary for production

Minimize

• No added value for product or service • Task not necessary for production

Eliminate

Fig. 1.7  Waste and value-add—impacts and principles. (Source: Author’s source)

approach in supplier management is sustainable improvement, i.e., in other words, the replacement of waste with added value, not compression or condensation. The main goal of every supplier management should therefore be to transfer the JIT philosophy from one’s own company to the supply chain and to replace waste with added value. The following shows starting points for optimizing the supply chain by eliminating seven types of waste in the supplier’s production process or in the supply chain. Eliminating wasteful activity is one of the most important prerequisites for building a successful business. This concept is an integral part of Lean thinking and will help you increase profitability. The idea of ​​avoiding any kind of waste stems from the Toyota production system. Taiichi Ohno, who is considered one of the founding fathers of lean manufacturing, devoted his career to establishing solid and efficient work processes. During his trip, Ohno described three main obstacles that can negatively affect a company’s work processes: Muda (wasteful activities), Muri (overload), and Mura (irregularities). Based on his observations and in-depth analysis, he categorized the seven types of waste (7 Mudas) that later became a popular practice for reducing costs and optimizing resources (Helmold 2020). The seven wastes are also referred to as TIMWOOD-model. Figure 1.8 shows the seven types of waste in a checklist: –– Transportation –– Inventory –– Motion

1.6  Focus on Value-Added Processes

11

Checklist: Category

T

Transport

How many times? Which routes? Empty containers?

I

Inventory

How much material is in front of a line/machine? What is the material range?

M

Motion

Motions of employee within the workstation: Destination? How many times? Routes? Duration?

W

Waiting

Waiting for material, devices or supervisor? All information available? Missing documents?

O

Overproduction

Compliance with quality? Batch size?

O Overprocessing

Proper tools? Proper settings? Proper instructions? Proper tolerances?

D

Which mistakes? How often does it happen? Problem solving system?

Defects

Fig. 1.8  TIMWOOD—checklist for waste identification. (Source: Author’s source)

–– –– –– ––

Waiting times Overproduction Overprocessing Defects

1.6.1 Waste from Transportation Excessive transportation (Fig.  1.9) is a significant waste because the customer doesn’t care about the time, manpower, energy, effort, and resources required to move items and doesn’t want to pay (Ohno 1990). Examples of transportation waste include moving products from one functional area such as pressing to another area such as welding, or using material handling equipment to move batches of material from one machine to another within a work cell. This wastes time as operators dedicate the available time of the working day moving objects from one location to another. It wastes energy and resources as better use could be made of employees’ time and because some tools used for transportation (forklifts, trucks, pallet trucks) consume energy such as electricity or propane. As machines and operators spend time wasting activities, they are no longer free and can take on value-added activities. Figure  1.11 shows the description, causes, consequences, and examples of transport waste. Reasons can be inadequate layouts and large distances between individual operations. The consequences of this waste are increased time requirements and decreased productivity. Decreased productivity leads to higher operating costs and can affect the company’s profitability (Liker 2004).

1  Introduction: The Value Chain

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1. Transportation Definition • Unnecessary transport of material • Transport is a necessary type of waste however it should be reduced to a minimum

Possible reasons • Insufficient arrangement of needed material and devices

• Physical distance between material delivery and usage • Interim storage of material (buffer)

Consequences • Additional space for transport

Examples • Long or additional transport of:

• Blocking of capacity due to additional logistic effort • Possible damage of products

• Raw material • Finished goods • Tools and devices

Fig. 1.9  Transportation. (Source: Author’s source)

1.6.2 Waste from Inventory The inventory consists of excess material from finished goods, semi-finished products or raw materials. Finished goods inventory is generally the most expensive inventory because it involves labor and other overheads, along with the cost of materials consumed during production. To reduce this inventory, process improvements as well as greater accuracy in forecasting customer requirements are required. Inventory waste refers to waste generated from unprocessed inventory. This includes the waste of inventory, the waste of capital tied up in unprocessed inventory, the waste in transporting the inventory, the containers in which the inventory is kept, the lighting of the storage room, etc. In addition, excess inventory can make the original waste hide the making of inventory. The environmental impact of inventory waste is packaging, deterioration or damage to the work-in-process, additional materials to replace damaged or obsolete inventory and the energy for lighting and either heating or cooling for the inventory space. Figure 1.10 shows the definition, reasons, consequences, and examples of stocks. The inventories represent capital tied up costs. Therefore, these will have a negative effect on the working capital and the cash flow, so that a sophisticated production planning must concentrate on the optimal inventories in the entire value chain and in the entire operation (Helmold and Terry 2016).

1.6.3 Waste from Motion Unnecessary movements are another aspect that significantly reduces productivity. Unnecessary movement also includes movement on a rather small scale, such as handing over tools or reaching to components that are unnecessarily far away, as

1.6  Focus on Value-Added Processes

13

2. Inventory Definition • More material than needed according to planning in terms of: • Raw material • Semi-finished parts • Work in progress (WIP) • Finished goods

Possible reasons • Problems regarding planning and logistic processes • Bad supplier delivery performance and quality • High product variety

Consequences • Capital costs • Double handling, possible damages based on double handling, rework • Genuine problems won’t be discovered and therefore not solved • Search effort • Scrap

Examples • • • • •

Overfilled warehouses Overfilled place in production areas Buffer stocks in producton Crammed corridors Crammed desks

Fig. 1.10  Inventory. (Source: Author’s source)

well as movement on a large scale such as going to the central tool dispenser to get a replacement tool. Often unfavorable or inadequate workplace ergonomics are the reason for unnecessary movement, which not only restricts the efficiency of the employee, but can also in many cases lead to accidents at work or poor quality. In order to improve workplace ergonomics, the work processes must be precisely analyzed in order to subsequently create optimal conditions for the work process. With the correct arrangement of the components and equipment on the assembly table, the full availability of all required materials and tools and the right environmental conditions such as lighting and table height, considerable improvements can usually be achieved. Unnecessary movement on a larger scale manifests itself when the employee regularly walks around within the work area or when the employee even has to leave their own work area, for example, to procure missing items from other areas. Clutter is therefore very often a reason why a lot of working time is wasted looking for tools or materials. In such searches, the employee often covers considerable distances, during which he of course cannot be active in a value-adding manner. The application of the 5S method, in which things that are not required at the workplace are rigorously sorted out in the first step, and then in the second step, order systems are installed that guarantee the availability of the things actually needed, can quickly provide a remedy in such cases. Figure 1.11 shows the definition, causes, consequences, and examples of waste in the area of movements.

1.6.4 Waste from Waiting Waiting times are unproductive times during which no added value can be created. A large part of the waiting time is often caused by machine downtimes. Waiting

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3. Motion Definition • Every type of movement that doesn‘t directly serve value creation

Possible reasons • Inaccurate analysis of all workflows Inappropriate layout

• Insufficient delivery of material and arrangement of tools

Consequences • Decrease of productivity • Increase of lead time and capacity • Insufficient ergonomics

Examples • Long ways between tools, material and product or machine • Missing material or tools

Fig. 1.11  Motion. (Source: Author’s source)

times can also affect manual operations in which the sequence of activities is not synchronized and downstream process steps have to wait for parts or products from the previous station. The reduction of waiting times or the reduction of machine downtimes increases the available machine time and thus the output. With the same available machine time, productivity (=output/input) increases. As a logical consequence, this means that machine downtimes, whether planned or unplanned, must be reduced to a minimum. Basically, it should be noted that waste cannot be completely avoided. The aim is to eliminate waste in the places where it can be omitted (e.g., rejects) and to minimize it in the rest (e.g., transport routes). Especially in the case of machine downtimes, preventive maintenance aims to avoid damage-related and therefore often costly system failures through comprehensive planning and implementation of maintenance measures. A distinction must be made between the following measures: –– inspection –– maintenance –– preventive repair or replacement of machine components –– installation of monitoring systems With all measures, the duration of the planned downtime is to be kept as short as possible and the interval between the downtimes to be kept as high as possible in order to achieve long production times. The installation of monitoring systems provides information about the service life of the wearing parts without the machine having to stand still. In this way, the service life of the components can be fully utilized before they are replaced. Figure 1.12 shows the description, reasons, effects, and examples of waiting times.

1.6  Focus on Value-Added Processes

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4. Waiting Definition • A period in which no activities take place. • The employee is forced to wait and can‘t fulfil any value added activities. During the holding period the product is waiting for processing

Possible reasons • Insufficiently synchronised material and information flows • Insufficient line balancing of all processes • Missing material or tools • Lack of documentation • Waiting for quality approval

Consequences • • • • •

Reduced productivity Decreasing efficiency Increased lead time Increase of capacity Decreased of employee motivation

Examples • Waiting for material or tools e.g. crane • Quality employees are not available • Stopped processes due to missing resources (employees, defective machines, IT,...)

Fig. 1.12  Waiting. (Source: Author’s source)

5. Overproduction Definition Definition

• If more is produced than the internal or external customer needs

Possible reasons Possible reasons

• Insufficient transparency of real demand • Production according to supposed optimal batch sizes • Instable processes • Early use of available capacity

Consequences Consequences

• Generation of inventory (warehouse, WIP) • Additional use of space • Blocking of capacities (machines, employees)

Examples • A lot of material in front of machines or assembly lines • Crowded warehouses

• Double handling, decrease of product quality

Fig. 1.13  Overproduction. (Source: Author’s source)

1.6.5 Waste from Overproduction Overproduction (Fig. 1.13) occurs when a company produces more than the customer actually needs. This can include the production of products or components for which no current orders exist, as well as the production of more parts than are currently required. Overproduction is the worst kind of waste as it usually

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6. Overprocessing Definition Definition

• Process weakness in terms of sequence, content, technologies and resources

Consequences Consequences

Possible reasons Possible reasons

• Insufficient technology • Not the most efficient procedure for the process • Insufficient analysis and design of processes • Due to process problems the product requirements in the specification are higher than required by the customer

Examples

• High production costs

• High tolerances

• Waste of material

• Wrong, faulty and not needed process steps

• Low efficiency

• Not optimal utilisation of resources

• High need for resources (employee, machine, material)

• Duplication of efforts

Fig. 1.14  Overprocessing. (Source: Author’s source)

multiplies all other kinds. It increases the scrap and rework rate, stocks, throughput and waiting times, as well as unnecessary movements and transports.

1.6.6 Waste from Overprocessing Overprocessing is described in Fig. 1.14. This includes any (extra) steps required in a production process. It can also be about the production of products that are of a higher quality than is needed. This can result from incorrectly used equipment, errors in rework, poor process design, or poor communication. Often, however, it arises simply from the fact that it is not checked exactly what the customer actually needs.

1.6.7 Waste from Defects The defects or defects shown in Fig. 1.15 relate to a product that deviates from the standards of its design or from the expectations of the customer. Defective products must be replaced; you will need paperwork and human labor to process them. You could potentially lose customers. The resources put into the defective product are wasted because the product is not used. In addition, a faulty product leads to waste on other levels that may have led to the fault in the first place. Having a more efficient production system reduces errors and increases the resources required to fix them in the first place. The environmental cost of defects is the raw materials consumed, the defective parts of the product that need to be discarded or recycled (thus

1.7  Case Study: Supply Networks at BMW Group

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7. Defects Definition Definition

• If right first time is not achieved

Possible reasons Possible reasons

• Lack of machine and tool maintenance • Insufficiently trained employees

• Product not according to customer requirements • Unstable or not standardized processes • No problem solving process established

Consequences

Examples

• Additional need for material, tools and capacity

• Increase of non-conformities

• Additional space for rework

• Increased quantity of scrap

• Increase of quality employees and checks • Increase of lead time

• Retrofitting and repairing defect parts • Supply issues due to bad quality

Fig. 1.15  Defects. (Source: Author’s source)

wasting other resources on reuse), and the additional space and energy used to fix the defects.

1.7 Case Study: Supply Networks at BMW Group BMW has a global supplier network, which makes a significant contribution to added value, quality, and innovative strength of the BMW Group. It makes a decisive contribution to the corporate success of the BMW Group. The suppliers thus have a significant influence on sustainability and other important components for the corporate success of BMW (2020). BMW works with around 12,000 suppliers in 70 countries. It is important for the company that all value-added partners meet the same ecological and social standards by which BMW measures itself. The BMW Group uses the sustainability standard for the supplier network as a basis. This includes, among others respect for internationally recognized human rights as well as labor and social standards. Cooperation with suppliers at BMW is characterized by a common understanding of product and production quality, security of supply, competitive prices, and innovative strength as well as the consistent integration of our sustainability standards. In view of global, complex supply chains and the large number of suppliers and subsuppliers, this requirement is an enormous challenge, but also a great opportunity. Due to the increasing share of e-mobility, much greater attention will have to be paid to the upstream value creation when reducing CO2 in the future—for example, in view of the energy-intensive production of high-voltage storage systems. Without countermeasures, the CO2 emissions per vehicle in the BMW Group’s supply chain would increase by more than a third by 2030 due to the increased proportion of electrification. The company not only

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wants to avoid this growth, but also wants to reduce CO2 emissions per vehicle by 20% compared to 2019. To this end, the BMW Group will, among other things, establish the CO2 footprint of the supply chain as an award criterion in its decision-­ making processes. The company is thus taking on a pioneering role as the first automobile manufacturer with specific CO2 targets for its supply chain. This consists of around 12,000 tier 1 partners worldwide who supply materials and components for vehicles, as well as other suppliers who provide production systems or tools. In total, the BMW Group has a purchasing volume of over 60 billion euros per year, of which around two thirds are direct vehicle volumes. In order to comprehensively guarantee sustainability in our supplier network and to continuously improve ourselves, BMW essentially focuses on two areas: managing risks sustainably and seizing opportunities. Manage and minimize risks: BMW identifies and analyses possible sustainability risks along the supply chain in risk management. Since 2009, BMW has asked suppliers to submit an assessment of their sustainability management and related activities. In addition, supplier locations with an increased risk of sustainability violations and locations where a violation is suspected are checked by independent auditors. Seizing opportunities and leveraging potential: BMW achieves this through cooperation with suppliers, for example, on resource efficiency, through training and qualification of employees and suppliers, and through active involvement in initiatives and with interest groups. BMW’s approach is, on the one hand, to ensure broad sustainability standards through comprehensive risk management, i.e., for all of our direct suppliers, and, on the other hand, to analyze specific raw materials in-depth along the entire supply chain. With the BMW Supplier Innovation Award, the BMW Group honors outstanding innovations and development achievements of its suppliers (BMW 2020).

References Bernardo, N. (2020). Procurement 4.0 and the fourth industrial revolution. The opportunities and challenges of a digital world. Heidelberg: Springer. BMW. (2020). BMW Group. Lieferantenmanagement. Globales Lieferantennetzwerk. Retrieved October 7, 2020 from https://www.bmwgroup.com/de/verantwortung/lieferanten-­management. html. Büsch, M. (2019). Fahrplan zur Transformation des Einkaufs. Wiesbaden: Springer. Dust, R. (2016). Lieferanten-/Risikomanagement. Bislang wenig Risikoprävention in der Supply Chain. In BME. Abgerufen am 28.9.2020. https://www.bme.de/ bislang-wenig-risikopraevention-in-der-supply-chain-1468/. Dust, R. (2019). Total Supplier Management. Hanserverlag München. Dust, R., Goldschmit, J.  P., & Gürtler, B. (2011, October). Total supplier risk monitoring— Datenqualität als zwingende Grundlage einer effektiven Lieferantenbewertung. Qualität und Umweltmanagement. Grabner, T. (2019). Operations management. Wiesbaden: Springer. Helmold, M. (2020). Lean management and Kaizen. Fundamentals from cases and examples in operations and supply chain management. New York: Springer. Helmold, M. (2021). Kaizen, Lean Management und Digitalisierung. Mit den japanischen Konzepten Wettbewerbsvorteile für das Unternehmen erzielen. Wiesbaden: Springer.

References

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Helmold, M., & Samara, W. (2019). Progress in performance management. Industry insights and case studies on principles, application tools, and practice. Heidelberg: Springer. Helmold, M., & Terry, B. (2016). Global sourcing and supply management excellence in China. Procurement guide for supply experts. Singapore: Springer. Liker, J. K. (2004). The Toyota way. Madison, WI: McGraw-Hill. Ohno, T. (1990). Toyota production system. Beyond large scale production. New York: Productivity Press.

2

Operations Management 4.0

Perfection is not attainable. But if we chase perfection, we can catch excellence. Vince Lombardi (1913–1970)

2.1 Introduction to Operations Management 4.0 Operations management is the process and activity of planning, designing, and controlling the process of production and redesigning business operations in the production of products or services. It involves the responsibility of ensuring that business operations are efficient in terms of using as few resources as needed and effective in terms of meeting customer requirements. Operations management is primarily concerned with planning, organizing, and supervising in the contexts of production, manufacturing, or the provision of services. It is concerned with managing an entire production or service system which is the process that converts inputs (in the forms of raw materials, labor, consumers, and energy) into outputs (in the form of goods and/or services for consumers). Operations management involves the systematic direction and control of the processes that transform resources (inputs) into finished goods or services for customers or clients (outputs) as shown in Fig.  2.1. Operations produce products, manage quality, and create services. Operations management covers sectors like banking systems, hospitals, companies, working with suppliers, customers, and using technology. Operations is one of the major functions in an organization along with supply chains, marketing, finance, and human resources. The operations function requires management of both the strategic and day-to-day production of goods and services. In managing manufacturing or service operations, several types of decisions are made including operations strategy, product design, process design, quality management, capacity, facilities planning, production planning, and inventory control. Each of these

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_2

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Value Chain: Input-Transformation-Output

Input (Raw Materials, Materials, Resources, Human Resources, Money, Knowledge, Building etc.)

Operations Management Transformation

(Creation of Products and Services)

Output (Sales of Products and Services to Customers)

Fig. 2.1  Operations management in the context of the input-transformation-output process. (Source: Author’s source)

requires an ability to analyze the current situation and find better solutions to improve the effectiveness and efficiency of manufacturing or service operations (Slack et al. 1995).

2.2 History of Operations Management 4.0 Operations Management 4.0 is the ongoing digitization, automation of traditional manufacturing, and industrial practices, using modern and smart technologies. Large-scale machine-to-machine communication (M2M) and the internet of things (IoT) are integrated for increased automation, improved communication and self-­ monitoring, and production of smart machines that can analyze and diagnose issues without the need for human intervention as shown in Fig.  2.2. Operations Management or Operations is not a new science. The First Industrial Revolution and Operations management 1.0 was marked by a transition from hand production methods to machines through the use of steam power and water power. The implementation of new technologies took a long time, so the period which this refers to it the years around 1780 in Europe and the United States. Its effects had consequences on textile manufacturing, which was first to adopt such changes, as well as iron industry, agriculture, and mining although it also had societal effects with stronger middle class. The Second Industrial Revolution and Operations Management 2.0, also known as the Technological Revolution, is around 1870 that resulted from installations of extensive railroad and telegraph networks, which allowed for faster transfer of people and ideas, as well as electricity. Increasing electrification allowed for factories to develop the modern production line. It was a period of great economic growth, with an increase in productivity, which also caused a surge in unemployment since many factory workers were replaced by machines. The Third Industrial Revolution, also known as the Digital Revolution, occurred in the late twentieth century, after the end of the two world wars, resulting from a slowdown of industrialization and technological advancement compared to previous periods. The global financial crisis in 1929 followed by the Great Depression affected many industrialized countries. The production of the Z1 computer, which used binary floating-point numbers and Boolean logic, a decade later, was the beginning of more advanced digital developments. The next significant development in

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Fig. 2.2  History of Operations Management 4.0

communication technologies was the supercomputer, with extensive use of computer and communication technologies in the production process; machinery began to abrogate the need for human power.

2.3 Elements of Operations Management 4.0 Operations Management 4.0 refers to a new phase in the Industrial Revolution that focuses heavily on interconnectivity of the entire value chain, automation, machine learning, and real-time data (Figs. 2.3 and 2.4).

2.3.1 Virtual Factory Rapid product/process realization and enterprise integration have been identified among the major imperatives for enabling the next-generation manufacturing paradigm. This chapter proposes a virtual factory modeling approach to support these imperatives. A virtual factory is defined as an integrated simulation model of major subsystems in a factory that considers the factory as a whole and provides an advanced decision support capability. It seeks to go beyond the typical modeling of one subsystem at a time, such as the manufacturing model, the business process model, and/or the communication network model developed individually and in

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Fig. 2.3  Elements of Operations Management 4.0 in the value chain. (Source: Author’s source)

isolation. A basic virtual factory model of a semi-conductor backend factory has been developed for concept demonstration. Application examples are used to demonstrate the integration between business processes and manufacturing system performance. Future work will move further towards the development of the complete virtual factory and its industry applications.

2.3.2 Digital Value Chain Integration Virtual production tends to be used to help visualize complex scenes or scenes that simply cannot be filmed for real. In general, though, virtual production can really refer to any techniques that allow filmmakers to plan, imagine, or complete some kind of filmic element, typically with the aid of digital tools.

2.3.3 Lean Simulations Lean simulations include a set of hands-on experiments to teach employees about systems and process improvement in all areas of the value chain. Lean simulations can focus on design, manufacturing, capacity planning, or supply chain design. Purpose of simulations are to understand the implications of input variables and alternations of the value chain elements.

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Fig. 2.4  Elements of Operations Management 4.0 in the value chain. (Source: Author’s source)

2.3.4 System Integration Lean integration is a continuous improvement methodology for bringing disparate data and software systems together. The goal is to maximize customer value. Lean integration is a management system that emphasizes eliminating waste as a sustainable data integration and system integration practice.

2.3.5 Internet of Things The internet of things (IoT) is a system of interrelated computing devices, mechanical and digital machines, objects, animals, or people that are provided with unique identifiers (UIDs) and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction.

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2.3.6 Cybersecurity Cybersecurity is the protection of internet-connected systems, including hardware, software, and data, from cyberattacks. In a computing context, security comprises cybersecurity and physical security—both are used by enterprises to protect against unauthorized access to data centers and other computerized systems.

2.3.7 Cloud Computing Cloud computing is a type of computing that relies on shared computing resources rather than having local servers or personal devices to handle applications. In its most simple description, cloud computing is taking services (“cloud services”) and moving them outside an organization’s IT system and environment.

2.3.8 Additive Manufacturing Additive manufacturing (AM) is the industrial production name for 3D printing, a computer-controlled process that creates three-dimensional objects by depositing materials, usually in layers. The official industry standard term is the ASTM F2792 for all applications of the 3D technology. It is defined as the process of joining materials to make objects from 3D model data, usually layer upon layer, as opposed to subtractive manufacturing methodologies.

2.3.9 Augmented Reality Augmented reality (AR) is an interactive experience of a real-world environment where the objects that reside in the real world are enhanced by computer-generated perceptual information, sometimes across multiple sensory modalities, including visual, auditory, haptic, somatosensory, and olfactory.

2.3.10 Big Data Big Data is a phrase used to mean a massive volume of both structured and unstructured data that is so large; it is difficult to process using traditional database and software techniques. In most enterprise scenarios, the volume of data is too big or it moves too fast or it exceeds current processing capacity.

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2.4 Principles of Operations Management 4.0 2.4.1 Digital Synchronization of Networks To deliver on the benefits of digital supply chains, companies must synchronize every aspect of supply chain optimization, planning, and execution throughout their supply chain network—bringing together previously disparate disciplines, departments, vendors, and technologies into a single ecosystem that ties everyone and everything together. Information and departments that were previously siloed and disconnected become part of a synchronized digital supply chain, where all activities are orchestrated, information flows freely, and companies can easily adjust to changing demand signals. A synchronized supply chain has four distinct capabilities that can help drive increased sales and profits. The ultimate goal of a synchronized, digital supply chain, for one, is to quickly get product to consumers who want to buy it, and it’s something that siloed, disconnected supply chains can’t accomplish. Secondly, for a synchronized supply chain to work, companies have to position materials, capacity, and finished goods to react to demand. To get there, it will take product development, where teams not only build the product to meet the line plan, but also over-develop in certain categories that are doing well, so they can quickly put new products into production when demand is strong. Vendors can then be evaluated based not only on price and quality, but also lead time and capacity. Companies may also choose to handle replenishment production closer to home to minimize delivery time, while using overseas vendors for basic goods and initial floor sets. With a synchronized supply chain, companies will closely forecast their raw material requirements, place commitments with multiple suppliers, and draw down the commitments as POs are issued and the materials are consumed. This reduces the risk of holding too much or too little inventory to meet demand. The other element of successful supply chain synchronization is to identify and execute the best supply/demand adjustment. As demand changes, companies must consider what they can do to quickly optimize their assortments. If sell-through on a new style is stronger than anticipated in New York, which means stores will be out of stock in 3 weeks, what are your best options to optimize profit? Do you ship by air freight, boat, or transfer goods from the warehouse, or from one store to another? With the current state of supply chains, it’s difficult to sift through massive amounts of data to quickly determine the fastest, most profitable way to get the goods where they need to be. Synchronizing and digitizing the flow of information in a connected ecosystem is the only way to understand and react to changing demand signals. The fourth key to this better connected supply chain is the ability to predict future demand. As planning systems continue to advance, they are beginning to calculate demand based not only on historical sales, but also current POS data, external events, social sentiment, changing weather patterns, and other factors, each of which impacts demand. These capabilities provide a snapshot of what companies are hoping to accomplish by synchronizing and digitizing their supply chains. Machine learning and AI are increasingly being incorporated into the supply chain

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networks since the massive amounts of data and various options for each opportunity are too vast for humans to quickly and accurately analyze.

2.4.2 7R Principle Operations is concerned with managing an entire production system which is the process that converts inputs (in the forms of raw material, labor, energy, and resources) into outputs (in the form of goods and/or services), as an asset or delivers a product or services. Operations produce products, manage quality, and create service. Operations management covers sectors like banking systems, hospitals, companies, working with suppliers, customers, and using technology. Operations are one of the major functions in an organization along with supply chains, marketing, finance, and human resources. The operations function requires management of both the strategic and day-to-day production of goods and services. Operations management involves the production, planning, organizing, and supervising processes of products or services and targets to meet customer demands by delivering the right product or service at the right quality, quantity, time, and place with right people at the right cost. This principle is called the 7R principle and targets the optimal satisfaction of the goal in the operations function. Figure 2.5 highlights the 7R principle with objectives and criteria behind the objectives (Helmold and Terry 2016).

2.4.3 Gemba, Gembutsu und Genchi: Right Place of Happening Gemba (現場) is also a Japanese term meaning “the real place.” Japanese detectives call the crime scene gemba, and Japanese TV reporters may refer to themselves as reporting from gemba. In business, gemba refers to the place where value is created; in manufacturing the gemba is the factory floor. It can be any “site” such as a construction site, sales floor or where the service provider interacts directly with the customer. In lean production and supply management, the idea of gemba is that the

Fig. 2.5  7R principle in operations management

2.4  Principles of Operations Management 4.0

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problems are visible, and the best improvement ideas will come from going to the gemba. The gemba walk, much like Management by Walking Around (MWA), is an activity that takes management to the front lines to look for waste and opportunities to practice gemba kaizen, or practical shop floor improvement. In quality management, gemba means the manufacturing floor and the idea is that if a problem occurs, the engineers must go there to understand the full impact of the problem, gathering data from all sources. Unlike focus groups and surveys, gemba visits are not scripted or bound by what one wants to ask. Glenn Mazur introduced this term into quality function and supply management department (QFD, a quality system for new products where manufacturing has not begun) to mean the customer’s place of business or lifestyle. The idea is that to be customer-driven, one must go to the customer’s gemba to understand his problems and opportunities, using all one’s senses to gather and process data. Gembutsu (現地現物) is a Japanese word meaning “real thing.” It is one of the components of the “Three Reals” meaning go to the real place (gemba) to see the real thing (gembutsu) and collect the real facts (genjitsu). This term simply means that there is no substitute for seeing something with one’s own eyes. Genchi (現地) is the Japanese principle of going to and directly observing a location and its conditions in order to understand and solve any problems faster and more effectively. The phrase literally translated means “go and see for yourself” and is a part of the Toyota Way philosophy (Fig. 2.6).

Fig. 2.6  Bombardier Sifang Transportation: Dr. M. Helmold and B. Lannoye. (Source: Author’s source)

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2.4.4 Muda, Muri, Mura In contrast to the traditional paradigm, the objectives of lean production are based on a reduction of throughput times and the elimination of non-value-adding activities. These activities are waste or so called “MUDA” (Japanese: 無駄). Both concepts, the traditional and the lean concept, are directed towards customer satisfaction. Nevertheless, the lean concept’s foundation is based on the optimal reaction capability and not based on inventories or waste. Inventories increase the cost of capital and have negative impacts on the shareholder value, whereas short cycle times lead to small inventories. Lean manufacturing or lean production, often simply “lean,” is a systematic method for the elimination of waste (“Muda”) within a manufacturing system. Lean also takes into account waste created through overburden (“Muri”) and waste created through unevenness in workloads (“Mura”). Working from the perspective of the client who consumes a product or service, “value” is any action or process that a customer would be willing to pay for. Essentially, lean is centered on making obvious what adds value by reducing everything else. Lean manufacturing is a management philosophy derived mostly from the Toyota Production System (TPS) (hence the term Toyotism is also prevalent) and identified as “lean” only in the 1990s. TPS is renowned for its focus on reduction of the original Toyota seven wastes to improve overall customer value, but there are varying perspectives on how this is best achieved. The steady growth of Toyota, from a small company to the world’s largest automaker, has focused attention on how it has achieved this success. There are three MU’s including MUDA that support the elimination of waste within the philosophy of Toyota. In parallel to MUDA (Japanese: 無駄), there are MURA (Japanese: 無ら) and MURI (Japanese: 無理) which are the ground theory for the TPS.  MURA means “in balance,” MURI “overutilization.” While certain capacities are too scarce (Bottleneck), there are other resources significantly below their capacity limits. The main objective of procurement and a strategic supplier management is to apply the JIT principle to the suppliers. Value-adding activities have to be rolled out to all suppliers from raw material to module and keiretsu suppliers. The keiretsu supplier is the closest relationship and connection to a supplier (Japanese: 系列子会社). Keiretsu is an integration of suppliers into the own organization and system, there is in few cases partial ownership involved. There are four pillars for the lean production system. These are the integral parts of a lean production and JIT system. The four pillars consist of the flow, the tact, pull, and zerodefect principle, which have to be introduced simultaneously. In the sense of an optimized supply chain, it is a fundamental activity to implement these four principles towards all areas. Practical examples by Porsche Consulting show that the introduction of the TPS led to radical improvements in terms of errors and defects per car (Quality), serial completion time (Cost and Productivity), and inventory (Logistics and Delivery). The study reveals that the reduction of defects per car was reduced by 63%. The throughput time could be improved by more than 53%. This caused a positive situation of inventory by 50%. In the JIT approach, it is important that the right part comes in the right quantity in the right quality at the right time to the right place as shown in the 7R principle. This principle focuses on a zero-defect

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as shown in the next figure. This principle was defined in the previous chapters as part of the objectives. The principles can be regarded as obtaining the right parts at the right quality and at the right time. This has to be in line with the right quantity in the right place by the right people at the right price (Helmold and Terry 2016).

2.4.5 Heijunka Heijunka (平準化) is a Japanese word that means “leveling.” When implemented correctly, heijunka elegantly—and without haste—helps organizations meet demand while reducing while reducing wastes in production and interpersonal processes. The two main objectives are the standardization of operations and the capability of flexible production of alternate derivatives on the same line (Ohno 1990). Toyota defines Heijunka as the overall leveling, in the production schedule, of the volume and variety of items produced in given time periods and adds that it is a prerequisite for just-in-time delivery. Heijunka allows you to level your production in both volume and product diversity. Lean facilities that have implemented Heijunka, don’t base their production off the actual flow of customer orders. Instead, the company will use the Heijunka methodology to calculate the total volume of orders place in a specific time frame and level them out. This allows the facility to produce the same amount and mix each day, without the ebbs and flows of demand cycles. Balancing your workflow has many benefits to your organization. For instance, if you have an above average week of orders, followed by a below average week, you end up paying overtime the first week and sending employees home the following. This is waste in the simplest form that could have been avoided with Heijunka.

2.4.6 Poka Yoke Poka yoke (ポカヨケ) is a Japanese term that means “mistake-proofing”. A poka yoke is any mechanism in a lean concept a process that helps an equipment operator avoid (yokeru) mistakes (poka). Its purpose is to eliminate product defects by preventing, correcting, or drawing attention to human or other errors as they occur. The concept was formalized, and the term adopted, by Shigeo Shingo as part of the TPS. It was originally described as baka yoke, but as this means “fool-proofing” (or “idiot proofing”) the name was changed to the milder poka yoke.

2.4.7 Jidoka By definition, Jidoka (自働化) is a Lean method that is widely adopted in manufacturing and product development. Also known as autonomation, it is a simple way of protecting your company from delivering products of low quality or defects to your

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customers while trying to keep up your takt time. Jidoka can be defined as automation with human touch.

2.4.8 Chaku Chaku Line Chaku Chaku (Fig. 2.7) is a way to operate a semi-automated manufacturing line. One (or more) workers walk around the line, add parts to the processes, and then start the process. While the process works on the part automatically, the worker adds the next part to the next process, and so on. The word “Chaku Chaku” comes from Japanese. It can mean either “Load, Load” (着々), or it can simply be the sound the machine makes while unloading (ちゃくちゃく), similar to “Clack-Clack.” The basic principle of the Chaku Chaku line is very simple. The worker moves around the line from process to process and only loads the parts into the machine. After loading the part, the worker starts the machine and moves to the next process. At the end of the line, the worker starts again from the beginning.

2.5 Case Study: Mazda Operations Management Strategy Mazda Motor Corporation is based in Hiroshima (Japan) and employees about 50,000 people. Mazda is dedicated to developing vehicles that are distinctive and innovative, using the latest and most advanced technologies to satisfy the diverse needs of customers worldwide. To accomplish this, Mazda created a global R & D network with operations in Japan, the United States, Germany, and China. The Corporate Vision is: “We love cars and want people to enjoy fulfilling lives through

Fig. 2.7  Chaku Chaku line. (Source: Author’s source)

2.5  Case Study: Mazda Operations Management Strategy

33

cars. We envision cars existing sustainably with the earth and society, and we will continue to tackle challenges with creative ideas.” 1. Brighten people’s lives through car ownership 2. Offer cars that are sustainable with the earth and society to more people 3. Embrace challenges and seek to master the Do (“Way” or “Path”) of creativity Mazda’s Brand Essence is “Celebrate Driving.” “Celebrate Driving” delivered by Mazda is not just about driving performance. The aim of the branding is: Choosing a Mazda shall prize the customer and user with confidence and pride. Additionally, driving a Mazda is also leading up to urge to take on new challenges. Not just our products but every encounter with Mazda evokes the emotion of motion and makes customers’ hearts beat with excitement. All of these are contained in our brand essence of “Celebrate Driving.” This marketing strategy targets not only existing users, but also new customers who are willing to change from existing brands (Mazda 2019). Mazda is a company with the headquarters in Hiroshima (Fig.  2.8; Japan) and uses Toyota methods in operations across the factories and supply chain. Toyota is all about the process about eliminating waste. Mazda is using lean tools like 5S, Kanban cards, Andon, and Poka Yoke. All of them are used to improve and optimize the processes through small changes (Kaizen). Mazda is all about making cars. Mazda’s Lean Management starts with the design of each vehicle, in which engineers are brought together with experts from supply chain and manufacturing to make sure that the cars can be produced in the best and most ergonomic way as possible. Mazda states that a car is not simply a bunch of products and metal, but it’s a living creature with emotional bound to its driver. That is Mazda’s ultimate goal of Kodo, the “Soul of Motion” design.

Fig. 2.8  Mazda Headquarters, Hiroshima. (Source: Author’s source)

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2  Operations Management 4.0

There are ten plants in Toyota city and just one with two assembly lines in Hiroshima. Toyota has another 2 plants in Japan and 25 over the world. Mazda has one more plant in Japan plus five manufacturing and four assembly plants worldwide. As a result, in 2016 Toyota produced over 10 million vehicles, where Mazda assembled over 1.5 million. With Toyota focus on process, there’s no surprise their production system is made to be super effective. Cars were moving fast on the assembly line. Workers had precisely defined, simple tasks to perform within short cycle. Toyota’s operators spend less than half a minute per station (Cycle times). Everything was packed in a small area, so the distances between workstations were minimal. On the other hand, everything in Mazda was just slower. The cycle times for each operation in Mazda are longer and workers have more tasks to perform on single units. Mazda is using also lean tools such as Kanban, Andon, and Poka Yoke. There is less automation in Mazda. As a result, Mazda assembly line takes significantly more space. In Mazda, it takes 15 h from stamping to final inspection in Mazda and 17 h in Toyota’s Takaoka Plant.

References Helmold, M., & Terry, B. (2016). Global sourcing and supply management excellence in China. Procurement guide for supply experts. Singapore: Springer. Mazda. (2019). Mazda production results. retrieved 1.3.2020. https://newsroom.mazda.com/en/ publicity/release/2019/201908/190829a.html. Ohno, T. (1990). Toyota production system. Beyond large scale production. New York: Productivity Press. Slack, N., et al. (1995). Operations management. London: Pitman Publishing.

3

Supply Management 4.0

What gets measured gets improved. Peter Drucker (1909–2005)

3.1 Supply Side The supply side is the function, which secures that inputs are available for the transformation process as shown in Fig. 3.1. Transformation is any activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides outputs for customers or clients. Inputs, for which the supply management is responsible, are mostly products and services coming from suppliers in the upstream side of the value chain. These products or services are directly involved in the transformation into end-products to customers. However, inputs can also be indirect categories or services, which are not directly included in the transformation process (desks, machines, training services, etc.). The term supply management as key value-adding function replaces old definitions of procurement or purchasing (Helmold and Terry 2016). This definition is in line with Porter’s description of value chains (Porter 2013). A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product, service for the market. The concept comes from business management and was first described and popularized by Michael E. Porter in his 1985 best-­ seller, Competitive Advantage: Creating and Sustaining Superior Performance in the upstream supply management or the supply side. Figure 3.2 displays the operations, the upstream supply side (supply management), and the downstream supply side (customer or demand side). In Porter’s value chain framework (see Fig. 3.3), Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service are categorized as primary activities. Secondary activities include Procurement, Human Resource management, Technological Development and

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_3

35

36

3  Supply Management 4.0 Value Chain: Input-Transformation-Output

Supply Management

Operations Management

Input

Output

Transformation

(Raw Materials, Materials, Services etc.)

(Sales of Products and Services to Customers)

(Creation of Products and Services)

Fig. 3.1  Supply management managing the input and supplies. (Source: Author’s source)

Tier 3

Tier 2

Tier 1

Tier 1

Tier 2

Supplier Supplier Supplier

Supplier Supplier Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Customer Customer

Operations Management 4.0

Supplier

Supplier Supplier

Customer

Supplier

Upstream Supply Chain Management Supply Side (Supply Networks)

Customer Customer

Customer

Customer

Downstream Supply Chain Management Demand or Customer Side

Fig. 3.2  Supply networks within the value chain. (Source: Author’s source, adopted from Helmold and Samara 2019)

Infrastructure. As many companies have external value chains (purchase of goods, services) of more than 80%, supply management has here the most significant role in any enterprise. In many enterprises, functions are still working independently from each other, leading to a large amount of waste and inefficiencies. Many industries are currently faced by fierce competition. This is forcing manufacturing companies to concentrate on core competencies and to transfer the production of components, goods, and services to external suppliers (Aberdeen Group 2005). The number of value-adding activities has decreased constantly and now lies between 10% and 30% in this industry. The company Apple has no production and decided to outsource the manufacturing of iPads or iPhones to the company FoxConn. Such a development has had a great influence on the structure of supply chains and supplier relationships. Supply chains (the terms “supply chains” and “supply networks” are used synonymously in the literature) have become more complex and international, as pointed out by several authors Christopher and Peck see the level of

37

3.1  Supply Side

Secondary Functions

Research and Development Finance and Controlling

Human Resources

Margin

Primary Functions

Primary Function: Supply Management 4.0 Operations Management 4.0 Inbound Logistics

Assembly

Marketing & Sales

Outbound Logistics

After Sales

Enterprise Functions

Fig. 3.3  Porter’s value chain. (Source: Authors source, adopted from Helmold et al. 2020)

complexity increasing in the upstream supply chain management of manufacturing companies in many industries, a trend which is characterized by the growing transfer of activities to suppliers and supplier networks, high numbers of supply chain layers (tiers), and the ongoing globalization of supply chains. As a consequence, vulnerability and risk exposure have risen significantly. The rapid increase in supplier activities therefore directly affects supply management, as emphasized. In  recent years, many companies have reduced their value-adding activities and implemented efficiency-oriented cost reductions, e.g., outsourcing, single sourcing, low cost country sourcing, platform concepts, lean management, and design-to-cost approaches (Aberdeen Group 2005). Supply management has become more important in core and peripheral business areas and is aimed at building resilient supply chains. Resilience is based on being able to anticipate, manage and prevent supply chain disruptions at an early stage. On the other hand, supply risks have risen due to increased dependency on supplier networks. In their research “An Empirical Analysis of the Effect of Supply Chain Disruptions on Long-Run Stock Price,” Hendricks and Singhal (2005) found that enterprises without operational slack and redundancies in their supply chains experience negative stock effects. The authors revealed the tremendous impact of supply chain disruptions on stock price performance and shareholder value. Supply disruptions can easily lead to high recovery cost, waste, and sharp decreases in sales. External customers become dissatisfied and internal core functions (e.g., assembly) are disturbed. In most cases, supply disruptions have negative impacts on brand image, sales figures, and the company’s own financial situation as stressed by many authors writing about supply disruptions and resilient supply chains. Recent incidents in the media about disruptions caused by upstream supply management inefficiencies from China show that the supply management excellence approach needs to tackle these issues in a proactive and sustainable way.

3  Supply Management 4.0

38

Supply management risks have mainly been investigated at the direct level of tier-one relationships, but consideration has not been fully extended to subsuppliers, i.e., tiers one, two, three, and beyond. The new concept of supply management therefore seeks to address these concerns by investigating how disruptions can be anticipated, prevented, and managed over the entire value chain including all tiers on the supply and demand side as shown in the figure. Recent supply disruptions show that current supply management organizations, supply management tools and concepts are not smart and resilient enough to avoid these supply chain discrepancies. Recent articles for example in the magazine “Automotive News” show that all car producers are facing severe problems due to suppliers’ problems. Not only the automotive industry but also many other industries face these issues. The lean supply management concept was developed by Taiichi Ohno (1990), who worked for Toyota Motors. It derived from a bundle of instruments which come from sophisticated production methods or supporting functions such as logistics (Liker 2004). The ideal interplay and optimal combination of all instruments are essential for success. The vision of lean production is based on the JUST-IN-TIME (JIT) philosophy and the Toyota Production System (TPS: Japanese = トヨタ生産 システム) and focuses on the elimination of waste and the minimization of stock.

3.2 History of Supply Management 4.0 (Fig. 3.4)

Supply Management 1.0 • Supply Function or Procurement to secure Deliveries • Supply as Support Function

1950

Supply Management 2.0 • Supply manages systematically manages Suppliers • Supplier Strategy • Supplier Segmentation • Supplier Evaluation

1970

Supply Management 3.0 • Automation of Supply • Outsourcing of Non Core Competencies • Computerization • Synchronization with Suppliers • Global Supply

2000

Fig. 3.4  History of Supply Management 4.0. (Source: Author’s source)

Supply Management 4.0 • Digitization • Suppliy Networks • Integrated Value Chains • Management of global valueadding Supply Networks • Supply Management as Key Function

2021

3.4 Supply Management Process

39

3.3 Supply Management Objectives Supply side objectives are important. The seven rights (7R), which are the major objectives according to the lean supply management philosophy can be defined as: 1. Right products 2. Right quality 3. Right time 4. Right quantity 5. Right location 6. Right people 7. Right cost The right product refers to the right specification and requirements by the demanding customer. The products must have the required dimensions, layout, material, color, etc. The right quality means the clarification of all requirements in terms of quality and improvement measures to have the optimum quality levels. Quality is normally measured by hard factors such as non-conformities, field rejects, or defects at receipt (0 km defects). The right quantity is the placing of a specific order quantity triggered by internal and customer demands. Supply management has to transfer the customer and company demands to the supply networks. The right time means that products ordered have to be at the buyer’s place in time, neither too early nor too late. Supply management has to recognize suppliers’ lead times. The lead time for any product starts from the order until the physical receipt of goods at the ordering party. The right location can be defined as the place where the products are required. Shipment of products from China to Europe take more than 8 weeks, so that the right location is closely linked to the lead time of products. The meaning of right people extends current definition of the five Rights in line with the modern and lean philosophy of the new paradigm of supply management. Suppliers in global markets need to have the right sales people, project managers, and operators to meet the requested criteria. Project managers must have sufficient language skills and as well operators must be trained to produce good quality parts. People are becoming in a changing and global trade situation more and more important. Any product needs to have the right cost level; otherwise, it will not be demanded and bought.

3.4 Supply Management Process 3.4.1 Six Phases in Supply Management 4.0 Industries or companies which have outsourced a large scope of their products to global supply networks would especially benefit from such research in supply management, supplier relationship management, and supply networks. In conclusion, it is evident that proactive supply management requires a subset of principles (see Fig. 3.5): The principles can be described as follows: (1) supply management is a function which is managing the entire value chain; therefore, supply management

40

3  Supply Management 4.0 Supply Management 4.0

Definition of Strategies Digitization Strategic Suppliers Make or Buy

Performance Management

Supplier Strategy

Supplier Selection

Secondary Functions

Supply

Operations

Supplier Development Quality Performance

Integration of all Functions Primary Functions

Supplier Evaluation

Marketing & Sales

Cost and Finance Performance

Supplier Inegration

Supplier Controlling

Concentration on Value-added Processes

Delivery Performance Other Performance Objectives

Fig. 3.5  Supply management process. (Source: Author’s source)

must be incorporated into the mission, values, and strategies of every organization; (2) supply management best practices are focused on a multilayer approach, involving not only tier one, but also tier two and three levels; proactive supply management can only be introduced and executed if the corporate objectives are communicated and cascaded throughout the organization; the setup must be centralized as single point of contact to suppliers; (3) advanced and innovative supply management has standardized tools and processes; (4) supply management best practice companies have sophisticated B2B platforms/supplier portals in terms of quality, cost, and delivery and other suitable KPI; (5) supply management and mitigation actions activities have to be preventive, proactive, and sustainable; activities have to be oriented long term; (6) supply management requires a collaborative approach, including strategic alliances with suppliers. Such activities should be organized centrally; (7) proactive supply management can be performed with a key account manager in terms of being a single point of contact for the supplier (customer); (8) performance indicators have to be mutually agreed upon and may comprise both hard and soft factors. The assessment process should consist of quality, cost, delivery, and technological criteria; (9) the learning organization should, among other things, be characterized by the capability and competencies of coaching suppliers; (10) all the above-mentioned principles should be combined with a philosophy of continuous improvement (Japanese: Kaizen) and reflection (Japanese: Hansei) to achieve a best practice model in supply management. Companies that want to distance themselves from their competitors through best-in-class supply management must implement the ten principles and adopt a collaborative approach in dealing with their supply base. Appropriate management of one’s supply base can lead to competitive advantage. The strategic objective of supply management is the establishment, design, and management of supplier networks and the successful collaboration within these networks as the figure shows. The network consists of

3.4  Supply Management Process

41

internal and external suppliers. The collaboration between supply partners and the management of the interactions are a key responsibility of the supply management function. A sophisticated information system is a prerequisite for proper interactions.

3.4.2 Supplier Strategy By shifting value-adding activities and non-core competencies to supplier networks that are in competition with each other, new performance concepts, strategies, and processes arise that have to be mastered. For a long time now, the focus in the future has not only been on increasing company-internal cost advantages, but much more on the exchange of information and the exploitation of global cross-company potential. In general, supplier management aims to provide a uniform method for analyzing potential and existing suppliers in order to make strategic decisions based on the results. At the operational level, this means making the performance of suppliers comparable, uncovering optimization potential and reducing procurement costs. The strategic dimension of supplier management, on the other hand, aims primarily to define suitable procurement strategies based on a transparent basis for decisionmaking in order to reduce supply risks and dependencies and to increase procurement quality. The strategic goals of supplier management deal with the medium- to long-term optimization of the company’s supplier base. Based on category or material group-specific procurement strategies, it is important to define precise development measures that enable a continuous increase in delivery quality or a reduction in procurement costs. The supply risk can be sustainably reduced, for example, through the collaborative optimization of cross-company processes. The early establishment of possible alternative suppliers and the targeted control of the procurement volume prevent the company from becoming dependent. Figure 3.6 shows the first of the six phases of supplier strategy. In addition, the relationship with strategically important suppliers that are difficult to substitute should be strengthened through cooperative and integrative measures. This ensures the competitiveness of your own company. Due to the long-term orientation, all measures to achieve the strategic goals should be regularly checked as part of a continuous process and adjusted if necessary. Figure 3.7 shows the main elements in the phase of the supplier strategy with segmentation of suppliers, development of a material group strategy, feasibility studies on in-house or third-party production, the evaluation of degrees of digitization in supply chains and the constant review of sustainability requirements of suppliers. The main tasks can be described as follows: –– Choosing the right suppliers for the right material groups –– Use of the right tools in supplier management –– Correct classification into preferred, alternative or market suppliers –– Correct weighing of the depth of added value and the scope –– Selection of the right digitization strategy and connection of suppliers –– Ensuring sustainability across the entire value chain

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3  Supply Management 4.0

Supplier Strategy

Supplier Selection

Supplier Evaluation

Supplier Development

Supplier Integration

Supplier Controlling

Selection of the appropriate Suppliers for the right Commodity Use of the right tools in supplier management Correct classification into preferred, alternative or market suppliers Correct weighing of the depth of added value and the scope Selection of the right digitization strategy and connection of suppliers • Ensuring sustainability across the entire value chain

• • • • •

Fig. 3.6  Supply management process. (Source: Author’s source)

Supplier Strategies (Segmentation)

Sustainability (Supply Network)

Digitalisation (Network)

Categorisation

Supplier Strategy

(Commodities)

Make or Buy

Fig. 3.7  Elements of the supplier strategy phase. (Source: Author’s source)

3.4.2.1 Supplier Segmentation Every supplier strategy must be based on core elements such as classification, categorization, digitization, in-house or external production, digitization, and sustainability. Figure 3.8 shows these elements. As part of the supplier segmentation, the suppliers are grouped into company-wide classes according to preferred suppliers, alternative, benchmark, market, and other suppliers. Preferred suppliers are selected suppliers with excellent performance characteristics in terms of innovation, quality, costs, delivery reliability, sustainability, and processes. Preferred suppliers are given preferential treatment and are given specified volumes, order volumes, and procurement quotas. Preferred suppliers are usually involved in the development and product creation process of their own company at an early stage. The relationship is based on partnership. Alternative suppliers are suppliers who can be used alongside the preferred suppliers. Alternative suppliers are in the group of bidders, but their performance is not as good as the preferred suppliers in terms of quality, costs,

43

3.4  Supply Management Process

Quality Performance

Cost and Financial Performance Delivery Performance Other (alpha) Performance Objectives

Evaluation Q-C-D + alpha

Preferred Suppliers

Selection based on Q-C-D + alpha criteria

Alternative Suppliers Benchmark Suppliers Market Suppliers Other Suppliers

Possible Selection (inside bidder pool)

Possbility to become Alternative Supplier

Possbility to become Benchmark Supplier

No Consideration

Fig. 3.8  Supplier segmentation and classification. (Source: Author’s source)

delivery, and other characteristics, so they usually only receive smaller volumes and procurement quotas. The alternatives are followed by benchmark suppliers who serve as benchmarks and can be included in the group of bidders. Benchmarking in supplier management is a useful method for the systematic and structured acquisition of information and for the comparison of suppliers based on characteristics such as innovative strength, technological leadership, cost efficiency, or quality awareness. Benchmarking is thus a constant creative process to improve the supplier portfolio by determining and comparing the best-known services of existing suppliers and the comparison with new suppliers who show particularly strong performance characteristics (English: benchmark = the best; best practice). By adopting and continuously improving the identified best practice processes, the performance of your own area, competitiveness, and ultimately customer satisfaction are improved. Seen in this way, a benchmarking project within the scope of a tender offers the possibility of comparison with the best solutions, reveals deficits and weak points, clarifies the need for action, and can be used as an ideal tool for the development of new suppliers and constant competition. Benchmarking is not just a comparison of key figures or operations, but is a comprehensive, holistically applicable process analysis for improving performance that can be used for all performance areas and the entire company. The benchmark suppliers are followed by market suppliers and all other suppliers. Market suppliers can be included in the group of benchmark suppliers if their supplier management has been qualified and evaluated. All other suppliers are not taken into account (Helmold and Terry 2016).

3.4.2.2 Commodity Strategies A material or product group or category (English: commodity or category) combines different individual parts or categories in a material group, which are usually made from the same basic material or raw material or can be divided into the same

44

3  Supply Management 4.0

category. The differentiation of material groups can be freely defined and can be relatively coarse or fine, this depends on the respective purpose. Examples of material groups: iron or ferrous metal, copper, plastic, rubber, leather, wood, etc. Other subdivisions are made, e.g., according to electrical, mechanical, aluminum, or steel. The primary goal for bottleneck materials is to secure the supply. To reduce the supply risk, one should look at the global procurement markets. As a rule, the local markets offer only inadequate sources of supply for shortage materials. By expanding the number of suppliers, the dependency on individual suppliers for bottleneck materials is reduced. The focus is not on the cost of the material, but on securing the supply. Since these are mostly low-value individual parts, product development is not very important. A reduction in the supply risk can be achieved by standardizing bottleneck materials. Figure 3.9 shows the possible material group strategies. This matrix is subdivided into strategic, lever, bottleneck, and non-critical material groups and market segments (suppliers). In the case of strategic material groups and market segments, it is advisable to enter into close ties with suppliers. This can take place through collaboration, joint or competitive development projects, collaborations or even company mergers (e.g., founding a new company or a joint venture). For leverage products, companies should bundle volumes and proactively approach potential suppliers in order to achieve the ideal strategy. Purchasing cooperations can also help to gain advantages in the market. In the case of bottleneck products, the strategy must be based on security of needs, so that long-term contracts prove advantageous. Global tenders or substitution are further strategies for ensuring security of supply. For standardized products, on the other hand, it is advantageous to regularly examine the market and exploit the potential. B2B platforms, C-parts

Strategic Partnerships

Strategic Products

Leverage Products

Use Market Power

Bottleneck Products

Uncritical Products

Competition

Operational Sourcing Activities (potentially one full service supplier)

Uncritical Market Segment

Bottleneck Market Segment

Leverage Market Segment

Fig. 3.9  Commodity strategies. (Source: Author’s source)

Strategic Market Segment

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3.4  Supply Management Process

management from a single source, or the bundling of requirements after a detailed market study (Helmold and Terry 2016).

High

3.4.2.3 Make-or-Buy Strategies A make-or-buy decision addresses the in-house production or external procurement of a product. It’s about producing a product (make) or buying it (buy). The operational function of production is always understood to mean in-house production. Goods are manufactured with their own resources, employees, production factors, and production processes. In-house production means internalization, i.e., the organization of economic activities and the production of a material group in your own company organization. External production, on the other hand, means that material groups and production volumes are outsourced to suppliers. In the case of external production, there are usually only variable costs. In the case of in-house production, the fixed costs are added. The difference between the two variable cost amounts is used to cover the fixed costs more with each piece (fixed cost degression) until they are completely covered. Figure 3.10 shows recommendations for action for companies according to the strategic importance and relevance of the material group on the Y-axis and skills and competencies for developing and manufacturing the material group on the X-axis. Companies must therefore concentrate on their own skills and competencies for the development and production of the material group and prefer a strategy of in-house production (make) in this segment, especially if the strategic importance and relevance of the material group is very high. With the same level of skills and competencies for a product group, but relatively low strategic relevance and value, a hybrid strategy with partial outsourcing can take place. However, companies must ensure that the knowledge for this material group remains in their own company. If your own company does not have competencies in a special material

Strategic Relevance of Commodity

Outsourcing Buy

Own Operations Make

(Partnerships)

(Conzentration)

Make oder Buy

Outsourcing Buy

Low

(Using Market Potential)

Low

Own operations Make (Partial Outsourcing)

Own Capabilities and Abilities

Fig. 3.10  Make-or-buy strategies. (Source: Author’s source)

High

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3  Supply Management 4.0

group that is of high strategic importance, we recommend cooperative partnerships with one or a few suppliers (external production or buy). Due to its strategic importance, it is worth pursuing long-term contracts, collaborations, or joint project developments with suppliers. With less relevant material groups and no know-how in your own company, the market potential and competition can be fully exploited. The decision to purchase from a third party should therefore be carefully considered. It is therefore important to think about the basic advantages and disadvantages in advance. Some important ones are noted below. The advantages of outsourcing are: –– Concentration on core competencies and focusing of activities and resources on one’s own core business –– Possibility and opportunity to establish a proactive and preventive supplier management –– Reduction of the vertical range of manufacture and transformation towards a lean production structure –– Long-term optimization of the cost structure by reducing fixed costs and changing from fixed to variable costs –– Improvement of the liquidity situation and, if necessary, improvement of the balance sheet ratios (e.g., by reducing the level of indebtedness if investments for which loans have to be taken out are not made) –– Flexible reaction to changes in demand is possible and part of the entrepreneurial risk is shifted to the supplier –– Possibility of partnerships and the preservation of innovations that are not in one’s own area of ​competence Disadvantages of outsourcing are: –– Far-reaching cuts in existing structures in the event of outsourcing and unrest in the workforce –– Loss of know-how and personnel with a possibly significant dependence on one provider –– Long-term loyalty to suppliers limits flexibility to actively react to market changes –– The possibility that trade secrets will not be kept, especially in international business –– Increasing coordination effort, especially in logistics and other departments that are involved in the value creation process

3.4.2.4 ABC-XYZ Analysis The ABC-XYZ analysis is a method in supplier management for the classification of material groups according to consumption, value, and according to the predictability of the consumption of procurement volumes in a company (Büsch 2019). The ABC analysis is often combined with the XYZ analysis for the procurement of products, the planning of production quantities, and other logistical issues. While the ABC analysis is primarily about the value and importance of customers, products, suppliers, or purchased parts, the XYZ analysis analyzes their predictability

47

3.4  Supply Management Process Value and strategic relevance

A

B

C

X

• High share of value • Planned consumption • Detailed planning • Low or no inventory • Ensure fast availability at the supplier • JIT deliveries

• Average value share • Planned consumption • Detailed planning • Low or no inventory • Ensure fast availability at the supplier • JIT deliveries

• Low value share • Planned consumption • Low capital commitment • Uncritical treatment

Y

• High share of value • Irregular consumption • Detailed planning • Possibly. Create a safety reserve with the supplier • Ensure fast availability at the supplier

• Average value share • Irregular consumption • Detailed planning • Treatment like AY or BY • Ensure availability at the supplier

• Low value share • Irregular consumption • Consumption cannot be planned • Build up safety reserves as long as there is no bottleneck in the warehouse

Z

• High share of value • Chaotic and sporadic consumption • Agree on a safety reserve with the supplier • JIT deliveries

• Average value share • Chaotic and sporadic consumption • Agree on a safety reserve with the supplier • Ensure availability at the supplier • Like AZ or CZ

• Low value share • Chaotic and sporadic consumption • Consumption cannot be planned • Build safety reserves

Predictability and consumption

High value product or material, mostly low-volume articles. Very high strategic importance.

Relatively uniform, low consumption fluctuations. High forecast accuracy, very easy to plan.

Inconsistent, absent or rising trend. Seasonal business with fluctuations. Medium prediction accuracy. Can be planned to a limited extent.

Inconsistent and absolutely irregular demand. Very low prediction accuracy. Difficult to plan.

Medium value product or material, mostly low-volume items. Medium strategic importance.

Low value product or material, mostly lowvolume articles. Low strategic importance.

Fig. 3.11  ABC-XYZ analysis. (Source: Author’s source)

and the possibility of making forecasts. It is made up of the ABC and the XYZ analysis as shown in Fig. 3.11. The classification looks like this: ABC Article • A-article: High value proportion of approx. 70–80% –– B item: Average value share of approx. 15–20% –– C-article: Low value share of approx. 5–10% XYZ Item • X-articles: Articles with constant demand and high predictive accuracy –– Y article: Article with fluctuating demand and medium forecast accuracy –– Z item: Item with irregular demand and poor forecast accuracy AX and BX articles have a high share of value and can be easily forecast in terms of consumption, as they are subject to uniform consumption. They are therefore relatively easy to control. AZ and BZ articles are to be regarded as problematic. They make up a high proportion of sales, but are difficult to control due to their irregular needs. If too many articles in this category are stored, the storage costs increase. Insufficient storage can lead to bottlenecks in production.

3.4.2.5 Internationalization Strategies Supplier management must ensure resilience in international transactions and business. In 2019, German companies imported preliminary products to the value of 606 billion euros, which made up a good 55% of Germany’s total goods imports. Two

48

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thirds of the imported primary products came from other EU member states, a further 5.3% and 5.0% from the United States and China (Kolev and Obst 2020). Supplier management must ensure through a clear structure and risk assessment that international supply chains are stable and do not lead to supply bottlenecks. The COVID-19 crisis in particular has shown that strategies for products from the health sector were not sustainable and good, so that supply bottlenecks, e.g., masks or protective equipment has come (Helmold et al. 2020).

3.4.2.6 Sustainability and CSR Strategies The primary task of classic supplier management is to create value-adding supply chains based on suitable criteria and strategies. This happens on the basis of the criteria quality, costs, delivery performance, and other significant aspects (QCD plus alpha). In times of political unrest, trade in an international context, climate change, stricter environmental guidelines, rising energy prices and enlightened, environmentally friendly consumers, supplier management has a key role in ensuring sustainable supply chains. Studies show: “Sustainability” as an integral part of the value chain offers companies good opportunities to differentiate themselves from the competition and thus increase sales. Sustainability (Fig. 3.12) includes elements such as working conditions, environmental protection, human rights, anti-­ corruption, social standards, compliance with human rights, and respect for intellectual property. 3.4.2.7 Digitization Strategies The digitization and linking of one’s own company with the supply chain will, in the medium term, significantly increase the distance between companies that successfully apply this to their business model and those that miss this opportunity. Digitization also opens up an opportunity for smaller, faster, and more flexible companies to skip entire evolutionary stages of organizations, to overtake their competitors, and to create their own markets. This also applies to supplier management or, in a broader sense, to the management of the supply chain. In the medium term, digitization will significantly increase the gap between companies that successfully apply it to their business model and those that miss this opportunity. Digitization also opens up an opportunity for smaller, faster, and more flexible companies to skip entire evolutionary stages of organizations, to overtake their competitors, and to create their own markets. This also applies to supplier management or, in a broader sense, to the management of the supply chain (Immerthal 2017).

3.4.3 Supplier Selection Every company has its specific strengths, the so-called core competencies, on which it must concentrate. Core competencies refer to skills, processes, technologies, knowledge advantages, or activities that a company can carry out better than the competition and has thus achieved a competitive advantage. Core competencies are the skills of a company to be able to do something better than others. This is a

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Labour Conditions Intellectual Property

AntiCorruption

CSR in the Value Chain

Human Rights

Environment

Social Standards

Compliance with Laws

Fig. 3.12  CSR in Operation and Supply Management 4.0. (Source: Author’s source)

strategic competitive advantage. Core competencies are determined by four characteristics: –– customer benefits –– Imitation protection –– differentiation –– diversification The concept is a variation of the resource-based approach that has been opposed to the company’s positioning in the market. When it comes to customer benefits, companies have to ask themselves whether sustainable added value can be provided for the customer based on their core competencies? The imitation protection, on the other hand, aims at exclusivity and unique selling points. Do the companies master the core competencies exclusively or can they be easily imitated by the competitor? Differentiation reflects the duration of the benefit. Does the core ability lead to a long-term and sustainable advantage over the competition? Diversification focuses on the markets and market segments. The key question here is whether the core capabilities offer potential access to new markets? Peripheral competencies, on the other hand, can be outsourced to suppliers, as these do not represent a competitive advantage. The relocation is called “outsourcing” and includes a corporate strategy that outsources individual product scopes, tasks, subareas, or even entire business processes to third-party companies. The selection of suppliers when relocating products, processes, and services is part of supplier management and the second phase after the supplier strategy, as Fig. 3.13 shows.

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Supplier Selection

Supplier Strategy

• • • • •

Supplier Evaluation

Supplier Development

Supplier Integration

Supplier Controlling

Choosing the right suppliers for the right material groups Assessing Performance of Suppliers Defining the right Scope for Suppliers Offer Evaluations and Comparisons of Q-C-D plus alpha Criteria Deciding on right Suppliers and their Scope of Supply

Fig. 3.13  Supplier selection. (Source: Author’s source)

3.4.3.1 Supplier Selection Criteria Before there can be a cooperation and a contractual agreement, a supplier selection must therefore take place on the basis of standardized selection criteria in a supplier selection matrix. Important criteria for the selection of suitable suppliers are shown in Fig. 3.13. One of the central criteria is the quality and nature of the products and services supplied. In addition, there are other important elements that need to be considered. An excellent supplier is not only characterized by high quality, low costs, and stable delivery performance, but also in other ways. The following criteria should therefore be considered when selecting a supplier: –– High quality of the goods and low error rate –– A quality management system, e.g., DIN EN ISO 90001:2015 –– Distinct goodwill behavior on the part of the supplier if there are complaints –– Constant readiness for delivery and high adherence to delivery dates –– Strict adherence to promised delivery times or changes –– Good accessibility and fixed contact persons at the supplier –– High flexibility (enables quick reactions, e.g., to customer requests) –– Price guarantees (how long are negotiated prices promised) –– Few or well-founded or only moderate price increases in the past –– Financial stability and good credit ratings –– Offer transparency (no hidden costs, fees, or minimum quantities) –– Sustainability and innovation 3.4.3.2 Supplier Risk Management Supplier selection includes measures that companies take before a need arises and a supplier is contacted. One of the main goals of supplier selection is to minimize risk. If a company chooses an unsuitable supplier, it is exposed to one or more of the following risks: –– Failure to perform the contract because a supplier is in financial difficulties –– Poor performance of the contract –– Supplier supplies poor quality –– Lack of adherence to deadlines –– The price for the services provided is too high Careful supplier selection is necessary in order to contain these risks. As part of the supplier evaluation, certain criteria are used to assess performance according to

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a defined system. In view of the trend that the integration of suppliers into company processes is becoming more and more important, the demands on suppliers are increasing. An ideal supplier portfolio is created when certain requirements are taken into account when making the selection. –– Selection of suppliers based on the supplier strategy –– Cross-departmental supplier decisions and coordination processes –– Selection based on objective and uniform evaluation criteria –– Use of qualitative and quantitative criteria –– Transparent, cost- and time-efficient selection process –– Selection of the most innovative and best supplier based on the selection criteria Quality management systems such as DIN EN ISO 9001:2015 also refer to a selection of suppliers taking into account central elements such as the selection and evaluation of suppliers. The standard indicates that the processes, products, and services provided meet the requirements and that the companies must determine and apply criteria for selection and evaluation (Fig. 3.14).

3.4.4 Supplier Evaluation The third phase in supplier management is the supplier evaluation. The instrument of the supplier evaluation comparable systematic assessment, which is to evaluate the performance of suppliers or service providers on the basis of previously defined characteristics, and is mainly used for continuous and preventive supplier monitoring. During observation, the delivery services are regularly monitored in order to identify changes in performance at an early stage. The supplier evaluation helps to an objective and systematic supplier selection, to the development of an optimal supplier portfolio, and to a continuous improvement process. The supplier evaluation is carried out with the help of certain evaluation criteria that are important for the evaluation of the supplier. Evaluation criteria are static and dynamic factors. Figure 3.15 shows an example of a supplier evaluation with internal and external company data.

3.4.4.1 Appropriate Selection of Evaluation Criteria Depending on the complexity and industry spectrum, the departments of quality, purchasing, production, logistics, sales, data processing, finance, or research and development can be included in the process. Supplier management takes on the coordination of this interface between the company and its suppliers. The result of the supplier evaluation is recorded in the form of a holistic degree of fulfillment and can later be used for the strategy derivation and selection. The criteria used to evaluate suppliers should be defined and weighted appropriately for the company. The basis for determining the criteria are the goals that the company pursues in cooperation with the supplier, as well as special requirements for the supplier or for the product or service to be delivered. The assessment criteria are best determined with the help of a requirements analysis. Depending on the exact requirements a

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Criteria of Supplier Selection

Supplier 1

Supplier 2

Supplier 3

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Cost

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Innovation Capability

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-

-

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Delivery Quality Field Quality Warranty Processing

Material Cost (Recurring) Non-Recurring Cost Cost Reduction Ideas

On-Time-Delivery (OTD) Flexibility Supply and Delivery Concepts, e.g. VMI

Fig. 3.14  Supplier selection matrix. (Source: Author’s source)

Supplier Strategy

Supplier Selection

• • • • • •

Supplier Evaluation

Supplier Development

Supplier Integration

Supplier Controlling

Choosing the right suppliers for the right material groups Use of the right tools in supplier management Correct classification into preferred, alternative or market suppliers Correct consideration of the depth of added value and the scope Selection of the right digitization strategy and connection of suppliers Ensuring sustainability across the entire value chain

Fig. 3.15  Supplier evaluation. (Source: Author’s source)

company places on the supplier and its product or service, the evaluation criteria can also be different and, above all, their weighting can be different. However, there are some criteria that must be considered in most cases when evaluating a supplier. These include: –– quality of the product/frequency of errors –– costs and pricing conditions –– delivery time, delivery reliability, and logistics

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–– –– –– –– –– ––

terms of payment capacity reliability/risk of delivery failure location and transport flexibility sustainability The most important methods for supplier evaluation are point evaluation methods, profile analysis, and price structure analysis. A point evaluation method for supplier evaluation is a relatively simple way of evaluating and comparing suppliers based on the allocation of weighted points or grades. A point evaluation procedure based on measurable key figures has the best informative value. As part of a profile analysis for supplier evaluation, supplier performance profiles are juxtaposed and compared. In this way, a profile analysis reveals the advantages and disadvantages of the individual suppliers. The biggest difference between the point evaluation method and the profile analysis is that the individual criteria are not weighted in the profile analysis and are also not combined into a single performance value. The price structure analysis is primarily about the criterion of the costs that a supplier causes. For the price structure analysis, the price criterion is therefore broken down into the supplier’s cost and profit components. Material costs, hourly rates, purchase costs, etc. are to be named here as subcriteria.

3.4.4.2 Supplier Evaluation as Predictive and Preventive Tool These categories can be performance of the delivery, price evolution, production capacity, quality of management, technical capabilities, and service. Once there is a mechanism in place to periodically collect performance data from suppliers, the next step is to review the performance data. Ideally, the format that the data is in should lend itself to comparison and analysis. The data should also be in a format that can be quantified and scored. Many companies use a supplier evaluation or scorecard for this. Moreover, data from different types of assessments such as internal surveys, external surveys, and site visits should be incorporated into the analysis. Since most large organizations have many strategic suppliers and lots of data, it is almost impossible to obtain, organize, and review data from assessments effectively on a large scale without automation or software. When evaluating supplier performance data, the two things to look for (besides the obvious) are large changes in the performance metrics and overall trends. By identifying trends, a company can make projections about where the performance data will be in the future and can take action accordingly. Downward trends and deterioration in performance can signal a problem. Moreover, an abrupt change in performance metrics might signal an imminent problem. However, there could be another explanation. In this case, it makes sense to obtain more data from the supplier and to dig deeper to find the source of the problem. It may be a one-time anomaly or it could be something more. Monitoring supplier performance proactively can ensure that exceptions to policies are tracked and personnel and resources are assigned to address the problem quickly. Alerts and notifications can provide up to the minute information to company personnel letting them know of changes in supplier performance.

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3  Supply Management 4.0 Supply Management 4.0 Mission, Vision and Values Information available outside / inside the company

Information available outside / inside the company Quality

e.g. Defects

Supplier Evaluation Preventive

Reactive

Delivery

Cost

e.g. Workshops

Alpha-Criteria

e.g. On-Time-Delivery

e,.g. Qualification, CSR Financial Strength Supplier Risk Management

Other Criteria Insolvenzrisiko

Fig. 3.16  Supplier evaluation tool. (Source: Author’s source)

Having a system that can take the assessment/scorecard data and can output it in a report or other format is helpful because members of the team can all access and review the information quickly and easily. The performance evaluation of Daimler shown in Fig. 3.16 is an example of a supplier evaluation. For a supplier the performance is very bad, so that immediate actions have to be taken. Once there is sudden drop in supplier performance or a downward trend, it is important to take action quickly. Quick action can reduce the risk of disaster significant loss and gives the company the ability to take steps to prevent bad outcomes. Some actions that can be instigated include communicating with the supplier, conducting further evaluations, developing an improvement plan, or finding an alternative supplier. The actions taken may depend on many factors. These include the supplier’s past performance, level of current performance, strategic importance, possible damages, and overall risk. One of the first things to do is to contact the supplier and find out what went wrong and why. The results of the performance assessment should be provided to the supplier and can create a basis for discussions. The poor performance could have been the result of something outside of the supplier’s control. It could have been a problem with process, personnel, a supplier, or something else. By communicating with the supplier, personnel can determine the cause of the problem and try to work with the supplier to make changes to bring the supplier performance back into compliance with the contract or with company policies. If the vendor does not have a good explanation or understanding of why the problem occurred, this may be a sign of trouble. Once the causes of a problem or set of problems have been identified, the next step is to devise a supplier improvement plan. The plan should be specific to the problem, should involve both company personnel and supplier personnel, and should involve a timeline for addressing the problem or bringing the performance into compliance. This process should also be a collaborative process and should be aimed at improving the overall supply chain.

3.4  Supply Management Process

55

Even if a supplier’s performance is acceptable, the company may wish to invest time and resources in developing suppliers and improving supplier performance. If the problem is too severe, cannot be fixed in a timely manner, or poses too great of a risk, the company may wish to stop doing business altogether with the supplier. This means that the company should carefully find an alternative source of supply and, if possible, reduce its reliance on the supplier in question. Emmett and Crocker (2009) and Büsch (2019) also propose using such criteria for evaluating the performance of suppliers. Interestingly, the interviews revealed that many companies have created subcriteria of Q-C-D-SF according to their own needs. Regarding the question of how often manufacturing companies in the European transportation industry measure supplier performance, what they do internally with the data and how they communicate the results to suppliers, several different answers were given. In the best case, data was updated on a weekly basis and made available to suppliers through a web-based tool. Concerning the evaluation of supplier performance, all interviewees outlined three to four categories, like traffic lights: • Category one (green): acceptable with minor deviations and without conditions • Category two (yellow): acceptable with conditions • Category three (red): not acceptable In category one (green), the evaluation is approved and accepted with minor deviations. In category two (yellow), the evaluation is accepted with conditions. Conditional acceptance means that any subsequent action plan has to be approved by the supply management department. If a supplier shows severe deficiencies and is categorized three (red), the evaluation is not accepted. This can mean that a new supplier is not allowed to supply parts. In cases where category three is measured during serial production, specific supply management actions (e.g., management escalation, supplier audits, dual-sourcing) might be the consequence. Some of the challenges associated with supplier evaluation may be mitigated by the use of appropriate tools. For simple projects a spreadsheet can be used. But as evaluations become more complex or more frequent data management and data integrity issues become significant. Web Electronic RFP/Tendering systems are often used for initial selection projects. Some products provide functionality for combining both initial selection and ongoing evaluation and benchmarking. Without few exceptions, there is no evaluation model which considers the maturity and level of relationship with suppliers. The doctoral thesis “Establishing a best practice model of supplier relationship management (SRM) for multinational manufacturing companies in the European transportation industry” makes suggestions for this aspect (Helmold 2014). There is also an MBA thesis available, which includes the assessment of the Guanxi for supply management in China. Wider, within established supply management evaluation methodologies, the Carter 10 C’s model is an internationally recognized approach (Helmold 2021). This model looks at aspects which should be evaluated before contracting and as part of the ongoing supplier performance appraisal. The ten categories can be summarized as follows: 1. Capacity (Does the organization have the capacity and capability to deliver the order?) 2. Competency (Is the organization, its people, or its process competent?)

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3. Consistency (Does the organization produce a consistent output?) 4. Control of process (Can the organization control its process and offer flexibility?) 5. Commitment to quality (Does the organization effectively monitor and manage quality?) 6. Cash (Has the organization got a strong enough financial base?) 7. Cost (Is the product or service offered at a competitive price?) 8. Culture (Are the supplier and buyer cultures compatible?) 9. Clean (Is the organization ethical, funded legitimately, and does it engage child labor?) 10. Communication efficiency (Does the organization have support technology of information integration?) to support collaboration and coordination in the supply chain

3.4.4.3 Supplier Evaluation as Management Tool As an essential component of supplier management, the supplier evaluation contributes to the control of supplier relationships, the development and maintenance of suppliers, and to improve quality and logistics performance. In order to achieve these goals in the best possible way and to get a global picture of the supplier’s performance, an assessment is necessary, which not only focuses on the so-called hard facts such as adherence to deadlines and quantities, but also on “soft facts” such as communication skills fall back. Furthermore, the supplier evaluation is carried out globally according to the same standards and criteria, thus allowing a location-­based evaluation and comparability of supplier performance. By expanding the evaluation criteria, we want to optimize future cooperation with our suppliers at all essential interfaces and reward constructive cooperation. The supplier evaluation is often carried out digitally using real-time data, but it can also be carried out monthly, quarterly, or semi-annually.

3.4.5 Supplier Development Supplier development is the fourth phase in the supply management process as shown in Fig.  3.17. The term supplier development describes the activities and improvements of close, partnership-based and long-term relationships between customers and supplier networks within the value chain (Helmold and Terry 2016). Hofbauer et  al. (2019) describe supplier development as a continuous process to improve current or new suppliers. The basis of the development are the results of the supplier evaluation and key figures, which were described in the previous chapter. Emmett and Crocker (2009) define supplier development as a support process through direct or indirect measures. Here, too, the primary goal is to improve supplier performance. Figure  3.18 shows three categories, strategic, preventive, and reactive supplier development, of supplier development in connection with the life cycle of a product. Product phases can be divided into development, start-up, series, phase-out, and after-service phases.

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Supplier Strategy

Supplier Selection

• • • • • •

Supplier Development

Supplier Evaluation

Supplier Integration

Supplier Controlling

Choosing the right suppliers for the right material groups Use of the right tools in supplier management Correct classification into preferred, alternative or market suppliers Correct consideration of the depth of added value and the scope Selection of the right digitization strategy and connection of suppliers Ensuring sustainability across the entire value chain

Fig. 3.17  Supplier development phases. (Source: Author’s source)

Strategic Supplier Development

Preventive Supplier Development

Design

Ramp-up

Serial

Phase

Phase

Phase

Reactive Supplier Development

Phase-out Phase

After-ServicePhase

Fig. 3.18  Supplier development. (Source: Author’s source)

3.4.5.1 Strategic Supplier Development The strategic supplier development already takes place in the development phase. Measures are usually transferred to the start-up phase of a product. The strategic approach to supplier development aims at the long-term, conscious, and continuous (further) development of the supplier’s performance (potential). Strategic supplier development is initiated proactively to maintain competitive advantages over the long term. An essential difference to the merely reactive supplier development lies in the conscious search and selection of fields for development measures. The strategic supplier development is basically carried out through the direct participation of the buyer, who invests in supplier development measures and thus also in the suppliers themselves. An essential feature for the application of direct supplier development is a strategic partnership with the supplier, as amortization of the development activity over the relationship life cycle is required. The ability of a supplier to develop in the strategic sense means the creation of scope for action through options for the customer. 3.4.5.2 Preventive Supplier Development Preventive supplier development aims at the early and forward-looking improvement of the suppliers on the basis of performance characteristics (performance characteristics) by the supplier management. Preventive measures are intended to prevent poor performance in the areas of quality, costs, or delivery performance and usually have a longer time horizon. The need is not yet acute, but sensors and early alarm systems (audits, supplier evaluation, incidents) show deviations in the performance of the suppliers. In the best-case scenario, preventive measures are defined at the start-up of a product before series production.

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3.4.5.3 Reactive Supplier Development Supplier development includes measures taken by the customer as a merely reactive improvement in the event of short-term deterioration in performance of a supplier in series, discontinuation, or after-service. It is usually caused by a current, specific problem in the exchange of services with the supplier (poor performance). The development measure has a short-term time horizon. The necessity arises from problems of the supplier, for example, to deliver on time (security of supply in operations) as well as quality defects of the product or the service itself. With reactive supplier development, suppliers only become aware of the buyer when acute problems arise, so that are very short-term countermeasures (Troubleshooting). Often suppliers are encouraged to adhere to target agreements (based on key figures), the deficits of which have emerged from the supplier evaluation in the categories of quality, costs, or delivery performance.

3.4.6 Supplier Integration Supplier integration means the integration of the supplier into the company’s corporate structures and processes so that processes and systems are synchronized in order to be able to work together more effectively and successfully, as Fig.  3.19 shows. In the case of supplier integration, independent companies work together to optimize their processes and structures in order to coordinate them as well as possible to increase success. This can sometimes be a difficult undertaking, not just for the purchasing department. With a goal-oriented implementation, however, ideally a win-win situation arises for the market partners involved. Supplier integration begins where the company’s own boundaries end. A prerequisite for a functioning integration of external actors in one’s own process chains is therefore an opening to the selected partners. Likewise, there must be a willingness to change internal work processes, ways of thinking and also the key figure/bonus systems. Depending on the industry, there are numerous opportunities for close, long-term cooperation with suppliers. Important processes that need to be taken into account when integrating suppliers include the following areas: –– Research and development: Even further ahead in the value creation process, the involvement of external partners starts in the research and development area. In

Supplier Strategy

Supplier Selection

• • • • • •

Supplier Evaluation

Supplier Development

Supplier Integration

Choosing the right suppliers for the right material groups Use of the right tools in supplier management Correct classification into preferred, alternative or market suppliers Correct consideration of the depth of added value and the scope Selection of the right digitization strategy and connection of suppliers Ensuring sustainability across the entire value chain

Fig. 3.19  Supplier integration. (Source: Author’s source)

Supplier Controlling

3.4  Supply Management Process

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this way, suppliers and customers can each contribute their specific know-how in joint project teams, bundle knowledge, and achieve synergy effects in the development of new products. –– Purchasing: Often a supplier integration starts due to the naturally existing contacts in the purchasing area, for example with the agreement of specific delivery windows or packaging units up to the fully responsible warehouse management by the supplier. For example, this requires the forward-looking provision of medium- to long-term production and sales plans. –– Production: If supplier integration extends into the company’s production processes, the so-called supplier parks are often created in the direct vicinity of the customer, for example, to implement just-in-time production. –– IT: An optimal exchange of information can only be guaranteed through IT standards and the joint use of corresponding IT applications.

3.4.6.1 Supplier Coaching Supplier coaching is the systematic, collaborative improvement of supplier competencies through the measures carried out by supplier management together with the supplier. Coaching measures can be carried out with suppliers, distributors, and subsuppliers, with external providers, in a (supplier) academy or in the seminar room. Coaching measures require special coaching competencies of the employees in supplier management. Coaching activities usually cover a specific subject area within the supply chain (project management, quality management, methods of lean production, etc.). No matter whether accompanying the project in the planning phase, accompanying series production or in the after-service phase, coaching measures lead to rapid improvements. In coaching, the focus of supplier management is on increasing product and process quality. Many companies have set up their own supplier academy (Porsche, ZF Friedrichshafen, Bosch). These help the company to develop or coach new suppliers or high-risk suppliers to the required degree of maturity with regard to standards or quality requirements. The goal is the sustainable quality improvement of suppliers. The most elevant factors quality, timeand costs. Practical and measurable evidence, e.g. the reduction of defects, scrap and work steps is important in this context. Lean, flexible, efficient, and future-proof. Experts and the so-called supplier coaches (Eng.: trainers, coaches) in all questions of comprehensive quality, project and series support. Thereby u. a. Manufacturing processes of supplier parts are analyzed (including manufacturing and testing concepts) and solutions and implementation options for process and product optimization are developed. In addition, standardized supplier management programs and concepts also support the warranty target cost processes. The required requalification and upgrading measures, e.g quality or complaint management, are an important steps in this phase. All actions must also focus on sustainability. Coaching in supplier management requires methodological and training skills through analysis and qualification.

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3.4.6.2 International Purchasing Offices International purchasing offices or global supplier management centers are part of internationalization and the change in the concept of supplier management. Multinational corporations such as Volkswagen, Daimler, Siemens, Bosch, or Bombardier have purchasing offices in regions such as China, India, or Eastern Europe that offer savings potential or are geographically distant from the parent company. Only in November 2015 did Deutsche Bahn open an international purchasing office in Shanghai. On the purchasing side, companies like Bombardier have more than six locations in China. Meanwhile, the added value share of Chinese products in sectors such as the automotive or rail industry is more than 20–30%. In terms of network-oriented supplier management, this is referred to as Best Cost Country Sourcing (BCCS). Traditional companies use terms like Global Sourcing (GS) or Low Cost Country Sourcing (LCCS). Of course, international purchasing or supplier management offices involve costs. For a purchasing office in China, you can get around EUR 50,000–80,000 p.a. calculate, which makes up a full-time position in terms of full costs (1 full-time employee including salary and fringe benefits, office space, travel expenses, training, etc.). The costs for this have to be amortized through savings. It is not only large companies that benefit from international factor costs. Not only multinational corporations, but also medium-sized companies have the opportunity to move on the international stage. The German Centers in China provide office space and production capacity in key industries/processes available. In addition, international purchasing cooperations can be set up in which the fixed costs for a purchasing office are shared. International offices in supplier management are centers of excellence and should not be confused here with the so-­called shared service centers (SSC) that are increasingly emerging.

3.4.7 Supplier Controlling Its origin has the controlling concept in practice. It was formed by Deyhle in analogy to the term marketing and is closely related to the tasks of controllers. The scientific discussion of the term controlling began on a broader scale in the 1970s. The first basic understanding of controlling in terms of time assigns it the task of providing business information for management purposes. In this sense, controlling should fulfill a business transparency function. Controlling is then concerned with the systematic definition and assignment (“breaking down”) of the goals to be pursued, measuring their achievement, determining deviations between target and actual values and developing measures to eliminate them. In other words, controlling aims to lead the company through and with the help of planning and the resulting plans. The latter run through the entire company, from strategic to operational planning. Controlling in this sense can also be understood as a cybernetic process that is illustrated with the control loop of planning and control. As the last phase in supplier management, supplier controlling assesses supplier performance, forms the basis of objective key figures, and forms the basis for supplier control and supplier management (Fig. 3.20). Typical key figures are the adherence to quantities and deadlines for the delivery of goods as well as the rate of complaints. Which key figures are used in individual cases depends on the selected

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3.4  Supply Management Process Supplier Strategy

Supplier Selection

Supplier Evaluation

Supplier Development

Supplier Integration

Supplier Controlling

• Selection of suitable key figures from significant areas with the help of the specialist departments • Target / actual analysis - joint analysis of all key figures by supplier management in cooperation with the supplier • Definition of goals and actions to ensure long-term performance

Fig. 3.20  Supplier controlling. (Source: Author’s source)

supplier management scenario. There are differences, for example, between central, group-wide supplier control on the one hand and local, plant-related control on the other. The informative value of the key figures depends directly on the quality of the data that is included in the key figure calculation. In industries with little vertical integration, supplier controlling based on key figures is crucial for the success of your own products. The quality of supplier controlling is only as good as the quality of the underlying data. Four case studies from the automotive industry show the state of practice in supplier controlling and form the basis for an integrated architectural design. The architecture for data quality management in supplier controlling identifies the essential design elements and their relationships with one another. The basis for performance measurement, the definition of goals and the review of results in strategic and operational supplier management is a traceable system of indicators for each supplier. A key figure system consists of various key figures from different areas, which on the one hand can be calculated from the “hard” factors available in the system and, on the other hand, are determined from objectified subjective assessments, i.e., “soft” factors. Excellent key figure systems enable the procuring company to carry out a 360° analysis through which preventive measures can be taken. The influence of the various key figures on an overall key figure results from their weighting. The key values determined in an evaluation cycle—and thus the degree of target fulfillment—form the basis for measures to further develop the supplier relationship in strategic and operational supplier management. The key figures that are calculated from automatically determined “hard” factors include quality data such as delivery quality, complaint rate, defects (measured in parts per million, PPM), cost and financial figures, delivery information, quantity reliability, sustainability factors, or innovation figures. Key figures can be kept in a supplier file, which contains important information about the supplier. Figure  3.21 shows key figures in supplier controlling.

3.5 Control Via Digital Supplier Dashboards and Cockpits A supply or supplier dashboard (or cockpit) provides management with an at-a-­ glance awareness of the status of certain performance indicators such as inventory and supply operations (see Fig. 3.22). Thus, it is possible to respond to challenges before any incident is happening. The supplier dashboard is showing key operational

3  Supply Management 4.0

62 Supplier Controlling KPI Dashboard

Quarter 1 Actual-Plan

Quarter 2 Actual-Plan

Quarter 3 Actual-Plan

Purchasing Spend -

Frame Contracts (Euro) Savings (%) Usage of Frame Contracts (%) …

Process KPI -

Quantity of Orders (Euro and %) Quantity of Frame Contracts (Euro and %) Quantity of Deliveries (# and %) …

Quality

-

Delivery Quality (%) Field Quality (%) Warranty Process and Cycle Time (Time/Case) …

Cost -

Material Cost (Euro) Non-recurring Cost, e,g. Design (Euro) Cost Saving Initiatives (Euro and %) …

Dellivery -

On-Time-Delivery (%) Flexibility (Change of Quantity, Dates etc.) (%) Additional Deliveries (%) …

Financial KPI -

Turnover (Euro) Profitability (%) Productivity (%) …

Fig. 3.21  Supplier performance dashboard. (Source: Author’s source)

Fig. 3.22  Supplier dashboard. (Source: Helmold and Terry 2016)

Quarter 4 Actual-Plan

3.6 Case Study: Apple’s Outsourcing Strategy

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indicators and trends like NCG, OTD, Outgoing Quality, and subsupplier performance. Indicators can vary from case to case. A supplier dashboard or supplier cockpit is a one-page summary of the supplier’s critical performance indicators as shown in the example above. The dashboard is supposed to give managers a quick overview of deteriorations and status on quality, delivery, or other critical issues. It enables the supply manager to take immediate actions based on a graph or a coloring.

3.6 Case Study: Apple’s Outsourcing Strategy Apple’s commercial triumph rests in part on the outsourcing of its consumer electronics production to Asia. Drawing on extensive fieldwork at China’s leading exporter, the Taiwanese-owned Foxconn, the power dynamics of the buyer-driven supply chain are analyzed in the context of the national terrains that mediate or even accentuate global pressures. Power asymmetries assure the dominance of Apple in price setting and the timing of product delivery, resulting in intense pressures and illegal overtime for workers. Responding to the high-pressure production regime, the young generation of Chinese rural migrant workers engages in a crescendo of individual and collective struggles to define their rights and defend their dignity in the face of combined corporate and state power. As the principal manufacturer of products and components for Apple, Taiwanese company Foxconn currently employs 1.4 million workers in China alone. Arguably, then, just as Apple has achieved a globally dominant position, described as “the world’s most valuable brand”, so too have the fortunes of Foxconn been entwined with Apple’s success, facilitating Foxconn’s rise to become the world’s largest electronics contractor. Figure 3.23 shows the employees and the location of factories in China for Apple iPhone and iPad production.

Fig. 3.23  Foxconn’s manufacturing sites for Apple

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References Aberdeen Group. (2005, November). Assuring supply and mitigating risks in an uncertain economy. Supply risk management benchmark. Boston: Aberdeen Group. Büsch, M. (2019). Fahrplan zur Transformation des Einkaufs. Wiesbaden: Springer. Emmett, St. & Crocker, B. (2009). Excellence in Supplier Management. How to better manage contracts with suppliers and add value. Best practices in Supplier Relationship and Supplier Development. Cambridge: Cambridge Academic. Helmold, M. (2014). Establishing a best practice model of supplier relationship management (SRM) for multinational manufacturing companies in the European transportation industry Taschenbuch – 17. März 2014. WVB Berlin. Helmold, M. (2021). Innovatives Lieferantenmanagement Wertschöpfung in globalen Lieferketten. Helmold, M., & Samara, W. (2019). Progress in performance management. Industry insights and case studies on principles, application tools, and practice. Heidelberg: Springer. Helmold, M., & Terry, B. (2016). Lieferantenmanagement 2030. Wertschöpfung und Sicherung der Wettbewerbsfähigkeit in digitalen und globalen Märkten. Wiesbaden: Springer. Helmold, M., Einmahl, R., Rassmann, K., & Carvalho, L. (2020). In IUBH Discussion paper. Lessons from the COVID-19 situation: Rethinking global supply chain networks and strengthening supply management in public procurement in Germany. Retrieved October 31, 2020 from https://www.iubh-­university.de/wp-­content/uploads/DP_Logistik_Helmold_4_2020fin. pdf. Hendricks, K.B., & Singhal, V.R. (2005). An empirical analysis of the effect of supply chain disruptions on long-run stock price performance and equity risk of the firm. Production Operations Management, 21(5), 501–522. Hofbauer, G., Mashhour, T. & Fischer, M. (2019). Wertschöpfungsmanagement: Die wertorientierte Gestaltung der Lieferbeziehung. DeGruyter Oldenbourg Berlin. Immerthal, L. (2017). Lieferantenmanagement im Wandel. Die Digitalisierung im Lieferantenmanagement beginnt mit guter Kommunikation. In Beschaffung aktuell. Retrieved October 31, 2020 from https://beschaffung-­aktuell.industrie.de/einkauf/ die-­digitalisierung-­im-­lieferantenmanagement-­beginnt-­mit-­guter-­kommunikation/. Kolev, G., & Obst, T. (2020, April 23). Die Abhängigkeit der deutschen Wirtschaft von internationalen Lieferketten. IW-Report Nr. 16. Institut der deutschen Wirtschaft. Retrieved October 31, 2020 from https://www.iwkoeln.de/studien/iw-­reports/beitrag/galina-­kolev-­thomas-­obst-­die-­ abhaengigkeit-­der-­deutschen-­wirtschaft-­von-­internationalen-­lieferketten.html. Liker, J. K. (2004). The Toyota way. Madison, WI: McGraw-Hill. Ohno, T. (1990). Toyota production system. Beyond large scale production. New York: Productivity Press. Porter, M. E. (2013). Wettbewerbsstrategie: Methoden zur Analyse von Branchen und Konkurrenten Gebundene. 12. Auflage. Campus Frankfurt.

4

Lean Principles in Operations and Supply

All we are doing is looking at the time line, from the moment the customer gives us an order to the point when we collect the cash. Taiichi Ohno (1912–1990)

4.1 5S Concept in Operations and Supply 5S is the name of a workplace organization method that uses a list of five Japanese words: seiri, seiton, seiso, seiketsu, and shitsuke as shown in Fig. 4.1. Transliterated into Roman Script, they all start with the letter “S”. 5S is used to stabilize, maintain, and improve the safest, best working environment thus supporting sustainable QCDplus alpha. 5S is a systematic and structured workplace optimization, originally be developed and used by Toyota. The objective is the identification and elimination of waste. In simple terms, the 5S methodology helps a workplace remove items that are no longer needed (sort), organize the items to optimize efficiency and flow (straighten), clean the area in order to more easily identify problems (shine), implement color coding and labels to stay consistent with other areas (standardize) and develop behaviors that keep the workplace organized over the long term (sustain). 5S is a workplace organization method that uses a list of five Japanese words as follows: 1. Seiri (整理) 2. Seiton (整頓) 3. Seisō (清掃) 4. Seiketsu (清潔) 5. Shitsuke (躾) These five words can be translated as “Sort,” “Set In order,” “Shine,” “Standardize,” and “Sustain.” The 5S methodology describes how to organize a

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_4

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1. Sort

2. Set in order

5. Sustain

4. Standardise

3. Shine

Fig. 4.1  5S System. (Source: Author’s source)

work space for efficiency and effectiveness by identifying and storing the items used, maintaining the area and items, and sustaining the new order. The decision-­ making process usually comes from a dialog about standardization, which builds understanding among employees of how they should do the work. In some quarters, 5S has become 6S, the sixth element being safety or self-discipline. The advantages of the 5S System are the following: • Creation of transparent layout and processes • Makes waste transparent • Eliminates unnecessary activities • Improves efficiency • Increases safety • Increases employee motivation simplification of the work environment • Ensuring that all materials are instantly available • Ensuring that tools (screw driver, devices) • Ensuring that required (work procedures, work sequence, etc.) information is instantly available by visualization • Reduction of waste The first element in the 5S concept is the sorting (seiri). In this step, it is important to distinguish between necessary and unnecessary things. Things in this context are materials, components, tools, gauges, information, things, and people. Unnecessary things must disappear. Removing these items which are not used in the

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working area may take a reasonable amount of time. Classification of all equipment and materials by frequency will help to decide if these items can be removed or not. The second step is the setting in order (seiton). The practice of orderly storage is important, so that the right item is accessible and can be picked efficiently at the right time by the operator. Identification and allocation of materials, information, tools, and necessary things at fixed and visualized locations is important in this step. In the next and third step (seiso), it is mandatory to create a clean worksite without garbage, dirt, and dust, so problems can be more easily identified (leaks, spills, excess, damage, etc.). In the fourth step (seiketsu), standards for a neat, clean, workplace, and operations will be set up through visual management. In the fifth and last stage (shitsuke), it is important to create the environment, patterns, management style, and behaviors that established standards are executed over the long term, and making the workplace organization the key to managing the process for success (Helmold and Terry 2016).

4.1.1 Elements of Lean Principles The Just-in-Time Production System or Lean Production System can be described as the ideal combination of four principles (Imai 1986). These principles are the (1) Zero-Defect Principle, (2) the Pull Principle, (3) the Tact, and (4) the Flow Principle as displayed in Fig. 4.2 (Helmold and Samara 2019).

4.1.2 Zero-Defect Principle The starting point in Toyota’s success story, zero defects is all about identifying errors or defects as closely as possible to where they occur. By so doing, and by neither accepting nor passing on defects, issues are resolved quickly and efficiently, avoiding subsequent rework and quality issues. The zero-defect principle is a

Zero-Defect Principle

Pull Principle

Fig. 4.2  Four lean production principles

Lean Production System

Tact Principle

Flow Principle

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concept of the Toyota Production System and is aimed at the reduction of defects through error prevention. It is directed at motivating people to prevent mistakes by developing a constant, conscious desire to do their job right the first time. In reality, zero defects are not possible; however, the concept ensures that there is no waste existing in a project (Helmold and Terry 2016). Waste refers to all unproductive processes, tools, employees, and so on. Anything that is unproductive and does not add value to a project should be eliminated, called the process of elimination of waste. Eliminating waste creates a process of improvement and correspondingly lowers costs. Common with the zero-defects theory is the concept of “doing it right the first time” to avoid costly and time-consuming fixes later in the project management process. The concept of zero defects is grounded on four major elements for implementation in real projects: –– Quality is a state of assurance to requirements. Therefore, zero defects in a project means fulfilling requirements at that point in time –– Right the first time. Quality should be integrated into the process from the beginning, rather than solving problems at a later stage –– Quality is measured in financial terms. One needs to judge waste, production, and revenue in terms of budgetary impact –– Performance should be judged by the accepted standards, as close to perfection as possible

4.1.3 Pull Principle The pull system is one of the lean manufacturing principles and is used to reduce waste in the production process. In this type of system, components used in the manufacturing process are only replaced once they have been consumed so companies only make enough products to meet customer demand. The opposite principle is the push system, in which as many products as possible are generated to be sold via marketing activities. The principles aim to avoid over-production and stockpiling, thereby saving working capital, by letting demand dictates the rate at which goods or services are delivered. In this way the customer, or the next step in the chain, “pulls” value through the process.

4.1.4 Flow Principle Value should be added in a smooth, uninterrupted flow, from the start to the end of the production process. The ultimate effect of this principle is that all process steps are focused and aligned to adding value, one piece at a time, removing all wasteful and unnecessary activities from the process. The advantage of a continuous flow in operations is that it features stability, continuity, balance, and doesn’t waste time (the non-renewable resource). No time wasted on waiting between steps means time is being maximized for its capabilities. Operations are not able to introduce a waste-­ less process without the continuous flow, as it is the truly ideal process state.

4.1  5S Concept in Operations and Supply

U-Type flow OP 1

Preassembly

OP 2

Assembly 1

OP 3

Assembly 2

Zick-Zack-Type flow OP 1

Preassembly

OP 2 OP 4

Finshing

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OP 3

Assembly 1

Line-Type flow

Assembly 2

OP 4

OP 1

Preassembly

OP 2

Assembly 1

OP 3

Assembly 2

OP 4

Finishing

Finishing

Fig. 4.3  Types of flows in operations. (Source: Marc Helmold)

However, the troubles with continuous flow are that it is very hard to achieve, process steps aren’t generally balanced, and all process contains inherent waste activities. When one starts out to achieve continuous flow, many process problems will appear and come to the surface. Most individuals think this is bad—it is actually a good thing. The optimal process features continuous flow, and any problems that stand in your way from achieving continuous flow are problems that are now visible and can be rectified. The ideal flow is the one-piece flow as shown in Fig. 4.3.

4.1.5 Tact Principle Tact (German: Takt) is the German word for tempo or, it refers to the rythm and timing at which goods or services are produced to meet the customer demand. With a consistent, continuous rhythm providing a heartbeat for your production processes, it is far easier to regulate, responding flexibly and effortlessly as demand rises or falls. Tact time is defined as the average time available (time available minus breaks, maintenance, or setup) divided by the customer requested quantity as shown in Fig. 4.4. The Tact time is the average time for one product, which is needed in one single operation, that means from the start of the operation or work station until the product is passed on to the next operation. For example, if a customer wants 15 units with the available time of 9 min and the steady flow through the production line, the average time between production starts should be 36 s for one part or unit (9 min multiplied by 60 s = 540 s; 540 s divided by 15 units requested by the customer = 36 s per part). In fact, the tact time simply reflects the rate of production needed to match the demand. In the previous example, whether it takes 4 min or 4 years to produce the product, the tact time is based on customer demand. If a process or a production line is unable to produce at tact time, either demand leveling, additional resources, or process re-­engineering is needed to correct the issue (Helmold and Terry 2016). –– Directly tie production efficiencies to fiscal reporting –– Reduce investigation time for root cause analysis –– Shorten equipment ROI through increased utilization

4  Lean Principles in Operations and Supply

70 Fig. 4.4  Tact time and other ratios

Tact time:

Available production time

(Customer tact)

Customer demand

Optimum Manning level:

Sum of cycle times

LBR:

(Line balance ratio)

LER:

(Line efficiency ratio)

Customer tact (Takt) Sum of cycle times Longest OP x No. OP

x 100 %

Sum of cycle times

x 100 % Customer tact (Takt) x No. OP

–– Decrease costs through waste elimination –– Increase customer satisfaction through quality improvement

4.2 Andon Andon (Japanese: アンドン or あんどん or 行灯) is a lean manufacturing tool referring to a system to notify management, maintenance, and other workers of a quality or process problem. The centerpiece is a device incorporating signal lights to indicate which workstation has the problem. The alert can be activated manually by a worker using a pull cord or button or may be activated automatically by the production equipment itself. The system may include a means to stop production so the issue can be corrected. Some modern alert systems incorporate audio alarms, text, or other displays. An Andon system is one of the principal elements of the Jidoka method pioneered by Toyota as part of the TPS and therefore now part of the lean concept. It gives the worker the ability, and moreover the empowerment, to stop production when a defect is found, and immediately calls for assistance. Common reasons for manual activation of the Andon are part shortage, defect created or found, tool malfunction, or the existence of a safety problem. Work is stopped until a solution has been found. The alerts may be logged to a database so that they can be studied as part of a continuous-improvement program. The system typically indicates where the alert was generated and may also provide a description of the trouble. Modern Andon systems can include text, graphics, or audio elements. Audio alerts may be done with coded tones, music with different tunes corresponding to the various alerts, or pre-recorded verbal messages (Fig. 4.5). Usage of the word originated within Japanese manufacturing companies, and in English is a loanword from a Japanese word for a paper lantern.

4.5 Shadow Boards

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Fig. 4.5  Andon example

4.3 Poka Yoke Poka yoke (ポカヨケ) is a Japanese term that means “mistake-proofing.” A poka yoke is any mechanism in a lean concept a process that helps an equipment operator avoids (yokeru) mistakes (poka). Its purpose is to eliminate product defects by preventing, correcting, or drawing attention to human or other errors as they occur. The concept was formalized, and the term adopted, by Shigeo Shingo as part of the TPS. It was originally described as baka-yoke, but as this means “fool-proofing” (or “idiot proofing”) the name was changed to the milder poka yoke.

4.4 Gemba and Shop floor Gemba (現場 also described as gemba) is also a Japanese term meaning the real or right place. A production environment considers the shop floor as the most important place and the employees in the operation and support functions as most important human capital for adding value.

4.5 Shadow Boards Shadow boards are specific boards for parts, tools, equipment in operations, manufacturing or service areas to reduce waste and waiting time. The aim of the shadow board is to achieve an organized workplace where tools, supplies, and equipment are stored in appropriate locations close to the work area or work stations. It provides the basis for standardization in the work place. They are a simple and inexpensive tool which provides tangible efficiencies and cost savings as well as intangible benefits. Figure 4.6 shows a shadow board for screws in Mitsubishi

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Fig. 4.6  Shadow board. (Source: Helmold. Shadow board. Mitsubishi Shinkanzen Production in Osaka)

Japan. The appropriate storage, allocation, and preparation of screws avoid waiting time and the possibility of errors. The advantages of using shadow boards include avoiding waste, such as time looking for the appropriate tool or even having to buy a new one, wasted time in looking for supplies and interchanging tools between tasks. Shadow boards also provide the ability to quickly gauge the location of tools and equipment or if they are missing. Shadow boards are used in the sort and set in order stages of the implementation and operation of a 5S system in a workplace and kaizen initiatives. Shadow boards can be different sizes and located in many different areas of a process or plant. The key is that they are appropriately located and hold all the necessary tools for the area or work station.

4.6 Health and Safety Health, safety, and environment (HSE) is the concept and paradigm that implements and secures practical aspects of environmental protection and safety at work. From a health and safety standpoint, it involves creating organized efforts and procedures for identifying workplace hazards and reducing accidents and exposure to harmful situations and substances. It also includes training of personnel in accident prevention, accident response, emergency preparedness, and use of protective clothing and

4.7 Overall Equipment Effectiveness (OEE)

73

Fig. 4.7  Health, safety, and environment. (Source: Author’s source)

equipment. From an environmental standpoint, it involves creating a systematic approach to complying with environmental regulations, such as managing waste or air emissions all the way to helping operations’ departments reduce the company’s carbon footprint. Successful HSE programs also include measures to address ergonomics, air quality, and other aspects of workplace safety that could affect the health and well-being of employees and the overall community. Figure 4.7 displays HSE requirements in a Chinese operations environment.

4.7 Overall Equipment Effectiveness (OEE) Manufacturing a product is a complex process. Without metrics and guidelines. It is very easy to lose control and have your business managed by your production. OEE is a tool that combines multiple manufacturing issues and data points to provide information about the process. By analyzing and calculating data, it also functions as a framework for root cause analysis. Through a documented process of combining the underlying data OEE provides specific process information. All members of the manufacturing team, from assembly technicians to financial personnel can use the data to understand the current state of the manufacturing process. By having a predetermined framework of the impact of machine availability, performance, and quality, OEE provides a framework to track underlying issues and root causes. OEE also provides a framework for improvements in the manufacturing process. By using key OEE concepts such as The Six Big Losses waste exposed by tracking OEE can be understood and efficiencies can be improved. The components of this framework are: –– Availability

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–– Performance –– Quality OEE is a very simple metric to immediately indicate the current status of a manufacturing process and also a complex tool allowing you to understand the effect of the various issues in the manufacturing process and how they affect the entire process (OEE  =  Availability  ×  Performance  ×  Quality). Availability refers to the machine or cell being available for production when scheduled. At the most basic level, when a process is running it is creating value for the end user. When a process is stopped, it is creating a cost with no associated value. Whether it is due to mechanical failure, raw materials or operator issues, the cell or machine is either producing or not producing. By comparing scheduled run time to actual run time, the availability component of OEE allows for a determination of lost production due to down time. Performance is determined by how much waste is created through running at less than optimal speed. By comparing the actual cycle times against ideal cycle times, OEE allows for a determination of how much production was lost by cycles that did not meet the ideal cycle time. Quality focuses on identifying time that was wasted by producing a product that does not meet quality standards. By comparing the quantity of good to reject parts the percent of time actually adding value by producing good product is exposed. By itself, OEE only provides data about your manufacturing process. Companies that use OEE as a metric have found success when combining it with general lean manufacturing programs and also as part of TPM systems. When using OEE with these systems the benefits become significant: Fig. 4.8 shows an example of the OEE. High performing companies can achieve an OEE higher than 85% (Helmold and Samara 2019). In the calculation, the OEE has the elements availability (83.3%), performance (90.0%), and quality (98%). Based on the actual figures, it is now possible to optimize each at the inefficient categories. The availability ratio is below 90% and needs special actions for improvements.

4.8 Kanban Kanban (看板) is a visual system for managing work as it moves through a process. It is a concept related to lean and just-in-time (JIT) production, where it is used as a scheduling system that tells you what to produce, when to produce it, and how much to produce. Initially, it arose as a scheduling system for lean manufacturing, originating from the Toyota Production System (TPS).

4.9 Supermarkets Supermarkets ordinarily are located near the supplying process to help that process see customer usage and requirements. Each item in a supermarket has a specific location from which a material handler withdraws products in the precise amounts needed by a downstream process. As an item is removed, a signal to make more (such as a kanban card or an empty bin) is taken by the material handler to the

4.10 Case Study: Porsche Production System

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OEE (Overall Equipment Ef fectiveness) OEE =

73.5% =

Availability x Performance x Quality 83.3% x 90.0% x 98.0% 800 Minutes Machine Operat ing Time

Availability: 960 Minutes Plant Operat ing Time 180 Average Speed qpm (quant ity per minute) Performance:

200 Average Speed qpm (quant ity per minute) 24,974 Good Parts Quality: 25,484 Total Parts Fig. 4.8  OEE calculation. (Source: Author’s source)

supplying process. Toyota installed its first supermarket in 1953  in the machine shop of its main plant in Toyota City. Toyota executive Taiichi Ohno took the idea for the supermarket from photos of American supermarkets showing goods arrayed on shelves by specific location for withdrawal by customers.

4.10 Case Study: Porsche Production System Companies such as Porsche have understood that the low value-adding activities of the own organization lead automatically to increasing activities on the supply side (Freitag 2004). Porsche was also hampered by antiquated production methods. Some 20% of its parts were delivered 3 or more days too late, for example. In addition, supply disruptions led to severe problems in the value chain and caused recalls (Greiml 2010). The former head of Porsche, Dr. Wendelin Wiedeking, who had been deeply impressed by what he had seen on visits to Japanese auto firms such as Toyota, Nissan, and Honda, believed that only a radical, “lean manufacturing” cure would save the company. He flew in teams of the same Japanese consultants who had helped Toyota and gave them free rein. “A cultural revolution from top to bottom” is the way he describes what happened next, as the consultants organized the workforce into teams and one by one eliminated poor practices (Kalkowsky 2004).

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Wiedeking made one now-fabled appearance on the assembly line wielding a circular saw, which he used to cut down the roof-high racks of spare parts that towered over the production line. After the lean cure of the own production facilities, Porsche extended the lean concept to suppliers and established the supplier development department in 2006 (the name of the department is FEL, Finance-Purchasing, Supply Management). This department is in charge of extending lean principles to the supply networks and to synchronize production systems. In the following section, the concept of lean supply management will be discussed. Lean principles have: –– to apply lean principles throughout the supply chain –– to integrate suppliers –– to be customer oriented –– to have flat hierarchies –– to establish competencies to core functions –– to apply lean principles to shop floor (Gemba) –– to concentrate only on essential success factors –– to reduce waste –– to continuously improve –– to apply a pull system –– to apply a learning organization

References Freitag, M. (2004). Toyota. Formel Toyota. Manager Magzin, 12, 12–14. Greiml, H. (2010). The Toyota recall crisis. Toyota recalls 1.1m vehicles to fix floor mats. Automotive News, 12–15. Helmold, M., & Samara, W. (2019). Progress in performance management. Industry insights and case studies on principles, application tools, and practice. Heidelberg: Springer. Helmold, M., & Terry, B. (2016). Global sourcing and supply management excellence in China. Procurement guide for supply experts. Singapore: Springer. Imai, M. (1986). Kaizen. Der Schlüssel zum Erfolg der Japaner im Wettbewerb. Frankfurt: Ullstein. Kalkowsky, M. (2004). Nur Porsche hat das Lean Management begriffen: Interview with Prof. D. Jones. Produktion, 31, 16.

5

Industry 4.0 and Artificial Intelligence (AI)

Lean is a Way of thinking, not a List of Activities to do. Shigeo Shingo (1909–1990)

5.1 Industry 4.0 Industry 4.0 is a name given to the current trend of automation and data exchange in manufacturing technologies. It includes cyber-physical systems, the internet of things, cloud computing, and cognitive computing. Industry 4.0 is commonly referred to as the fourth industrial revolution. Industry 4.0 fosters what has been called a “smart factory.” Within modular structured smart factories, cyber-physical systems monitor physical processes, create a virtual copy of the physical world and make decentralized decisions. Over the internet of things, cyber-physical systems communicate and cooperate with each other and with humans in real time both internally and across organizational services offered and used by participants of the value chain. There are four design principles in Industry 4.0. These principles support companies in identifying and implementing Industry 4.0 scenarios (Helmold and Samara 2019): –– Interconnection: The ability of machines, devices, sensors, and people to connect and communicate with each other via the internet of things (IoT) or the internet of people (IoP). –– Information transparency: The transparency afforded by Industry 4.0 technology provides operators with vast amounts of useful information needed to make appropriate decisions. Interconnectivity allows operators to collect immense amounts of data and information from all points in the manufacturing process, thus aiding functionality and identifying key areas that can benefit from innovation and improvement.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_5

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5  Industry 4.0 and Artificial Intelligence (AI)

Fig. 5.1  Industry 4.0 evolution. (Source: Adopted from Industry 4.0)

–– Technical assistance: First, the ability of assistance systems to support humans by aggregating and visualizing information comprehensively for making informed decisions and solving urgent problems on short notice. Second, the ability of cyber-physical systems to physically support humans by conducting a range of tasks that are unpleasant, too exhausting, or unsafe for their human co-workers. –– Decentralized decisions: The ability of cyber-physical systems to make decisions on their own and to perform their tasks as autonomously as possible. Only in the case of exceptions, interferences, or conflicting goals, are tasks delegated to a higher level (Fig. 5.1).

5.2 Elements of Industry 4.0 The Fourth Industrial Revolution consists of many components when looking closely into our society and current digital trends. To understand how extensive these components are, here are some contributing digital technologies as examples: –– Mobile devices –– Internet of things (IoT) platforms –– Location detection technologies –– Advanced human–machine interfaces –– Authentication and fraud detection –– 3D printing –– Smart sensors

5.3  Artificial Intelligence (AI)

–– –– –– –– –– –– –– ––

79

Big analytics and advanced processes Multilevel customer interaction and customer profiling Augmented reality/wearables On-demand availability of computer system resources Data visualization and triggered “live” training Cyber-physical systems Internet of things (IoT) Cognitive computing

5.3 Artificial Intelligence (AI) Artificial intelligence (AI) is wide-ranging branch of computer science concerned with building smart machines capable of performing tasks that typically require human intelligence. AI is an interdisciplinary science with multiple approaches, but advancements in machine learning and deep learning are creating a paradigm shift in virtually every sector of the tech industry. Artificial Intelligence characteristics can be characterized as follows: 1. Deep learning Deep learning is a machine learning technique that teaches computers to do what comes naturally to humans, to learn by example. Innumerable developers are leveraging the latest deep learning innovative technologies to take their business to the new high. There are large numbers of fields of Artificial Intelligence technology like autonomous vehicles, computer vision, automatic text generation and the like, where the scope and use of deep learning are increasing. Take an example of self-driving feature in cars like Tesla (Autopilot), where deep learning is a key technology behind enabling them to recognize a stop sign or to distinguish a pedestrian from a lamppost. 2. Facial recognition Artificial Intelligence has made it possible to recognize individual faces using biometric mapping. This has led to path-breaking advancements in surveillance technologies. However, this has also faced a lot of criticism for breach of privacy. For example, ClearView AI, an American technology company, offers surveillance technology for law agencies to monitor entire cities with a network of CCTV cameras exactly assigning each and every citizen with their Social Credit Score in real time. 3. Automate simple and repetitive tasks AI has the ability to execute the same kind of work over and over again without breaking a sweat. To understand this feature better, let’s take an example of Siri, a voice-enabled assistant created by Apple Inc. It can handle so many commands in a single day. From asking to take up notes for a brief, to rescheduling the calendar for a meeting, to guiding us through the streets with navigation, the assistant has it all covered. Earlier, all of these activities had to be done manually which used to take up a lot of time and effort. The automation would not only

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6.

7.

5  Industry 4.0 and Artificial Intelligence (AI)

lead to increased efficiencies but also result in lower overhead costs and in some cases a safer work environment. Data ingestion With every passing day, the data that we are all producing is growing exponentially, which is where AI steps in. Instead of manually feeding this data, AI-­ enabled not just gather this data but also analyzes it with the help of its previous experiences. AI, with the help of neural networks, analyzes a large amount of such data and helps in providing a logical inference out of it. ChatBots Chatbots are software to provide a window for solving customer problems’ through either audio or textual input. Earlier the bots used to respond only to specific commands. If you say the wrong thing, it didn’t know what you meant. The bot was only as smart as it was programmed to be. The real change came when these chatbots were enabled artificial intelligence. Now, you don’t have to be ridiculously specific when you are talking to the chatbot. It understands language, not just commands. For example, Watson Assistant, an AI-powered assistant, developed by IBM which can run across various channels like websites, messengers, and apps and requires zero human intervention once programmed. There are a lot of companies that have moved on from voice process executives to chatbots to help customers solve their problems. The chatbots not only offer services revolving around issues that the customers face but also provides product suggestions to the users. All this, just because of AI. Quantum computing AI is helping solve complex quantum physics problems with the accuracy of supercomputers with the help of quantum neural networks. This can lead to path-­ breaking developments in the near future. For example, a pioneer in this field is Google AI Quantum whose objective is to develop superconducting qubit processors and quantum assisted optimization for varied applications. Cloud computing Next Artificial Intelligence characteristics is Cloud Computing. With such a huge amount of data being churned out every day, data storage in a physical form would have been a major problem. However, the advent of Cloud Computing has saved us from such worries. Microsoft Azure is one of the prominent players in the cloud computing industry. It offers to deploy your own machine learning models to your data stored in cloud servers without any lock-in.

5.4 Case Study: Google’s Self-Driving Cars Research into self-driving cars is not a new phenomenon. In the late 1950s, the first known thoughts on self-driving vehicles were described in Popular Mechanics magazine by a mechanic who argued that altering a roadster to both start itself and back itself into a driveway would be relatively straightforward. Later that year, a GM analyst revealed in Popular Science magazine that the company was already

5.4  Case Study: Google’s Self-Driving Cars

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investigating embedding highways with cable and radio-control boxes as a means of developing an infrastructure to support driverless cars. Despite all of the theoretical research into the subject, self-driving cars did not become a reality until 1968. The first physical breakthrough in driverless car technology was the design of a car that used sonar and gyroscopes to drive, steer, and stop an automobile. In 1968, The Cornell Aeronautical Laboratory created the “Urbmobile,” an electric car that could be driven on the road but could also glide along a subway-style track that utilized roadside guides, magnetometers, magnetic nails, and internal computers. The largest breakthrough came years later, however, with the announcement from Google, Inc. of the Google Car in 2010. With the distinctive sensor and camera nub lodged on top of a Toyota Prius, the Google Car quickly became operational and present on roads across the United States. Shortly thereafter, media coverage of the Google Car became increasingly prevalent in addition to promotional commercials demonstrating the benefits of the car (Google 2019). While the benefits demonstrated in the videos seemed to be promising, the Google Car’s entrance into the market seemed a far leap away from Google’s core business. Google Inc. specializes in internet-­ related services and products, with the mission to organize the world’s information and make it universally accessible and useful. In 1998, Larry Page and Sergey Brin, two Stanford University computer science graduate students, created a search engine that uses back links, or incoming links, to a website or web page, to determine the importance and therefore rank individual web pages during a web query. Existing competitors, like Yahoo and AOL, on the other hand, were directories of other websites, organized in a hierarchy, as opposed to a searchable index of pages. This allows the Google search process to return more relevant results rather than simply a ranked list of preferred sites. In 1999, Google secured funding from Sequoia Capital and Kleiner Perkins Caufield & Byers, Silicon Valley’s two leading venture capital firms (Google 2019). Only 1 year later, Google became the world’s largest search engine with over a billion pages in its index, surpassing industry giants such as Yahoo. Google’s dominance of the search market continues today as Google maintains a 67% share of global searches. While Google Inc. began as a company specializing in search, it quickly expanded into other product areas. In 2004, Google launched Gmail, an email client which became the world’s largest email provider by 2012 with an estimated 425 million active users. Expanding into the online video domain, Google acquired YouTube in 2006 for $1.65 billion, which reaches over 1 billion unique visitors each month. In 2008, Google launched Chrome, a web browser, and Android, an operating system for mobile devices. In both of these areas as well, Google dominates the market, with a 50% and 68% of the market share, respectively (Miller and Wald 2013). In 2010, Google announced that the prototype of a driverless car—the Google Car—was completed (Google 2019). According to Google executives at the time, the goal of the Google Car was to “… help prevent traffic accidents, free up people’s time and reduce carbon emissions by fundamentally changing car use.” With a team assembled consisting of engineers with experience in vehicle technology from the DARPA Challenges, a series of driverless vehicle races sponsored by the U.S. Government, Google was

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finally able to bring the driverless car phenomenon to reality. The Google Car is a sophisticated system that integrates proprietary hardware and software, using video cameras, radar sensors, and a laser range finder to visualize traffic and detailed maps taken from Google Maps to enable navigation between destinations. Google’s data centers process the incoming data relayed from the sensors and cameras mounted on the Google Car in order to provide the car with useful information about its environment that is later translated into the physical operation of the vehicle. The key to the Google Car’s technological capabilities is the laser range finder mounted on the roof of the modified Toyota Prius, allowing for real-time environmental analysis. In addition, the Google Car is equipped with four radars and a velodyne 64-beam laser placed strategically around the car to accurately generate a three-dimensional map of its environment. A camera detects traffic lights while a GPS, wheel encoder, and inertial measurement unit control the vehicle’s location and logs car movement. The software system synthesizes laser measurements produced from the laser beam with high-resolution maps of the world, producing dynamic data models then translated into the physical operation of the vehicle by the car’s internal software system. Altogether, the system allows for seamless operation of the vehicle that adjusts to its dynamic environment without the intervention of a driver. In addition to the generic driverless capability, the Google Car’s system also adjusts for local traffic laws and environmental obstacles in real time. For example, if the Google Car approaches a four-way intersection and senses that the driver with the right of way does not move, the Google Car inches forward slightly to indicate to other drivers the intentions of driving through the intersection (Miller and Wald 2013). Altogether the technology and adaptation to local conditions not only allows for driverless transportation, but also increases safety on the road. Since its introduction, the Google Car has completed 200,000 miles of accident-free computer-led driving, beyond one incident that was arguably caused by another driver. The road test results for the Google Car indicate that the Google Car obeys all of the rules of the road and adjusts to its dynamic environment in real time with no problems. Thus, with this integrated technology, the car has the capability of being safer than a human driver. The Google Car has the potential to have a profound effect on energy consumption, efficiency, and traffic accidents. With subsequent productivity increases, and decreases in costs, the Google Car represents a potentially revolutionizing technology. It is precisely this potential, however, that creates a threat for Google to sustaining a long-term competitive advantage in the driverless car space. As the Google Car may radically shift the structure of affected industries and raises serious privacy concerns, vulnerable industries, and consumer groups threaten the viability of the project. Thus, the Google Car faces challenges far greater than competing car manufacturers alone. In squaring off against politically and economically powerful industries that are facing their demise, can the Google Car survive? Can the will to revolutionize driving outweigh the costs of potentially ruined industries and massive unemployment? Who will win the war of the road?

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References Google. (2019). Retrieved from www.google.com. Helmold, M., & Samara, W. (2019). Progress in performance management. Industry insights and case studies on principles, application tools, and practice. Heidelberg: Springer. Miller, C. C., & Wald, M. L. (2013). Self-driving cars for testing are supported by U.S. New York Times. Retrieved December 10, 2019 from https://www.nytimes.com/2013/05/31/technology/ self-­driving-­cars-­for-­testing-­are-­supported-­by-­us.html.

6

Operations and Supply as Integral Part of the Corporate Strategy

When you’re dying of thirst, it is too late to think about digging a well. Japanese say

6.1 Definition of Strategic Management Lean management must be the integral part of the corporate strategy. Strategic management is a framework that is dealing with recognizing and making the important changes towards its lean mission and vision by using resources and assets in the most efficient way. It is a framework which links strategic planning and decisionmaking with the everyday business of operational administration. Strategic management is very important for an organization’s long-term success, which is making companies able to compete in a hostile and competitive environment (Johnson and Scholes 1997). Translation of strategic management plans into practice is the most important aspect of the planning itself in any organization. Strategic and lean plans can include actions like entering new markets, global sourcing, make or buy strategies, deployment of new products or services, centralization or decentralization of activities or aligning leadership and resources as outlined by various authors (Johnson and Scholes 1997; Mintzberg et al. 1995; Porter 1980). Porter is best known for his strategic frameworks and concepts in his chapter, which was published in 1980 (Porter 1980). The five forces model (Industry Analysis) has five elements that can be utilized to assess the attractiveness and competitive situation of the industry. The five elements are: 1. Rivalry among competitors 2. Bargaining power of suppliers 3. Bargaining power of buyers

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_6

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4. Threat of new market entrants 5. Threat of new substitutes Moreover, the generic strategies differentiation and cost leadership are a good method to define, in which direction a company should go to increase profitability and to acquire a competitive advantage (Porter 1980, 1985). Mintzberg provides five definitions of strategy, plan, ploy, pattern, position, and perspective (Mintzberg et  al. 1995). Firstly, strategy is always a plan. A plan integrates intended actions activities based on previous assessment of the situation. Secondly, as plan, a strategy can be a ploy too, really just a specific maneuver intended to outwit an opponent or competitor. If strategies can be intended (whether as general plans or specific ploys), they can also be realized. In other words, defining strategy as plan is not sufficient; we also need a definition that encompasses the resulting behavior. Thirdly, strategy is a pattern. The definitions of strategy as plan and pattern can be quite independent of one another. Plans may go unrealized, while patterns may appear without preconception. Plans are intended strategy, whereas patterns are the realized strategy. Fourthly, strategy is a perspective. A perspective is not just of a chosen position, but consists of an ingrained way of perceiving the world.

6.2 Strategic Triangle The process of strategic management cycle is a process with three elements as outlined in Fig. 6.1 (strategic triangle or strategic cycle) (Johnson and Scholes 1997). The three steps are (1) the strategic analysis, (2) the strategic choice, and (3) the strategic implementation and will be described in the following sections. The triangle is raising the following questions:

Strategic Analysis Mission

Vision

Corporate Strategy

Strategic Implementation

Operations and Supply 4.0

Strategic Choice

Fig. 6.1  Strategic triangle. (Source: Compiled by the author, adopted from Johnson and Scholes 1997)

6.3  Strategic Analysis

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1. Where are we in terms of Lean Management 2. Where do we want to go? 3. How do we achieve this?

6.3 Strategic Analysis The strategic analysis of an organization is about understanding the strategic position of the organization in terms of Lean Management. This stage requires a profound analysis where the organization stands in terms of Lean Management tools and processes (Johnson and Scholes 1997). The existing competencies and resources of the organization need to be assessed to determine if there are any opportunities to be gained from these and to determine if they need to be enhanced in order to pursue strategic objectives and goals (Johnson and Scholes 1997). The major stakeholders which influence the organization and the opinions or viewpoints must be taken into account as the purpose of all of the strategic analysis is to define the potential future direction of the organization. The purpose of this phase (strategic analysis) is to create a suitable starting position and to understand the key influences on the present and future state of the organization and what opportunities are afforded by the environment and the competencies of the organization (Johnson and Scholes 1997). Assessing the strategic position consists of evaluating the following elements as shown in Table 6.1: Since strategy is concerned with the position a business takes in relation to its environment, an understanding of the environment’s effects on an organization is of central importance to the strategic analysis. The historical and environmental effects on the business must be considered, as well as the present effects and the expected changes in environmental variables. The analysis of the environment can be done via the macro- and micro-analysis (PESTEL, Porters 5 Forces). Additionally, strengths, weaknesses, opportunities, and threats complete the assessment of the environment (SWOT). This step is a major task because the range of environmental variables is so great. Another area of the strategic analysis is the evaluation of the strategic capability of an organization and where it is able to achieve a competitive advantage. Considering the resource areas of a business such

Table 6.1  Elements in the strategic analysis Strategic analysis of elements Environment (e.g., markets, regulations, political impacts) Industry and competition (e.g., rivalry in industry) Internal strengths and weaknesses, external threats, and opportunities Cultures and beliefs Strategic capabilities and competencies Expectation of stakeholders Source: Author’s own table

Strategic tool PESTEL analysis (macro) Industry analysis (micro) SWOT analysis (internal) Cultural analysis Benchmarking analysis Stakeholder analysis

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as its physical plant, its management, its financial structure and its products may identify these strengths and weaknesses (Johnson and Scholes 1997). The expectations of stakeholders are important because they will affect what will be seen as acceptable in terms of the strategies advanced by management. Stakeholders can be defined as people or groups inside or outside the organization, who an interest in the activities of the organization. A typical list of stakeholders for a large company would include shareholders, banks, employees, managers, customers, suppliers, government, and society. Culture affects the interpretation of the environmental and resource influences (Johnson and Scholes 1997).

6.4 Strategic Choice Strategic choice typically follows strategic analysis. Strategic choice involves a whole process through which a decision is taken to choose a particular option from various alternatives. There can be various methods through which the final choice can be selected upon. Managers and decision-makers keep both the external and internal environment in mind before narrowing it down to one. It is based upon the following three elements. (1) The generation of strategic options, e.g., growth, acquisition, diversification, or concentration. (2) The evaluation of the options to assess their relative merits and feasibility. (3) The selection of the strategy or option that the organization will pursue. There could be more than one strategy chosen, but there is a chance of an inherent danger or disadvantage to any choice made. Although there are techniques for evaluating specific options, the selection is often subjective and likely to be influenced by the values of managers and other groups with an interest in the organization (Helmold et al. 2020, Fig. 6.2).

6.5 Strategic Implementation 6.5.1 Assessment of Suitability, Acceptability, and Feasibility Strategic implementation is concerned with the translation of the selected strategy into action (Johnson and Scholes 1997). The ways in which strategies are implemented are described as the strategic architecture or framework of the organization (Johnson and Scholes 1997). Successful implementation of the chosen strategy will be dependent on several factors such as stakeholder’s expectations, the employees, the company culture, the will to change and the cooperation within the organization. These elements and how the management and employees work together to adopt the new plan will decide about how successful the strategy implementation is. The available skills and/or the ability to develop new skills when required for the planned change and issues like the structural re-organization and resulting cultural disturbance would also affect success. Resource availability and planning for the

Narrow Scope

Scope

Braod Scope

6.5  Strategic Implementation

Cost Leadership

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Differentiation Value-adding Elements

Efficiency

Operations and Supply 4.0

Cost Leadership

Differentiation Value-adding Elements

Low

Source of Advantage

High

Fig. 6.2  Generic strategies. (Source: Author’s own figure, adopted from Porter 1985)

utilization of such resources need to be addressed as part of the implementation plan. The entire process necessitates the management of strategic change and will concern handling both hard and soft factors of the organization, i.e., structure and systems and culture and motivation, etc. Implementing a strategy has three elements. • Organizational structure and layout: Where and how should the organization is split into European, the United States and Asian divisions? How autonomous should divisions be? What parenting style should be applied? • Resources: Enabling an organization’s resources should support the chosen strategy: What are the appropriate human and non-human resources? What assets need to be acquired? • Change management: Most strategic planning and implementation will involve change, so managing change, in particular employees’ fears and resistance, is crucial. Johnson and Scholes argue that for a strategy to be successful it must satisfy three criteria (Johnson and Scholes 1997). These criteria can be applied to any strategy decision such as the competitive strategies, growth strategies, or development strategies: 1. Suitability—whether the options are adequate responses to the firm’s assessment of its strategic position. 2. Acceptability—considers whether the options meet and are consistent with the firm’s objectives and are acceptable to the stakeholders. 3. Feasibility—assesses whether the organization has the resources it needs to carry out the strategy.

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6.5.2 Suitability Suitability is a useful criterion for screening strategies, asking the following questions about strategic options: • Does the strategy exploit the company strengths, such as providing work for skilled craftsmen or environmental opportunities, e.g., helping to establish the organization in new growth sectors of the market? • How far does the strategy overcome the difficulties identified in the analysis? For example, is the strategy likely to improve the organization’s competitive position, solve the company’s liquidity problems or decrease dependence on a particular supplier? • Does the option fit in with the organization’s purposes? For example, would the strategy achieve profit targets or growth expectations, or would it retain control for an owner-manager?

6.5.3 Acceptability Acceptability is essentially about assessing risk and return and is strongly related to expectations of stakeholders. The issue of “acceptable to whom?” thus requires the analysis to be thought through carefully. Some of the questions that will help identify the likely consequences of any strategy are as follows: • How will the strategy impact shareholder wealth? Assessing this could involve calculations relating to profitability, e.g., net present value (NPV). • How will the organization perform in profitability terms? The parallel in the public sector would be cost/benefit assessment. • How will the financial risk (e.g., liquidity) change? • What effect will it have on capital structure (gearing or share ownership)? • Will the function of any department, group, or individual change significantly? • Will the organization’s relationship with outside stakeholders, e.g., suppliers, government, unions, customers need to change? • Will the strategy be acceptable in the organization’s environment, e.g., higher levels of noise?

6.5.4 Feasibility Assesses whether the organization has the resources it needs to carry out the strategy. Factors that should be considered can be summarized under the M-word model. • Machinery. What demands will the strategy make on production? Do we have sufficient spare capacity? Do we need new production systems to give lower cost/better quality/more flexibility/etc.? • Management. Is existing management sufficiently skilled to carry out the strategy?

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• Money. How much finance is needed and when? Can we raise this? Is the cash flow feasible? • Manpower. What demands will the strategy make on human resources? How many employees are needed, what skills will they need, and when do we need them? Do we already have the right people or is there a gap? Can the gap be filled by recruitment, retraining, etc.? • Markets. Is our existing brand name strong enough for the strategy to work? Will new brand names have to be established? What market share is needed for success—how quickly can this be achieved? • Materials. What demands will the strategy make on our relationships with suppliers? Are changes in quality needed? • Make-up. Is the existing organizational structure adequate or will it have to be changed?

6.6 Strategic Pyramid A useful tool for the translation of the corporate strategy and strategic objectives into negotiations is the strategic pyramid (Johnson and Scholes 1997). Strategy in this context is the long-term positioning as well as the decision of the enterprise, which business fields and which strategies to choose. Strategy is therefore “the fundamental, long-term direction of three to five years and organization of a company in order to gain competitive advantages in a changing environment through the use of resources and competences and to realize the long-term goals of the stakeholders” (Johnson and Scholes 1997, Fig. 6.3).

Mission

Vision Goals & Values Lean Objectives (specific) Core Competencies – Lean Academy

Operations and Supply Strategies Strategic Architecture (Academy, Lean Organisation) Control & Execution (KPI System)

Fig. 6.3  Strategic pyramid. (Source: Author’s own figure)

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6.6.1 Lean Mission and Vision Enterprises must manifest in their strategy to strive for lean excellence. The mission is the starting point of the strategic pyramid. The mission statement of an enterprise is the long-term purpose of the company and the strategic direction as defined by Johnson and Scholes (1997). The vision or strategic intent describes more specifically what an organization aims to achieve and the long-term aspirations (Johnson and Scholes 1997). Mission Example: Become a Lean Enterprise of excellence on a global basis Vision Example: Become the world-leading company in lean in the industry in the next 5 years

6.6.2 Qualitative and Quantitative Lean Goals and Objectives The mission and vision are followed by generic goals and specific objectives. Generic goals are not quantified and more general, but specific objectives are quantified and specific. The strategists Johnson and Scholes distinguish in longer term and generic (English: Goals) as well as shorter and quantified objectives (English: Objectives) for the company (Johnson and Scholes 1997). Quantified goals can include sales, financial, quality, logistics, cost, and alpha goals. Goal example: Increase and improve quality, reduce cost, and provide productivity improvements between 30% and 40% within the next 3 years Objectives example: Quantification of the generic aims (goals)

6.6.3 Core Competencies The next level in the strategic pyramid is the identification of core competencies. Core competences are those competences which allow companies to gain a superior or competitive advantage and that are very difficult for your competitors to emulate (Johnson and Scholes 1997). These describe the resources, skills, knowledge, or any other feature that lead to a competitive advantage. Core competencies must be perceived by customers and clients (Helmold et al. 2020). Example: Create lean academy and lean culture

6.6.4 Strategies After defining mission, vision, goals, and core competencies, the elements must be translated into strategic objectives and key performance indicators (KPI). The long-­ term implementation of these elements is defined as the formulation of strategic objectives and important for the negotiations. In implementing the strategic goals, negotiations will take place with many stakeholders (Helmold et al. 2020). Become

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a lean differentiator by answering customer demands: Reduce operating cost by 25% in 12 months from now, increase customer satisfaction by 10%.

6.6.5 Strategic Architecture In addition to buildings, machines, plants, offices, resources, or employees, the infrastructure in the sense of strategic management also includes knowledge and innovations of the company that ensure long-term success. This requires facilities, buildings, factories, or offices that represent the strategic infrastructure. In addition, however, other success criteria such as resources, knowledge, experts, name recognition, network, or innovations are of central importance.

6.6.6 Control and Execution The final element of the strategic pyramid is the performance control (control and execution) and a target-performance comparison. A suitable tool for this step is the Balance Score Card (BSC) or an action plan. The instrument of the BSC was already developed in 1992 by the professors Norton and Kaplan. The BSC is an instrument in strategic management and includes four categories (Johnson and Scholes 1997): 1. Customer satisfaction 2. Financial category 3. Internal processes and improvements 4. Learning organization In practice, it seems that companies are adapting or expanding the original four dimensions to their specific needs (Johnson and Scholes 1997). Example: Establishing process and key performance indicators (KPI) of monitoring improvements and successful execution of strategy. Creating scorecard and checking running time, sequence, weight, and other elements on a daily basis.

6.7 Strategies Must Focus on Value-Creation Porter postulated three generic or broad alternative strategies which may be pursued as a response to the competitive pressures. They are termed generic strategies because they are broadly applicable to any industry or business. They are differentiation, cost leadership, and focus. A focus strategy may be further defined as cost focus, differentiation focus, or cost and differentiation focus. A differentiation strategy may be based on actual unique product features or the perception thereof, conveyed through the use of advertising and marketing tactics, in the eyes of the customers. Obviously, the product or service feature must be one the customer needs or desires. Moreover, such enhanced features and designs or advertising and marketing will increase costs, and customers must be price-insensitive—willing to pay for the differentiated product or service. This willingness to pay for the

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Generic Strategies

Narrow Scope

Braod Scope

Cost Focus

Differentiation Focus

Cost Leadership

Efficiency

Differentiation Operations and Supply Management 4.0

Cost Leadership

Efficiency

Differentiation Operations and Supply Management 4.0

Fig. 6.4  Example of mission statement. (Source: Author’s source)

differentiated product of service is what provides the company relief from competitive pressure, cost pressure specifically. Firms pursuing a cost leadership strategy must make lower production and distribution costs their priority (Johnson and Scholes 1997; Johnson et al. 2008). By keeping their cost lowers than those of their competitors, firms using cost leadership can still price their products up to the level of their competitors and still maintain higher gross profit margins. Alternatively, these firms can price their products lower than those of their competitors in the hope of achieving greater market share and sales volume at the expense of gross profit margins. A focus strategy is based on a particular market, customer, product, or geographic. A focus strategy is a concentrated, narrowly focused niche strategy. Figure 6.4 shows the example of a Mission Statement of Bombardier Transportation in China International Procurement Office (Fig. 6.5).

6.8 Case Study: Siemens Strategy The company Siemens has outlined its mission, vision, goals, strategic objectives, core values, and cultural specifics in its strategy outline “Siemens, vision 2020” (Siemens 2019). The president and CEO, Joe Kaeser, outlines the key elements of the Siemens strategy for the coming years. He stresses that with the positioning along the electrification value chain, Siemens has knowhow that extends from power generation to power transmission, power distribution, and smart grid to the efficient application of electrical energy. And with the outstanding strengths in automation, Kaeser confirms that Siemens is well equipped for the future and the age of digitalization. The Siemens vision 2020 defines an entrepreneurial concept that will

References

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Fig. 6.5  Lean management as a strategy for differentiation and efficiency. (Source: Author’s own figure)

enable the enterprise to consistently occupy attractive growth fields, sustainably strengthen our core business and outpace our competitors in efficiency and performance. All goals are focused on a long-term success (Siemens 2019). The mission of Siemens can be defined as “We make real what matters, by setting the benchmark, in the way we electrify, automate and digitalize the world around us. Ingenuity drives us and what we create is yours. Together we deliver” (Siemens 2019).

References Helmold, M., et al. (2020). Successful international negotiations. A practical guide for managing transactions and deals. Heidelberg: Springer. Johnson, G., & Scholes, K. (1997). Exploring corporate strategy. Text and cases (4th ed.). London: Prentice Hall. Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring corporate strategy (8th ed., pp. 11–13, 224, 294). Harlow: FT Prentice Hall. Mintzberg, H. Quinn, J. B., & Ghoshal, S. (1995). The strategy process (Revised European ed.). London: Prentice Hall. Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press. Porter, M.  E. (1985). Competitive advantage. Creating and sustaining superior performance. New York: Free Press. Siemens. (2019). Siemens strategy. Retrieved from www.siemens.de.

7

The Cultural Change Towards Operations and Supply Excellence

Perfection is not attainable. But if we chase perfection, we can catch excellence. Vince Lombardi (1913–1970)

7.1 Lean Management as Part of the Organizational Culture Lean management and processes have positive effects on the performance of the organization in terms of quality cost, delivery, and other improvements. However, it is necessary to establish organizational infrastructures which required for effective lean implementation and continuation (Fatma 2015). The Cultural Web, developed by Gerry Johnson and Kevan Scholes in 1992, provides one such approach for looking at and changing your organization’s culture. Using it, you can expose cultural assumptions and practices, and set to work aligning organizational elements with one another, and with your strategy. These infrastructures must integrate cultural elements as illustrated in Fig.  7.1. The challenge to implement and sustain lean management processes lies in the need to identify the organizational culture infrastructure that will allow this system that was first used by Japanese firms to operate well in other organizational contexts. The values and norms that underlie lean processes may create conflict with the culture that already exists within the organization; such divergence retards adoption and performance (Helmold and Samara 2019). Johnson and Scholes identified six distinct but interrelated elements which contribute to what they called the “paradigm,” equivalent to the pattern of the work environment, or the values of the organization. They suggested that each may be examined and analyzed individually to gain a clearer picture of the wider cultural issues of an organization. The six contributing elements (with example questions used to examine the organization at hand) are as follows:

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_7

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Fig. 7.1  A new cultural paradigm towards operations and supply excellence. (Source: Author’s source)

7.1.1 Stories and Myths These are the previous events and happenings, both accurate and not, which are discussed by individuals within and outside the enterprise. This element deals with the questions, which events and people are remembered by the company or not. It indicates what the company values, and what it chooses to immortalize through stories. Questions concerning the stories and myths are: • What form of company reputation is communicated between customers and stakeholders? • What stories do people tell new employees about the company? • What do people know about the history of the organization? • What do these stories say about the culture of the business?

7.1.2 Rituals and Routines The rituals and routines category refers to the daily actions and behaviors of individuals within the organization. Routines indicate what is expected of employees on a day-to-day basis, and what has been either directly or indirectly approved by those in managerial positions. Questions in this category are:

7.1  Lean Management as Part of the Organizational Culture

• • • •

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What do employees expect when they arrive each day? What experience do customers expect from the organization? What would be obvious if it were removed from routines? What do these rituals and routines say about organizational beliefs?

7.1.3 Symbols This element, Symbols, deals with the visual representation of the company; how they appear to both employees and individuals on the outside. It includes logos, office spaces, dress codes, and sometimes advertisements. Question are: • What kind of image is associated with the company from the outside? • How do employees and managers view the organization? • Are there any company-specific designs or jargon used? • How does the organization advertise itself?

7.1.4 Control Systems Control Systems are the systems and pathways by which the organization is controlled. This can refer to many things, including financial management, individual performance-based rewards (both measurement and distribution), and quality-­ control structures. Questions that must be tackled in this respect are: • Which processes are strongly and weakly controlled? • In general, is the company loosely or tightly controlled? • Are employees rewarded or punished for performance? • What reports and processes are used to keep control of finance, etc.?

7.1.5 Organizational Structures This aspect refers to both the hierarchy and structure designated by the organization. Alongside this, Johnson and Scholes also use it to refer to the unwritten power and influence that some members may exert, which also indicate whose contributions to the organization are most valued by those above them. • How hierarchical is the organization? • Is responsibility and influence distributed in a formal or informal way? • Where are the official lines of authority? • Are there any unofficial lines of authority?

7.1.6 Power Structures This element is referring to the genuine power structures and responsible individuals within the organization. It may refer to a few executives, the CEO, board

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members, or an entire managerial division. These individuals are those who hold the greatest influence over decisions, and generally have the final say on major actions or changes. • Who holds the power within the organization? • Who makes decisions on behalf of the company? • What are the beliefs and culture of those as the top of the business? • How is power used within the organization?

7.1.7 Cultural Web to Change As above, the first step of changing the culture of the organization is to analyze elements of the Cultural Web as they are in the present. The next step is to repeat the process, examining each element, but this time considering what one would like the culture, beliefs, and systems to be. This can then subsequently be compared with the ideal culture, and the differences between the two can be used to develop achievable steps towards change within the company. One will likely only then realize the true strengths and weaknesses of the organization’s current culture, what the various hinderances are to growth, and how to go about changing specific elements to develop and achieve success. A new strategy can evolve from this by looking at introducing new beliefs, and prioritizing positive reinforcement of current, successful ones. Hopefully, by integrating this system of analysis, managers can find themselves able to break free of ritual and belief systems within a company to achieve real change and innovation.

7.2 Need for Change of Organizational Culture Successful organizations do not prosper by devoting a ruthless approach to chip away at costs, relentlessly reducing all decision-making to a reduction in head count. The purpose of lean culture change is to secure the future of the entity by uniting its people to deliver to the voice of the customer. In the not-for-profit sector, lean culture change drives organizational success by adding value to existing consumers and winning loyalty. It is about developing resilient service provision, developing core staff competencies and attracting and retaining the best people. The lean culture reverses the polarity of the organization shifting from a fire-fighting mode to a planning mode, where prevention of problems rather than reacting after the event of failure becomes the norm. Healthy, positive, organizational cultures are characterized by a long-term continuity perspective, with a focus on tactics to resolve immediate short-term problems. The dominant culture should support and reward cross-organizational working. Implementing lean thinking is a cultural change that requires leadership because in the end it is all about people. Here are ten guidelines your leader can do right now to change the culture: Challenge people to think

7.2  Need for Change of Organizational Culture

101

If you are not thinking, you’re not learning new things. If you’re not learning, you’re not growing—and over time becoming irrelevant in your work. The most successful leaders understand their colleagues’ mindsets, capabilities, and areas for improvement. They use this knowledge/insight to challenge their teams to think and stretch them to reach for more. Lead by example Leading by example sounds easy, but few leaders are consistent with this one. Successful leaders practice what they preach and are mindful of their actions. They know everyone is watching them and therefore are incredibly intuitive about detecting those who are observing their every move, waiting to detect a performance shortfall. Take lots of leaps of faith Making a change requires a leap of faith. Taking that leap of faith is risky, and people will only take active steps towards the unknown if they genuinely believe—and perhaps more importantly, feel—that the risks of standing still are greater than those of moving forward in a new direction. Making a change takes lots of leaps of faith. Create an environment where it is ok to fail Failure should be encouraged! That’s right. If you don’t try, you can’t grow; and if growth is what you seek, failing is inevitable. There must be encouragement to try and it’s ok if you try and it doesn’t work. An environment where you can’t fail creates fear. Eliminate concrete heads “Concrete Heads” is the Japanese term for someone who does not accept that the organization must be focused on the elimination of waste. People feel threatened by the changes brought about by lean. As waste and bureaucracy are eliminated, some will find that little of what they have been doing is adding value. The anxiety they feel is normal and expected. To counteract this, it is critical that people are shown how the concept of work needs to change. Be a great teacher Successful leaders take the time to mentor their colleagues and make the investment to sponsor those who have proven they are able and eager to advance. They never stop teaching because they are so self-motivated to learn themselves. Show respect to everyone Everyone desires respect. Everyone. Regardless of your position or power, ensure you show everyone respect. Everyone wants to be treated fairly. Motivate your followers Transformational leaders provide inspirational motivation to encourage their followers to get into action. Of course, being inspirational isn’t always easy. Some ideas for leadership inspiration include being genuinely passionate about ideas or goals, helping followers feel included in the process and offering recognition, praise, and rewards for people’s accomplishments. Develop a true team environment Create an environment where working as a team is valued and encouraged, where individuals work together to solve problems and help move the organization

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f­ orward. Individuals who will challenge each other and support each other make teams more successful. Encourage people to make contributions Let the members of your team know that you welcome their ideas. Leaders who encourage involvement from group members has shown to lead to greater commitment, more creative problem-solving, and improved productivity. Constant change is a business reality and organizations must continually adapt to their environments to stay competitive or risk losing relevance and becoming obsolete. For each change, leaders must define it, create a vision of the post-change world, and mobilize their teams to make it. Fundamentally, a change of culture occurs when people start behaving differently as a result of a change in the climate of the organization. There are many different models of how an organizational culture is shaped by the prevailing climate and how it can be assessed. Leaders who protect the status quo through control must surrender to change in order to secure the future for their organization. Don’t be the leader who rewards herd mentality, and me too thinking. Don’t be the leader who encourages people not to fail or not to take risks. Be the leader who both models and gives permission to do the exact opposite of the aforementioned—be a leader who leads. The culture of an organization is learnt over time. It can be taught to new employees through formal training programs but is more generally absorbed through stories, myths, rituals, and shared behaviors within teams. Organizational culture will impact positively or negatively on everything you try to do whether you want it to or not.

7.3 Creating a Logical and Open Mind Chiiku (知育) means to master intellectual knowledge and develop logical thinking for fundamental survival skills. For businesses to stay profitable, they first need stability based on a concrete understanding of their needs and priorities. Then, by using their uncovered resources, they can begin to innovate. Understanding this fundamental need for the business’s survival is the foundation of future prosperity, and it should also form the foundation for developing leaders within the workplace. Chiiku focuses on this logical understanding of the business in a larger context. This is like envisioning a forest as an entire ecosystem rather than just a collection of trees. For business leaders, chiiku means to calculate the sense of urgency and communicate it at all times.

7.4 Leadership Development and Culture Tokuiku (徳育) kuiku means to develop your rational interpersonal skills as a leader. Rational development (tokuiku) is different from logical development (chiiku). Logical thinking is based on cause and effect, whereas rational thinking is based on quantity and scale. Logical thinking can tell us what we ought to do, but we need to

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be rational to understand why it benefits each individual. It is necessary for humans to develop themselves by not staying satisfied with the current state and rationally comparing it to other possibilities. Leaders must first develop the courage to take risks and surpass the status quo. This is like ensuring the survival of the forest by understanding the needs of each organism that makes up the ecosystem. While chiiku is focused on the organization’s survival as an entity, tokuiku focuses on ensuring the enrichment and success of the individuals who make up that entity.

7.5 Emotional and Physical Strength Taiiku (体育): Modern education systems understand taiiku as physical education (PE). It is seen as simply a way to make students exercise their bodies through sports. But physical education is about more than just building muscles and developing a sense of competitiveness. Taiiku first focuses on strengthening one’s willpower and emotions to force out the right actions. For business leaders, taiiku means learning the skills to inspire a culture of immediate action, not just the words. Leaders must learn to help others break the status quo. This means learning the self-­ criticism mentality (hansei).

7.6 Case Study: Toyota Toyota Motor Corporation’s organizational culture defines the responses of employees to challenges the company faces in the market. As a global leader in the automobile industry, Toyota uses its organizational culture to maximize human resource capabilities in innovation. The company also benefits from its organizational culture in terms of support for problem-solving. The different features or characteristics of Toyota’s organizational culture indicate a careful approach in facilitating organizational learning. The firm undergoes considerable change once in a while, as reflected in the change in its organizational structure in 2013. Toyota’s organizational culture highlights the importance of developing an appropriate culture to support global business success. Toyota’s organizational culture effectively supports the company’s endeavors in innovation and continuous improvement. An understanding of this corporate culture is beneficial for identifying beliefs and principles that contribute to the strength of the firm’s business and brands. Following its reorganization implemented in 2013, Toyota’s organizational culture underwent corresponding change. Prior to 2013, its organizational culture emphasized a sense of hierarchy and secrecy, which translated to employees’ perception that all decisions must come from the headquarters in Japan. However, after 2013, the characteristics of Toyota’s organizational culture are as follows, arranged according to significance: • Teamwork • Continuous improvement through learning • Quality • Secrecy

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Fig. 7.2  Training workshop in operations by bombardier in China. (Source: Author’s source)

Teamwork. Toyota uses teams in most of its business areas. One of the company’s principles is that the synergy of teamwork leads to greater capabilities and success. This part of the organizational culture emphasizes the involvement of employees in their respective teams. To ensure that teamwork is properly integrated in the organizational culture, every Toyota employee goes through a teambuilding training program. Toyota’s organizational culture facilitates the development of the firm as a learning organization. A learning organization utilizes information gained through the activities of individual workers to develop policies and programs for better results. Toyota’s organizational culture highlights learning as a way of developing solutions to problems. In this way, the company is able to continuously improve processes and output with the support of its organizational culture. Quality is at the heart of Toyota’s organizational culture. The success of the company is typically attributed to its ability to provide high quality automobiles. To effectively integrate quality in its organizational culture, the firm uses Principle #5 of The Toyota Way, which says, “build a culture of stopping to fix problems, to get quality right the first time.” The Toyota Way is a set of principles that defines the business approaches used in Toyota’s organizational culture has a considerable degree of secrecy. However, the level of secrecy has declined in recent years following the reorganization of the company in 2013. Before 2013, information about problems encountered in the workplace must go through the firm’s headquarters in Toyota City, Japan. However, following the reorganization, the company’s organizational culture now does not emphasize secrecy as much. For example, problems encountered in US plants are now disseminated, analyzed, and solved within the North American business unit of Toyota. The characteristics of Toyota’s organizational culture enable the company to continue growing. Innovation is based on continuous improvement through learning. Quality improvement and problem-solving are achieved through the activities of work teams. However, the secrecy feature of Toyota’s

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organizational culture presents possible drawbacks because it reduces organizational flexibility in rapid problem-solving. Figure 7.2 shows a lean workshop conducted by the general manager and his lean team experts, Dr. Marc Helmold, in China.

References Fatma, P. (2015). The effect of organizational culture on implementing and sustaining lean processes. Journal of Manufacturing Technology Management, 26(5), 725–743. Helmold, M., & Samara, W. (2019). Progress in performance management. Industry insights and case studies on principles, application tools, and practice (Management for professionals). Heidelberg: Springer.

8

Global Supply Chain and Logistics

Most Business Processes Are 90 percent Waste and 10 percent Value-Added Work. Jeffrey Liker

8.1 Globalization and Global Supply Networks Global supply chains and supply networks cause problems due to their complexity and growing challenges. But it should also be emphasized that increasing requirements, response times, and risk protection contribute to the differentiation of companies and value-added networks (Dust 2009). Not only the own company but also its supplier networks are in constant competition in order to gain the favor of the customer. Value networks are competitive, global, and customer-relevant. They enable companies to provide services that are coordinated across the company, in which the individual partners focus on their core competencies, as Fig. 8.1 shows. The aim of a value-added network in supplier management (supplier network) is usually the realization of collaborative competitive advantages and the possibility of own specialization. Because each partner involved brings their specific core competencies into the network, the conflict of goals between a high degree of specialization on the one hand and a broader, more diverse range of services on the other can be resolved. In the network, the advantages of more flexible task distribution and capacity utilization at network level can be combined with specialization advantages at the level of the value-added units (economies of scale and economies of scope). This works all the better, the more the individual skills complement each other. Examples of a successful implementation of this idea are, e.g., production networks (Hofbauer et al. 2016), procurement networks or knowledge and competence networks. The hybridity of the network in comparison to the market and hierarchy is particularly evident from the forms of coordination used. In general, a

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Step

Place and Material

International Value-adding Activites and Processes

1.

Cotton from Texas (U.S.A.)

Transport by truck to texas and to Los Angles. Via vessel transport to China. Container transport. Transport inside China via truck

2.

Garment from China

Consolidation. Transport per vessel to China.

3.

Fasteners from Japan

Transport via plane from Japan Osaka to Malaysia.

4.

Jeans trousers from Malaysia

Packaging and consolidation. Transport to Hamburg in Germany.

5.

Final Product

Commissioning and distribution to Europe and in Germany.

Fig. 8.1  Globalized supply and value chains. (Source: Marc Helmold)

→ Competition of Supply Networks

Tier 1

Tier 2 Tier 2

Tier 3

Production Factory

Tier 2 Design

Fig. 8.2  Example of international trade and supply chains. (Source: Author’s source)

distinction is made between price, instruction, and trust, which are assigned to the institutions market, hierarchy, and network according to their focus of application. Figure 8.2 shows global competition and the international orientation of supplier networks. In this real example of the automotive industry, the spatially separate

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development and production take place in Germany. The development requires a cooperation between the two locations in southern and northern Germany. In this constellation, there are tier 1, 2, and 3 suppliers who each produce raw materials, components, or systems in their own production and provide them to the downstream level (tier 3 and tier 2 and tier 1). Raw material (e.g., steel) is supplied to the component supplier (tier 2) from China. The Tier-2 suppliers are located in the Arabian Peninsula and South America, from where components are sent to the Tier-1 system supplier. This supplier is located in Russia and delivers the systems to the German end customer (Slack et al. 1995). The system check and homologation take place at the supplier’s premises before the delivery. The supplier also has employees at the end customer who ensure a smooth process and the synchronization of the supply chain. Development and Tier-1 supplier collaborate in the product creation process of development (competitive development). This is how a global value chain works in a complex and international business world (Helmold & Terry 2017; Strohmer et al. 2020).

8.2 Supply Risk Prevention and Mitigation Supply disruptions are defined as “unplanned and unanticipated events that disrupt the normal flow of goods and materials within the supply chain.” They distinguish between coordination risks and disruption risks. Supply chain complexity is described by Adenso-Diaz et al. (2012) as “the sum of the total number of nodes and the total number of forward, backward and within-tier material flows” in the upstream supply chain network. Such complexity has a huge impact on supply chain reliability and supply chain stability. The overall recommendation made in several papers is to reduce the number of suppliers since supply chain complexity increases the risk of disruption. Adenso-Diaz et al. highlighted the definitions of various authors, using a variety of criteria: (1) function (Harland et al. 2003), (2) type of risk, (3) drivers of risks, and (4) likelihood of occurrence. While the literature on supply management and risk management is growing, there is no organized structure regarding the sources of causal factors for supply chain risks and supply disruptions. Several papers show that supply disruptions can lead to high monetary recovery cost, waste, and sharp decreases in sales as pointed out in one of the previous sections (Büsch 2019; Helmold and Terry 2017). As well as findings in literature other sources such as field research, internal reports, and interviews display, that supply disruptions have severe impacts on companies in the analyzed European transportation industry. Supply disruptions and their associated risks have been classified into the literature using a variety of criteria, e.g., function (Harland et al. 2003), type of risk, and drivers of risk. Hendricks and Singhal pointed out that enterprises without operational slack and redundancies in their supply chains experience negative stock effects. They also revealed the tremendous impacts of supply chain disruptions on stock price performance and shareholder value. Causal factors for supply disruptions are automatically associated with risks in the supply network, as stated by Zsidisin (2003). Expert in Supply and Procurement outline incidents in which supply disruptions caused

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production standstill or temporary stops in manufacturing companies in the European industry. Other authors refer to capacity management in terms of supply disruptions as being a crucial risk factor for supply chain discrepancies. Due to such risks, specific measures are necessary in terms of overcoming potential supply disruptions caused by supplier capacity shortages. Mitigations and preventive measures can take the form of diverse capacity management, back-up equipment, or alternative manufacturing locations, as recommended. It is useful to compare the supply chain strategies of companies and their resulting ability to cope with some of the abovementioned disruptions. Zsidisin (2003) created models which can be used by managers to measure and assess the vulnerability of their company and supply chain in relation to the associated risks. Typology may also provide avenues for future research and thus guide practitioners in the management of their supply chain risk portfolio. Such a classification is a useful tool for supply chain managers in differentiating between independent and dependent variables and the mutual relationships which would help them to focus on those key variables that are most important for effective risk minimization in a supply chain. Zsidisin typologized causal factors for supply disruptions into different categories—high, medium, and low risk—based on managerial perception (Zsidisin 2003). Other supply professionals besides Zsidian have built on this typology and outlined causal factors for supply disruptions as follows, which comprise the following risks (Kleemann and Glas 2020): –– capacity shortages –– new product launches –– disaster issues (e.g., earthquake, flood) –– lack of supply chain transparency –– labor-related issues (e.g., strike) –– constraints on market capacity –– pricing instabilities –– quality discrepancies –– transport issues –– product transfers to sites or plants –– inflexible production capacities

8.3 Method of Global Risk Evaluation Once a company has decided what it is going to evaluate, the next step is to establish how it will evaluate the performance of the supplier. There are many ways to do this and some are more costly, time-consuming, and resource intensive than others. By quantifying the level of risk and the projected benefit of a method of evaluation, company personnel can determine the most appropriate method or combination of methods that should be used. Some methods that companies commonly use to evaluate and measure supplier performance include: –– Site visits by cross-functional teams –– Supplier audits (process, special process, or product audits)

8.5  Glocal Supply Chains

–– –– –– –– –– –– –– –– –– ––

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Paper supplier questionnaires Web-based supplier questionnaires Organizing existing data Internal questionnaires Requiring external certifications Developing own certifications Third party reviews Phone call with a supplier Independent ratings Contacts with other supplier customers

8.4 Fair Trade Fair trade is a controlled trade in which the producers receive a minimum price for their products, which is determined by a fair trade organization. This is intended to enable producers to earn a higher and more reliable income than in conventional retail even at lower market prices. The amount of a fair price has been a topic of business ethics that has been discussed for decades. In addition, this form of trade tries to build long-term “partnership” relationships between traders and producers. In production, international environmental and social standards as well as those prescribed by the organizations should also be complied with. The very heterogeneous fair trade movement mainly focuses on goods that are exported from developing countries to industrialized countries. Fair trade encompasses agricultural products as well as products from traditional handicrafts and industry and is increasingly expanding into new areas such as tourism under the name “fair travel.” Fairly traded products are offered in natural food and world shops as well as in supermarkets and restaurants. According to the umbrella organization Fairtrade International, over 1.5 million farmers took part in such programs in 2015.

8.5 Glocal Supply Chains With rapid advances in communications and information technologies, manufacturers are now able to truly operate globally, source their raw materials where it is cheapest and most practical, and expand their customer base internationally. However, manufacturers must also adapt their offerings to local trends, predict which items will be in greater demand in a particular region and adjust their stocks accordingly (Helmold 2021). In today’s connectivity and information technology world, political, economic, and social relationships naturally tend to be global, interwoven, and interdependent. And that is exactly the fundamental characteristic of globalization. This term was first used in the 1980s in an economic context and since then has spread more and more and in other contexts.

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Globalization has brought numerous advantages for the manufacturing industry, such as the possibility of easy access to technical knowledge or the opportunity to learn from countries that are pioneers in areas such as automation and digitization. In addition, in a globalized world, it is easier to communicate with business partners in real time, no matter where they are. This is a clear advantage for business transactions and helps to build trust between business partners. However, one of the most controversial aspects of globalization is the risk of homogenization. In a globalized society, the same goods are often produced and sold in vastly different markets, with little attention paid to the preferences and habits of the different end customers. In the long run, this can have a negative impact on sales and prevent companies from really gaining a foothold in a particular region. That is why a new term has recently been circulating that shows that companies can act globally and still target the specifics of regional markets—welcome to the age of glocalization. The transition from globalization to glocalization was driven by several factors. First of all, the recent past has shown more and more clearly that failure to observe local market conditions can have a negative impact on business and lead to problems in ongoing operations and in the supply chain. The second reason for this transformation is the increased public awareness of the need to support the national and regional economies through the local procurement of raw materials, which can also help optimize the supply chain and reduce transport costs. But in fact, glocalization is not really a new concept because international corporations have always been forced to adapt their production to local demand. Automobile manufacturers have always had to adhere to specific regulations when diversifying their product range depending on the sales market—an obvious example of this is the side on which the steering wheel is installed and whether the speedometer shows miles or kilometers per hour. What is new is the influence that glocal business models have on supply chain management, as manufacturers strive to establish a supply chain that operates globally and yet adapts to local demand.

8.6 Case Study: Lidl’s Glocal Supply Strategy As part of the Schwarz group of companies based in Neckarsulm, the Lidl retail company is one of the leading companies in the food retail sector in Germany and Europe. Lidl is currently present in 32 countries and operates around 10,800 branches in 29 countries worldwide (Lidl 2020). In Germany, around 83,000 employees in around 3200 branches ensure customer satisfaction every day. Dynamic in daily implementation, high performance in the result and fairness in dealing with one another characterize the work at Lidl. Since 2008 the Lidl online shop offers non-­food products to various categories, wines, and spirits as well as travel and other services. The range of the Lidl online shop is constantly expanding and currently comprises around 30,000 items. As a discounter, Lidl attaches great importance to an optimal price-performance ratio for its customers. Simplicity and process orientation determine daily actions. Lidl takes responsibility for society and

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the environment and focuses on five areas of activity in the area of s​ ustainability: product range, employees, environment, society, and business partners. Lidl generated sales of EUR 81.2 billion in the 2018 financial year, of which EUR 22.7 billion Lidl Germany. Lidl Germany is one of the first grocery retailers to publish a list of the main suppliers for its food and non-food private label range on its website. The company is thus making a relevant contribution to greater transparency in its global supply chains. It lists independent manufacturers that Lidl commissions to manufacture its own brand products such as baked goods, beverages, cosmetics, cleaning agents, or hardware such as toys, sports equipment, or garden furniture. The list is updated regularly and supplements the main production sites in the supply chain published in 2017 for the textile and shoe range of Lidl’s own brands. “In our own brand range, we can work directly with the manufacturers to promote a more responsible production method. In order to know where and how our products are made, it is important to know our business partners as well as possible. At the same time, our customers want to learn more about how our products are made. We want to meet this wish, combined with our demand for more transparency,” says Jan Bock, Purchasing Manager at Lidl Germany.

8.6.1 Grocer with Regional and Global Supply Chains As one of the large grocery retailers, Lidl sources its goods from suppliers in the region and all over the world. The basis of every business relationship is the “Code of Conduct” prescribed by Lidl, which guarantees basic rights for employees along the supply chain. Lidl also places a special focus on the implementation of recognized minimum standards: Independent and local experts regularly check all production sites for Lidl non-food products in accordance with the recognized amfori Business Social Compliance Initiative (BSCI) or the international standards for social accountability (SA 8000) and systematically examine potential for improvement.

References Adenso-Diaz, B., Mena, C.H., Garcia, S., & Liechty, M. (2012). Supply Chain Management: The Impact of Supply Network Characteristics on Reliability. An International Journal, 17(3), 1–36. Büsch, M. (2019). Fahrplan zur Transformation des Einkaufs. Wiesbaden: Springer. Dust, R. (2009). Process and cost potentials through Total Supplier Management. A study of the degree of implementation and the contribution of supplier management to safeguarding competitiveness and corporate success. 11/2009, 1–35. Harland, C., Brenchley, R., & Walker, H. (2003). Risk in supply networks. Journal of Purchasing and Supply Management, 9(2), 51–62. Helmold, M. (2021). Kaizen, Lean Management und Digitalisierung. Mit den japanischen Konzepten Wettbewerbsvorteile für das Unternehmen erzielen. Wiesbaden: Springer. Helmold, M., & Terry, B. (2017). Global sourcing and supply management excellence in China. Procurement guide for supply experts. Singapore: Springer.

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Hofbauer, G., Mashhour, T., & Fischer, M. (2016). Wertschöpfungsmanagement: Die wertorientierte Gestaltung der Lieferbeziehung. DeGruyter Oldenbourg Berlin. Kleemann, F. C., & Glas, A. H. (2020). Einkauf 4.0. Wiesbaden: Springer. Lidl. (2020). Supply Chain Transparency. Working towards global Supply Chains. Retrieved 23.3.2021. https://corporate.lidl.co.uk/sustainability/human-rights/transparency. Slack, N. et al. (1995). Operations Management. Pitman Publishing London. Strohmer, M., Easton, S., Eisenhut, M., Epstein, E., Kromoser, R., Peterson, E., & Rizzon, E. (2020). Disruptive Procurement. Winning in a digital World. Heidelberg: Springer. Zsidisin, G. A. (2003). Managerial perceptions of supply risk. Journal of Supply Chain Management, 39(1), 14–25.

9

New Competencies and Skills in Operations and Supply

When you’re dying of thirst, it is too late to think about digging a well. Japanese say

9.1 Operations Managers as the Coordinator of Value-­ Adding Activities Business operations incorporate all the elements and activities that contribute to the company’s functions and profitability. Although the various factors that influence business operations differ from company to company, most organizational leaders consider the following when planning their operations: Processes: Business processes refer to the alignment of tasks, personnel and equipment to ensure an effective product or service delivery. Operations managers should design and document these processes separately for each department, so they can easily detect and resolve obstacles and streamline activities. This could, for example, entail eliminating duplicate work or replacing manual labor with a software program. Personnel: A company’s processes will determine the skill level and number of employees it requires. Whereas some companies may need a few highly skilled specialists, others may employ many team members to complete basic tasks. The quality and number of employees have a direct impact on the operations and profit margins of a company. For this reason, a company should have sufficient team members with the appropriate skill levels. Equipment and technology: The correct equipment or technology will increase the productivity and profitability of a company. A new machine, for instance, may produce parts faster, or a new internal tracking portal could enable departments to streamline processes.

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Location: The location of a business can have a major influence on operations and profitability, especially if it sells goods and services from a physical establishment. Decision-makers should consider key factors such as staff transportation, customer accessibility, rent, safety, and materials when deciding the business location. As companies evolve and change, managers should adapt efficient business processes. For instance, if a company is experiencing rapid growth, the manager would need to increase the number of staff, raw materials, packaging space, and similar resources. Business operations management is the optimization of all relevant resources, such as staff, materials, equipment, and technology, to achieve the most effective and efficient product or service delivery. This area handles the transformation of an array of inputs, such as human resources, facilities, and equipment into finished goods and services. Some of the key functions of operations management include the following:

9.1.1 Overseeing Processes The main function of operations management is to plan, organize, monitor, and optimize business processes within an organization. This involves the alignment of processes across various departments. For example, the installation of new software could improve communication between departments.

9.1.2 Minimizing Operational Costs Operations management ensures activities stay within a budget. This could include buying the most cost-effective materials, streamlining production processes, appointing the right staff, or investing in modern machinery and technology.

9.1.3 Developing Strategies An important aspect of operations management involves developing strategies to optimize resources. These strategies could include changes to supply chain configurations or organizing human resources to improve employee accessibility.

9.1.4 Product Design Operations management also involves ensuring products or services cater to market trends and customer needs. It is the responsibility of operations management to produce products that the company’s customers will want to purchase.

9.2 Competency Shift to the Innovative Supply Manager

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Operations managers handle a wide variety of business functions depending on the industry, including: –– Analyzing financial data and preparing operations budgets –– Making strategic decisions about project management methodologies –– Determining the structure of IT networks or the size of manufacturing plants –– Designing, implementing, and managing business operations –– Supporting sales and managing customer support –– Coordinating the production processes of different departments –– Managing the distribution of goods and providing technical support –– Working with senior management on strategic plans –– Supervising employees and teams –– Operations managers should be able to meet client demands and needs by staying current with industry trends, while also considering cost-effectiveness and the optimal utilization of resources As the duties of operations managers encompass such a large scope, these professionals need a number of key skills to navigate the multidisciplinary demands of the job, including: –– Leadership skills: To successfully coordinate processes between departments and motivate employees, an operations manager needs excellent leadership skills. –– Communication skills: Apart from ensuring that different departments work together effectively, an operations manager also facilitates communication between upper management and project development departments. An operations manager with good communication skills can effectively share information between parties and encourage teamwork. –– Analytical and problem-solving skills: Operations management requires the ability to understand multiple processes on a detailed level. It also requires finding solutions for challenges. Operations managers should be able to identify and implement more efficient techniques across a range of departments. –– Interpersonal skills: Most of the time, operations managers work with many different people involved in their companies, including sales and production employees, customers, project managers, human resources, and upper management. An operations manager should have excellent interpersonal skills to interact with everyone successfully.

9.2 Competency Shift to the Innovative Supply Manager 9.2.1 Supply Managers as Project Manager and Interface to Suppliers By focusing on their own core competencies and the steadily decreasing added value and the associated outsourcing to suppliers, many companies have understood that excellent supplier management is important for corporate success. Numerous companies have therefore set up supplier management in connection with strategic

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procurement. Due to these increasing requirements within the supply chain for strategic and global system, module or component suppliers, the area of responsibility for the supplier manager has also changed. As an internal and external person responsible, a supplier manager represents the central coordination point for the overall responsibility of the supplier companies, and this overall responsibility includes not only quality but also delivery and cost targets. He is responsible for regularly measuring supplier performance using suitable methods. Supplier managers advise suppliers holistically in terms of supplier promotion and work closely with suppliers at the interface between quality management, purchasing, production, and development and provide them with technical support in the implementation and optimization of qualitative and logistical processes. The activity as a supplier manager includes, e.g., collaboration in new product projects, start-up preparation, and close cooperation with production at international locations. Supplier managers work together with suppliers and are responsible for smooth production operations in series preparation and series delivery. You will also be responsible for planning and managing supplier support measures at home and abroad. In the event of malfunctions, LM is supported by the line departments, advanced quality planning, purchasing, production, and all relevant departments. Continuous further development of the processes and methods of the entire supplier quality management is a “must” for every supplier manager. He is also responsible for determining the suppliers in close cooperation with purchasing, quality, and the development department using analysis methods such as VDA 6.3 (process audit). A supplier manager must also be able to work cross-functionally and networked worldwide. A supplier manager knows how to deploy, control, and “direct” experts from a global network in the respective subprojects. He/she should have in-depth user knowledge in supplier and quality management. In numerous companies, supplier managers come from the lower or middle management levels of the specialist departments. The hard core competencies of a supplier manager are as follows: –– Well-founded training in the fields of business administration, engineering, or industrial engineering –– Relevant professional experience in supplier management in the respective industry –– Experience in conducting audits and supplier development measures –– Experience in international purchasing –– Knowledge of the product development process and understanding of technology –– Contract knowledge and skills to draft contracts and draw conclusions –– Knowledge of logistics, especially knowledge of lean supply chains, transportation, storage –– Financial knowledge, ability to assess the financial situation of suppliers –– IT skills and knowledge in the field of artificial intelligence –– Language and intercultural knowledge –– Methodical knowledge of quality management tools –– Experience in project management as well as in the field of lean manufacturing

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In addition to the current core requirements, a supplier manager must be methodically confident. Strong communication skills are required, especially when introducing or expanding the principles of lean production into the supply chain. Due to the need for coaching measures at suppliers, moderation skills must also be available. In addition to the core competencies, the following requirements are also essential: –– Experience in carrying out coaching measures –– Competence in managing virtual and international networks –– Analytical skills –– Knowledge of conflict management –– Cooperation and conflict resolution skills –– Assertiveness as well as high methodological competence –– High self-motivation –– Ability to lead virtual and interdisciplinary teams In addition to the above requirements, a supplier manager must also have knowledge of finance and other disciplines as part of a 360° analysis in order to perform his task holistically. The above-mentioned requirements show that the requirements profile and the tasks of the supplier manager have changed radically: from the pure “procurer” and “cost suppressor” to the “value maker” and “value designer.” Numerous companies train their supplier managers in their own academy. In many cases, the strategic buyers take on the function of supplier management, which means that there is no separate position. In the other companies, the so-called tandems, consisting of a strategic supplier manager from the quality department and a strategic buyer, are responsible for supplier management. Another example is supplier developers who are assigned to purchasing. Important interfaces here include manufacturing and quality as well as operational purchasing as a supporting function. The organizational assignment of supplier management is a question of the philosophy of each individual company. In some cases, purchasing is supported by an IT manager who takes on operational tasks, for example, data maintenance or the tracking of certificates. The requirements for an employee in supplier management differ from those for a strategic buyer, as a higher technical understanding is necessary. However, the responsibilities are distributed in the respective company areas, the responsibility for the introduction, and establishment lies with the purchasing department. General procedures in supplier management (e.g., the definition of processes) are usually determined by a team consisting of purchasing, quality management, and product development. Figure 9.1 divides the competencies of a supplier manager into personal, academic, technical, methodological, and other competencies.

9.2.2 Supply Managers as Single Point of Contact Supplier managers are sought-after specialists in the industry. They enforce compliance with high standards in the procurement of raw materials and supplies. Supplier managers work closely with the respective specialist departments and are the sole

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Visionary Intercultural Competencies Drive for Inititiaves Quality Management Flexibility

Agility

Additional

Resultsdriven

Competencies Methodical Competencies

Solutionoriented Projectmanagement

Lean Management Analysis Methods

Finance & Accounting Cost Analysis

Quality

Creativity

IT-Systems & Plattforms

Subject Competencies

LogisticsIndicators

Apprenticeship

Languages

Endurance

Sustainability

Academic

Contracts

Competencies Business, Studies Bus.-Engineering Bachelor, Master

Technology

Life-long Learning Motivation

Informatics

Control

Personal Competencies SelfConfidence

Courage & Trust Performance & Motivation

Fig. 9.1  Competencies in supply management. (Source: Author’s source, adapted from Helmold 2021)

contact for suppliers (Single Point of Contact, SPoC). A single point of contact in an organization is a central point of contact for one or more suppliers. Depending on the context, there are also similar terms for the SPoC concept such as single contact person or key account manager. They thus fulfill an important function as an interface to external value-added partners. They ensure that only flawless materials, services, and parts enter the production process. As a supplier manager, you will perform a variety of supplier management tasks. You are responsible for the planning and implementation of workshops, supplier audits, and potential analyzes. You are also responsible for the search, selection, selection and approval of new suppliers. In addition, you process supplier complaints and take part in negotiating quality assurance agreements. Communication with other specialist departments in the company is part of everyday working life. Supplier managers are the point of contact for all quality issues between suppliers and internal specialist departments. You

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always have a look at the process and product quality and coordinate the technical supplier development. –– Planning and implementation of supplier workshops –– Planning and implementation of supplier audits –– Potential analyzes across the supply chain –– Measures to improve supplier performance –– Supplier search, selection, selection and approval –– Initiation of necessary quality improvement measures –– Communication and coordination with internal specialist departments –– Training of employees in the purchasing and procurement departments –– Support with initial sample testing of new parts and with the start of series production –– Design of value chains in terms of speed, completeness, and cost

9.2.3 International and Intercultural Competencies Suppliers have changed into competing and complex value networks (Helmold 2020; Helmold et al. 2021). In sectors such as the automotive industry, mechanical engineering, the rail industry or aircraft construction, supply oligopolies for certain components have formed in specialized markets. The supplier networks are also operating more and more internationally. In addition to advancing digitalization and Industry 4.0, the goals of the new supplier managers focus on value creation and value-adding activities along the entire value chain. Contrary to the old concept of cost reduction and the reactive escalation of suppliers based on historical data, the new concept focuses on partnership and proactive measures for the continuous improvement of quality, costs, logistics, and technology in the focus of supplier management (Johnson et al. 2008).

9.2.4 Life-Long Learning and Training Further training and life-long learning bring know-how into the company, promotes innovative strength, productivity, and willingness as well as job satisfaction of the supplier managers. As a key role, it is therefore imperative that supplier management has a pioneering role in methods, processes, innovations, and other aspects. This has a positive impact on supply chains and productivity. But the external perception can also be improved through further training of the employees. In addition to purchasing-relevant competencies in supplier management, skills, and knowledge in other areas such as digitization, project management, conflict resolution skills, or quality tools are required. Figure 9.2 shows a competence matrix for supplier managers. The competence matrix shows with a black circle that all competencies have been fulfilled. Conversely, the circles that are not fully filled show where skills still need to be strengthened. The competence analysis should take place with the manager as part of the development plan and annual discussion (target agreement).

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Competency-Matrix Supply Management 4.0 Personal Competencies

Academic Competencies

Subject Competencies

MethodicalCompetencies

Additional Competencies

Supply Manager A Supply Manager B Supply Manager C Supply Manager D Supply Manager E Supply Manager F

Fig. 9.2  Competencies’ matrix

9.3 Case Study: Risk-Oriented Supply Management at Papenburg Shipyard The Meyer Werft in Papenburg convinced the jury of the Federal Association of Materials Management, Purchasing and Logistics (BME) and received the BME prize with a holistic, implemented concept for risk-oriented supplier management. When building cruise ships—with a procurement share of more than 75%—the shipyard installs more than 15 million individual parts per ship—800 suppliers and service providers have to be coordinated for each new building. A reliable and closely networked supplier base is the basic prerequisite for securing the family-run shipyard’s long-term location and operating successfully on the market. The reason for the conception and implementation of a new supplier management is the massive increase in the output volume of the shipyard group, which is based both on the increase in the number of annual ship deliveries and on the increasing ship sizes. In addition, there is the increasing complexity of the new buildings such as the LNG drive or innovative entertainment innovations, which require an intensive partnership with the suppliers throughout all implementation phases. The same applies to the long-term order book with a range up to the year 2023, which, in addition to the pleasing long-term capacity utilization, also has risks with regard to long-term security of supply and future construction costs. The supplier management concept was therefore drawn up with the integration of all interfaces of the departments in contact with the suppliers. For the first time, a completely risk-oriented approach was used, so that risk-averting measures can be defined in all phases of cooperation with the supplier base—both at the operational level and strategically depending on the procurement markets. Based on the existing supplier management, a systematic redesign was started in early 2017. A specially created department—located directly

References

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next to the management in purchasing—coordinates the implementation of the concept. The group-wide implementation of the overall concept has been taking place since spring 2018. “Our supplier network is responsible for 75 percent of the added value of our projects,” says Klaus Lübbers, Chief Procurement Officer and Executive Board Member of the shipyard. By realigning our risk-oriented supplier management, we are integrating this network more closely and optimizing our performance together. “Meyer Werft has to manage significant challenges almost at the same time, and not only within the scope of the traditional tasks,” explained Dr. Michael Nießen, member of the BME executive board and jury spokesman, made the decision. “A wow factor is expected for every ship, as a pioneering achievement in its own right. Since adherence to prices and deadlines is particularly decisive in determining the success and failure of a project, it is not only necessary to carefully plan the individual project steps, but also to provide alternative scenarios. Because 800 suppliers work in a very confined space, not only coordinating closely, but constantly having to develop ideas in order to keep prices and deadlines. Meyer Werft has positioned itself here in a risk-oriented manner. ‘Cycle-Pull-Flow’ is the guiding principle—and instead of discussions about savings, cost structure analyzes are in the foreground.”

References Helmold, M. (2020). Successful international negotiations. A practical guide for managing transactions and deals. Heidelberg: Springer. Helmold, M., et al. (2021). New work, transformational and virtual leadership. Lessons from COVID-19 and other crises. Cham: Springer. Johnson, G, Scholes, K, & Whittington, R. (2008). Exploring corporate strategy (8th ed., pp. 11–13, 224, 294). Harlow: FT Prentice Hall.

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Education is the most powerful weapon which you can use to change the world. Nelson Mandela (1918–2013)

10.1 Definition of Change Management Change management can be defined as the sum of tasks, measures, and activities that are intended to bring about a comprehensive, cross-departmental, and far-­ reaching change in an enterprise or organization. Change management includes the implementation of new a mission, vision, strategies, structures, systems, processes, and behaviors in an organization. The ultimate goal of change is to obtain a long-­term favorable position in the market and to gain a sustainable competitive advantage (Helmold 2020). Synonyms for change management found in literature are Business Process Reengineering, Turnaround Management, Transformation Management, Lean Management, Innovation Management, or Total Quality Management (Vahs 2019). Change is increasingly determining the everyday businesses and activities of companies. In order to manage change in the most optimal way, special change management techniques are required, which can be summarized under the term Change Management (Lauer 2019, 2020). The human factor is at the forefront of all considerations because the implementation of change depends on the active support of employees. Since everyone has their own needs, ideas, and experiences, some of which do not conform to the official company organization, there can be no simple recipe for how to successfully manage change. Rather, it is a complex process that has to start at three points: the organization and individuals concerned, the corporate

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_10

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Strategy

Culture

Mission, Vision, Corporate and Divisional Objectives

Values, Behaviour, Communication, Collaboration

Change Management

Organisation Leadership, Structures, Processes

Technology Systems, Methods, Routines, Instruments

Fig. 10.1  Elements of change management. (Source: Author’s source)

structures, and the corporate culture (Lauer 2019). Another important element in the context is the technological factor including systems, routines, methods, and instruments (Helmold and Samara 2019). Figure 10.1 summarizes the elements of change management.

10.2 External and Internal Reasons for Change The need for corporate change can be caused both externally and internally. Externally, companies face an increasingly dynamic environment that requires constant adjustment of their own structures if they want to be successful in sales and also in the preceding procurement markets. The external change is caused by the market environment, politics, technology, ecology, the overall economy or institutions, as well as in the markets themselves, for example, by increasing competition. To explain internal change, the metaphor of human development is used, which— like corporate development—is characterized by a succession of growth, crisis, and higher maturity. There are the so-called life cycle models for entrepreneurial change that exemplify the typical development phases. Change is often necessary, however, because companies are successful in exaggerating the offensive spirit of their efforts. Here too, the connection to the human psyche is established, and this phenomenon is analogously referred to as “burn-out.” Figure 10.2 outlines triggers for change from outside (exogeneous triggers) and inside of the organization (endogeneous triggers). Exogeneous triggers can be described as governmental requirements, new laws, regulations, economic impacts, competitive reasons, market developments, innovations, or the advice from consultants. Endogeneous triggers are caused by internal stakeholders, such as managers, employees, shareholders, banks, investors, or customers.

10.3  Change Management Concepts

Exogeneous Triggers for Change

• Governmental Reasons • Laws and Regulations • Economic Impacts • Competition • Market Developments • Innovations • Trends • Consultants

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Endogeneous Triggers for Change

• Management • Employees • Banks and Investors • Suppliers • Customers • Other Stakeholders • Production and Service Requirements

Fig. 10.2  Triggers for change. (Source: Author’s source)

10.3 Change Management Concepts 10.3.1 Change Management Concept of Kurt Lewin The Kurt Lewin’s model (unfreezing, changing, and refreezing) is widely accepted in psychology for implementing change. The implementation of change involves the current state of organization have to be changed into a desired state, but this will not occur quickly but simultaneously. Kurt Lewin’s Three Stages model or the Planned Approach to Organizational is one of the cornerstone models which is still relevant in the present scenario. Lewin, a social scientist and a physicist, during early 1950s propounded a simple framework for understanding the process of organizational change known as the Three-Stage Theory which he referred as Unfreeze, Change (Transition), and Freeze (Refreeze). According to Lewin, change for any individual or an organization is a complicated journey which may not be very simple and mostly involves several stages of transitions or misunderstandings before attaining the stage of equilibrium or stability. For explaining the process of organizational change, he used the analogy of how an ice block changes its shape to transform into a cone of ice through the process of unfreezing. Lewin’s model is shown in Fig. 10.3. –– Stage 1—Unfreezing: This is the first stage of transition and one of the most critical stages in the entire process of change management. It involves improving the readiness as well as the willingness of people to change by fostering a realization for moving from the existing comfort zone to a transformed situation. It involves making people aware of the need for change and improving their motivation for accepting the new ways of working for better results. During this stage, effective communication plays a vital role in getting the desired support and involvement of the people in the change process. –– Stage 2—Change: This stage can also be regarded as the stage of transition or the stage of actual implementation of change. It involves the acceptance of the new ways of doing things. This is the stage in which the people are unfrozen, and the

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3-Phase-Model by Kurt Lewin New Work Concepts Unfreezing • Prepare for New Work Concepts • Initiate necessary Changes • Run Analysis how effective Changes are • Lead Discussion with Employees and managers

Moving • Continue Changes • Name responsible People for Change Activities and Projects • Monitor the Process • Give Guidance on Changes

Freezing • Get accustomed to new Situation • Avoid Relapse: Create New Work Structure and System • Establish Balance • Keep Observations • Implement Deviations if necessary

Fig. 10.3  Elements of Kurt Lewin’s change management model. (Source: Author’s source)

actual change is implemented. During this stage, careful planning, effective communication, and encouraging the involvement of individuals for endorsing the change is necessary. It is believed that this stage of transition is not that easy due to the uncertainties or people are fearful of the consequences of adopting a change process. –– Stage 3—Freeze (Refreezing): During this stage, the people move from the stage of transition (change) to a much more stable state which we can regard as the state of equilibrium. The stage of refreezing is the ultimate stage in which people accept or internalize the new ways of working or change, accept it as a part of their life and establish new relationships. For strengthening and reinforcing the new behavior or changes in the way of working, the employees should be rewarded, recognized, and provided positive reinforcements, supporting policies or structures can help in reinforcing the transformed ways of working.

10.3.2 Change Management Curve of Elisabeth Kübler-Ross In 1969, Kübler-Ross described five stages of grief in her book “On Death And Dying.” These stages represent the normal range of feelings people experience when dealing with change in their lives or in the workplace. All change involves loss at some level. The “Five stages” model is used to understand how people react to change at different times (Kürbler-Ross and Kessler 2005). The stages were first observed as a human response to learning about terminal illness. They have also been used to understand our individual responses to all kinds of change. The five stages of grief Kübler-Ross observed and wrote about are: Denial, Anger, Confusion, Crisis, and Acceptance. The model has been extended by several scientists and change management experts with Re-Orientation and Integration (Helmold 2020) as shown in Fig.  10.4. The Change Curve is a popular and

Performance and Motivation

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7. Integration

Open and hidden Resistance

6. Re -Orientation

Rejection

Shock 1. Denial

2. Anger Frustration

5. Acceptance

3. Confusion

Valley of the Tears

4. Crisis

Time

Fig. 10.4  Change management curve. (Source: Author’s source, adopted from Kübler-Ross)

powerful model used to understand the stages of personal transition and organizational change. It helps you predict how people will react to change, so that you can help them make their own personal transitions and make sure that they have the help and support they need.

10.3.2.1 Step 1: Denial and Shock It is said that every change at the beginning is difficult. Change is a shock to people, as they have to get rid of standard and beloved habits and behaviors. Transformation and changes scare many employees, who ask questions like: –– What’s new for me? –– Where is my path going? –– Will I keep my job? –– Why do we need a change at all? –– Are there alternatives? –– What is the goal of the change? –– What does this change bring to me (the person concerned)? –– What does this change mean for me and my career? –– What do I need for this change? –– How and where will I be supported in this change and get help? Many questions come to mind of those affected. It is particularly important here for the company, undergoing a transition and transformation process, to have a clear and appropriate communication strategy. Fears and shock not only block productivity and creativity, in the worst case they can paralyze an entire company. Open, honest, and transparent communication via various channels can minimize anxiety and shock. Communication here is in no way limited to the intranet. Managers also

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have to pick up their employees and colleagues; in groups and one-on-one discussions, barriers can be reduced or prevented immediately before they arise.

10.3.2.2 Step 2: Anger If there was good communication, open and transparent reporting right at the start of the change, the anger and rejection factor will be optimally lower. However, the shock is transitioning to anger. In this phase change, managers hear repeatedly: • We have never done this before • I don’t want this • I don’t need it • It does not make sense • It is not good for me In this phase, companies often have a strong wind of rejection and resistance. According to change management experts, resistance can take place actively as well as passively, verbally, or nonverbally. Resistance refers to the activities and the action of individuals or groups who oppose something that should be agreed as an objective in the negotiation. Resistance can be shown in a visible and open way (open resistance) or in a more subtle and disclosed way (hidden resistance). Resistance in negotiations normally come from the negotiation opponents, but can also come from individuals or groups of the same negotiation side (Helmold et al. 2020). Resistance is a type of opposition and can be broken through analytically applying emotions or warning tactics. The most difficult problem is to identify signals of resistance, when the employees or people do not openly, formally, or informally convey their concerns and resistance. In such case, nonverbal analytical techniques help to identify signals of opposition (Helmold et  al. 2019). Resistance occurs verbally or nonverbally in negotiations in various forms, which in most cases is unaware of the persons involved. Negotiations through language (verbal) or gestures or facial expressions (nonverbal, i.e., behavior or facial expression) must be negotiated (Hilsenbeck 2004). Open Resistance Open resistance is characterized by the fact that it is deliberately exercised by opponents of the opposition and thus also connects a goal. Recognizing open resistance is relatively simple, as expressions and behaviors are openly visible: –– Open contradiction (e.g., “I disagree …”) –– Open rejection (e.g., “I cannot agree with your proposal …”) –– Open intervention (e.g., “I cannot accept your proposal, so I suggest that …”) –– Rejection by obvious shaking of the head –– Rejection by gestures with the poor or index fingers Normally, the reasons for open resistance have a rational cause, which can be discussed with those affected and whose overcoming all interested parties have an interest (Hilsenbeck 2004). This form of resistance is usually constructive, so that dealing with open resistance is possible. To break resistance or to refute and mitigate it with a facts-based argumentation can be a suitable strategy here. In this way, the energy which the resisting persons have invested in their resistance can be channeled in the sense of reaching the goals of the transformation, or in simple terms.

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Hidden Resistance Much more difficult is dealing with covert or hidden resistance. In this context, people, who are resisting, usually have no interest in being recognized (Hilsenbeck 2004). For personal or tactical reasons, they act out of the hidden or the second row. Their interests are mostly destructive, that is, they want to prevent something without being recognized as the causer. Paradoxically, in many cases, resisting parties are not even aware of their resistance. This makes the handling of this form of resistance even more difficult (Volk 2018). If the covert resistance is not recognized in time, the entire outcome of the transformation and change may be at stake. Signals for hidden resistance in transformation processes can be: • Comments and statements with limitations (e.g., “I understand your point of view, but …”) • The absence of important decision-makers (alpha types) or influencing persons (beta types) • The late appearance in change management meetings of important decision-­ makers (alpha types) or influencing persons (beta types) • The permanent postponement and of meeting and delay of tasks due to alleged scheduling difficulties • Nonverbal signals of resistance such as mental absence or disinterest. The demand for perfect solutions • The demand that we move as a negotiator first • The extensive and long consideration and discussion of relatively unimportant special cases • The general agreement with simultaneous registration of reservations, which should be clarified later Handling Resistance Resistance must be recognized in transformational processes, and it is important that managers determine and identify the motives of the resistance. With open and rational resistance, counterarguments and the reformulation of one’s own goals can lead to the refutation of the resistance and the achievement of a result. For questions that do not play a key role in the transition, managers can also ignore the resistance and respond to the employee’s demands or tackle them later. If the ram state is not resolvable, and this is at the core of the transition, there will probably be no bargaining success. Unconscious or hidden resistance is more difficult to recognize as the examples demonstrate: detect resistance, understand the resistance, weigh the resistance, and finally break resistance. It is advisable to listen to the resistance of the other side and to understand the motives (Volk 2018). A change agent can help by listening to the fear and concerns of the employees. For those employees, who are eventually not willing to follow the change, it is important to break resistance. Breaking resistance can be done via certain patterns like warning, making concessions, rationality, conviction by arguments, rational emotions, or appeal to mutual benefits. Warning means to have a facts-based signal (verbally or nonverbally) that the change and transformation will be pursued for the sake of the company. Without that change, the company may not succeed in the long term. A warning is factual

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Table 10.1 Recommendations for breaking resistance

•  Understand and recognition of resistance   Breaking resistance with factual arguments   Breaking resistance through warnings   Breaking resistance by concessions in unimportant areas •  When getting resistance, change place and make breaks •  When facing resistance deflection can help Source: Author’s source

and objective and should be phrased with good argumentation and clear message. In ultimate cases, it can be the dismissal of employees. Another way could be the granting of small and individual minor concessions to the negotiation opponent. When understanding the motives of employees, it could be possible to identify areas to give in that area of importance for employee. Deflection might also a be a way to break such resistance (Helmold et al. 2019). Table 10.1 gives recommendations how to handle resistance successfully.

10.3.2.3 Step 3: Confusion and Frustration The change curve is now going down dramatically steeply. After the rejection, those affected experience severe frustration and confusion. It descends rapidly downhill towards a state of a crisis, the valley of tears. At this point, many employees come to the point of rational acceptance. Employees resign to the situation, but still argue against it. Regardless of the change, a corresponding position from the management should be available in this stage. This should openly allow problems, fears, or simply frustration to be unloaded. A change agent can help employees to cope with the fears. In this way, the confusion and frustration can be bundled and quick solutions offered. It should be a trained change manager at least or a change expert or systemic consultant. The insight that the change also creates new opportunities and opportunities does not exist here yet. 10.3.2.4 Step 4: Crisis—Valley of the Tears From a purely rational perspective, employees already know and understand at this stage, that there is no way of return. The path the enterprise has taken is irreversible.

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At this stage, affected employees affected reach an emotional low. They gave everything, climbed the inner walls, were annoyed and fought so hard against the change, but they did not succeed. We all know the feeling when the knot opens and the light at the end of the tunnel becomes visible. Employees can now finally and emotionally accept the change in order to proceed with the transformation.

10.3.2.5 Step 5: Acceptance and Try-it-Out After the valley of tears, those employees affected are fresh and free. The mind is cleansed, the mindset opens for something new. The person concerned actively wants to see how and what is possible, what happens and where the journey is going. The first hesitant statements can be: –– Maybe there is something good –– My everyday life could improve –– It’s not as difficult as I thought! –– It does not look as bad as I thought –– I understand now the need for change In this stage, management should offer support to those affected in this phase through change agents and frequent meetings. It is now important to keep the employees encouraged in trying out, testing and playing with the new tools or systems. The more help is offered through all phases, the better, smoother and faster the transition will proceed. 10.3.2.6 Step 6: Reorientation After many test runs, trying out and reviewing the documents, those affected increasingly come to realize that it is time for a new start. Added value is actively recognized, the light at the end of the tunnel shows the first outline of the landscape. In this stage, managers can now go to the full integration. 10.3.2.7 Step 7: Integration In the last stage, the change has been integrated into the company. New tools, methodologies, or processes are a matter of course in everyday life. The question of “why” no longer arises. Those affected live and communicate added value openly. Formerly affected people become ambassadors and helpers for colleagues who are still in the midst of the change curve. These positive influences support the process and the working atmosphere.

10.3.3 Change Management Phase Model of Kotter Kotter analyzed that 70% of all change projects fail, most of them in the initial phase. This is the research result of John P. Kotter, an expert in the field of change management. Two factors are responsible for the low success rate: Not the technology, but the human being is the greatest obstacle to change. Based on this knowledge, Kotter developed the 8-step model in 1996. The theory shows eight phases of change management and gives managers tips on how to successfully drive change.

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1. Feeling and Situation of Urgency 2. Transformational Leadership Coalition 3. Mission, Vision and Strategic Objectives 4. Communication of Mission, Vision and Goals 5. Clearing of Obstacles and Roadblocks 6. Establishment of short-term Objectives and Success 7. Consolidation of short-& long-term Objectives 8. Integration of Change into Corporate Culture Fig. 10.5  Change management model by Cotter. (Source: Author’s source)

The focus of the model is communication—from person to person. The 8-step model by John P. Kotter is a further development of the popular 3-phase model by Kurt Lewin. According to the theory, changes in companies can only be successful if they go through all eight stages of change and are intensively accompanied by managers (Kotter 2012). The eight steps are outlined in Fig. 10.5. 1. Show urgency Raise awareness of the urgency of change among both managers and employees. For example, develop scenarios that could occur if there is no change. Discuss with your managers and employees and make strong arguments. 2. Build leadership coalition Build a good leadership team by getting trend-setting people for your idea and bringing them together under the flag of change. Make sure you have a good mix of people from different departments and with different skills. 3. Develop mission, vision, and strategy Wrap up a strong vision and concrete strategies with which you want to achieve the goal. Communicate this in a well-prepared and strong speech. An overarching goal for the company helps to implement change. 4. Communicate the mission, vision, and strategies Constant drip hollows the stone: Do not be afraid to communicate the vision to the managers and employees again and again. This creates trust and increases motivation. 5. Clear obstacles Are there structures in your company that slow down change? Take a close look at the status quo and get rid of unfavorable organizational structures, work processes, and routines.

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6. Make short-term successes visible Do not set goals that are too time-consuming and costly to begin with, but also define intermediate goals that can be reached quickly. Employees who achieve these goals should be rewarded. 7. Continue driving change After each goal is achieved, analyze what went well and what could have gone better. Always develop new ideas and goals and bring new employees to your management team. 8. Anchoring changes in the corporate culture Anchor the achieved goals firmly in your corporate culture. Only after this has been achieved can Kotter speak of a successful change management process. Since Kotter’s 8-phase model gives specific instructions for successful change management, it can serve you well in practice. Critics complain that Kotter’s model does not explain how to act in the event of setbacks and that initiatives by employees or the so-called bottom-up perspectives are ignored. However, like no other change management model, it shows the importance of good communication for sustainable change (Kotter 2012).

10.3.4 ADKAR Change Management Model The ADKAR change management model was created by Jeffery Hiatt in 1996. The change management concept is a bottom-up method which focuses on the individuals behind the change (Hiatt 2006). It is less of a sequential method and more of a set of goals to reach, with each goal making up a letter of the acronym. By focusing on achieving the following five goals, the ADKAR model can be used to effectively plan out change on both an individual and organizational level: • Awareness (of the need to change) • Desire (to participate and support the change) • Knowledge (on how to change) • Ability (to implement required skills and behaviors) • Reinforcement (to sustain the change) Hiatt sees the change of the individual as the basis for sustainable corporate success. The transformation of an entire company can only succeed through individual changes. Thus, the transformation can be understood as the sum of many small changes. A change is only successful when employees adopt new tools, techniques, and processes, fully implement them and maintain them in the long term. Then the ROI, the “Return on Investment,” can also be clearly displayed. When enterprises and its managers drive individual changes, the organization will also master organizational changes (Hiatt 2006). There is no need for complex, time-consuming methods, which are actually a science in themselves! As a change manager and change agent, companies need an easy-to-understand, simple, and comprehensive tool or method with which they can

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quickly identify gaps and barriers in the change process of the respective employee. Only then management will be able to lead and guide the employees through the change in a targeted manner (Hiatt 2006).

10.3.5 McKinsey 7S Model McKinsey 7S model is a tool (Fig. 10.6) that analyses firm’s organizational design by looking at seven key internal elements: strategy, structure, systems, shared values, style, staff and skills, in order to identify if they are effectively aligned and allow organization to achieve its objectives (McKinsey 2020). McKinsey 7S model was developed in 1980s by McKinsey consultants Tom Peters, Robert Waterman, and Julien Philips with a help from Richard Pascale and Anthony G. Athos. Since the introduction, the model has been widely used by academics and practitioners and remains one of the most popular strategic planning tools. It sought to present an emphasis on human resources (Soft S), rather than the traditional mass production tangibles of capital, infrastructure, and equipment, as a key to higher organizational performance. The goal of the model was to show how seven elements of the company, Structure, Strategy, Skills, Staff, Style, Systems, and Shared values, can be aligned together to achieve effectiveness in a company.

Strategy

Skills

Structure Subordinate Goals Shared Values

Style

Systems

Staff

Fig. 10.6 Change management communication. (Source: Author’s source, adopted from McKinsey)

References

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The key point of the model is that all the seven areas are interconnected and a change in one area requires change in the rest of a firm for it to function effectively. Figure 10.6 outlines the seven categories in the McKinsey model, which represents the connections between seven areas and divides them into “Soft Ss” and “Hard Ss.” The shape of the model emphasizes interconnectedness of the elements (Helmold 2020).

10.4 Case Study: Change Management in Nissan The three stages of Change Management of Kurt Lewin can be aptly explained through the aid of an example of Nissan Motor Company which was on the stage of bankruptcy due to the issues of high debts and dipping market share. During that period, Carlos Ghosn took charge as the head of the Japanese automaker who was faced with the challenge of implementing a radical change and turning around the operations of Nissan, yet by keeping the resistance to change under control which was inevitable under such circumstances by forming cross-functional teams to recommend a robust plan of change in different functional areas. For facing the business challenges, he developed a change management strategy and involved the employees in the process of change management through effective communication and reinforcement of desired behaviors. For refreezing the behavioral change of the employees, he introduced performance-based pay, implemented an open system of feedback for guiding and facilitating the employees in accepting the new behavior patterns at work.

References Helmold, M. (2020). Lean management and kaizen. Fundamentals from cases and examples in operations and supply chain management. Cham: Springer. Helmold, M., & Samara, W. (2019). Progress in performance management. Industry insights and case studies on principles, application tools, and practice. Heidelberg: Springer. Helmold, M., Dathe, T., & Hummel, F. (2019). Erfolgreiche Verhandlungen. Best-in-class Empfehlungen für den Verhandlungsdurchbruch. Wiesbaden: Springer. Helmold, M., Dathe, T., & Hummel, F. (2020). Successful international negotiations. A practical guide for managing transactions and deals. Cham: Springer. Hiatt, J. (2006). DKAR: A model for change in business, government and our community. New York: Prosci Learning Center Publications. Hilsenbeck, T. (2004). Verhandeln. Handbuch von Dr. Thomas Hilsenbeck. Retrieved May 30, 2018 from http://www.thomas-­hilsenbeck.de/wp-­content/uploads/Dr-­Th-­Hilsenbeck-­Handbuch-­ Verhandeln-­Vers-­5_0.pdf. Kotter, J. P. (2012). Leading change. Harvard: Harvard Business Press. Kübler-Ross, E., & Kessler, D. (2005). On grief and grieving: Finding the meaning of grief through the five stages of loss. New York: Scribner. Lauer, T. (2019). Change management. Der Weg zum Ziel. Wiesbaden: Springer. Lauer, T. (2020). Change management. Fundamentals and success factors. Cham: Springer.

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McKinsey. (2020). 7-S-Framework. Retrieved August 21, 2020 from https://www.mckinsey.com/business-­f unctions/strategy-­a nd-­c orporate-­f inance/our-­i nsights/enduring­ideas-­the-­7-­s-­framework. Vahs, D. (2019). Organisation: Ein Lehr- und Managementbuch. Stuttgart: Schäfer Poeschel. Volk, H. (2018, June). Emotionale Dynamik eines Gespräches verstehen. Was den alltäglichen Wortwechsel entgleiten lässt. In Beschaffung aktuell (pp. 70–71).

Lean Product Development

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The most dangerous waste is the waste we do not recognize. Shigeo Shingo (1909–1990)

11.1 Design for Lean Manufacturing Design for lean manufacturing is the process in the product development phase, in which lean principles will be applied in the design and product development phase. The term describes methods of design in lean manufacturing companies as part of the overall design strategy and Lean Management. Lean design utilizes methods such as process simulations or modeling tools for achieving the optimal design of a product or process in the most efficient way. Preserving value with less work can be accomplished through “lean” methods of design and problem-solving. Figure 11.1 shows the value chain with functions like bidding, product development, production, and after sales. The lean vision including design for manufacturing will allocate resources to the development phase in order to have a robust product and production process. The term frontloading is associated with this concept and will prevent from fire-fighting due to a better design. Design for lean manufacturing is a process for applying lean concepts to the design phase of a system, such as a complex product or process. The term describes methods of design in lean manufacturing companies as part of the study of Japanese industry by the Massachusetts Institute of Technology. At the time of the study, the Japanese automakers were outperforming the American counterparts in speed, resources used in design, and design quality. Conventional mass-production design focuses primarily on product functions and manufacturing costs; however, design for lean manufacturing systematically widens the design equation to include all factors that will determine a product’s success across its entire value stream and life

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_11

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140 Traditional Way Bidding

Product Development

Production

Lean VISION in Operations Management 4.0 AfterSales

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AfterSales

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Improve

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• Low process maturity and – low built in quality • High variation in business/operations processes • Firefighting instead of preventive actions

• Low variations in operational processes • High Customer satisfaction in total value chain • “Frontloading” – product & process maturity before Standard Operating Procedure

Fig. 11.1  Lean management in product development. (Source: Author’s source)

cycle. One goal is to reduce waste and maximize value, and other goals include improving the quality of the design and the reducing the time to achieve the final solution. The method has been used in architecture, healthcare, product development, processes design, information technology systems, and even to create lean business models. It relies on the definition and optimization of values coupled with the prevention of wastes before they enter the system. Design for lean manufacturing is system design.

11.2 Lean Management Concepts in Product Development 11.2.1 Case Study: Apple’s Design Strategy Lean is optimizing a process to preserve value with less work. Lean manufacturing is a management philosophy derived mostly from the Toyota Production System (TPS). Lean aims to eliminate waste in the entire value stream, by creating processes that need less human effort, less space, and less time to make products and services at lower cost; therefore, lean simply means creating more value for customers with fewer resources. However, how does this relate to Steve Jobs and iPod in particular or all Apple’s iDevices in general? Steve Jobs used lean in another way, instead of thinking of lean as a way of minimizing waste in the production process he looked at how to eliminate waste in the way the customer interacts with the iPod. For example, the volume up button could have different functions such as selecting a menu choice or taking a photo. This approach enabled Apple to produce mobile phones with just five buttons. Apple’s (or perhaps Steve Jobs) innovation is by focusing on customers and how to offer them products without the unnecessary extras from design stage until displayed in an outlet (Edson 2012).

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There is a fine line between valuing the lessons demonstrated by great leaders and slipping into a blind devotion that masks the inevitable flaws to be found in every human personality. Steve Jobs had more than his share of flaws, and he possessed more than his share of genius. Reading Walter Isaacson’s recent and excellent biography of Jobs I am struck by the intuitive sense of lean, of flow, of simplicity, that he demanded from both the aesthetics and the technical workings of every product. You would be hard pressed to find an executive with a better sense of the interaction between the social and the technical. When we think of lean our mind first goes to the workings of the Toyota factory. However, the principles of eliminating waste and achieving interruption free flow may be found at an even more profound level in the design of Apple’s breakthrough products and the intuition of Steve Jobs. Only 9% of Americans today work in manufacturing and we might do well to turn our attention to the application of lean principles to less obvious endeavors such as product design and the use of technology. From the design of the first Mac to the design of the iPad, Steve obsessed on their design. He understood what we wanted before we wanted it and that was his genius. We didn’t know we wanted GUI’s, an iPod or iPad, and even less did we think we would be attracted to a product by the elegance and simplicity of its packaging. He imagined the customer experience before we had experienced it. This is intuition, a Zen appreciation for the movement of the hand and eye and the imperative to eliminate distractions to allow the mind of the user to flow from the first thought to the engagement in the utility of the device. As usual Jobs pushed for the purest simplicity. That required determining what was the core essence of the device. The answer: the display screen. So the guiding principle was that everything they did had to defer to the screen. “How do we get out of the way so there aren’t a ton of features and buttons that distract from the display?” With the story of the development of each product it is easy to see why Jobs nearly drove those around him crazy. It was normal for him to walk around and look at the work of designers and engineers and immediately pronounce their work to be crap! And, a week later he would be gushing about the very same thing he labeled “crap” a week earlier. It was also normal that the work on the new product would be almost finalized, or finalized in the mind of others, and he would wake up in the middle of the night and realize why he was not comfortable with its design. The radius of the corners was wrong! Or, the ionized aluminum-casting wasn’t exactly right. He would stop everything and have the entire team working on the product go back and fix things based on his simple feel for the design. Inevitably, he would be proven right. And in every case, it was a matter of the flow, the movement of the eye and mind from one interaction with the product to the next. It was about “lean” although he would not have felt the need to label it as such. It wasn’t the lean of the factory, but the lean of the customer experience. It is doubtable that any CEO in the history of business has been as intimately involved in the design of breakthrough products. His contribution was not that of a traditional executive at all. It was total intimacy with the customer experience that was his contribution. The way lean is implemented in many companies; today, it is viewed as primarily a cost reduction tool. Eliminating work-in-process, reducing the need for space, and increasing output per employee are all the natural results of lean and all result in

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positive impact to the bottom line. Rarely was reducing costs the primary motivation behind Steve Jobs’ decisions. The decision to open retail stores provides a telling example. Jobs obsessively wanted to control the entire flow of work from the design of chips to software, to the design of the case, the screen, and the packing. This was the motivation for his decision to open Apple Stores. He and Ron Johnson spent many months designing the stores, developing prototypes, and obsessing on every detail. From a traditional retailing perspective, it made no sense. They didn’t have enough different products to fill a store. Most analysts thought it would be impossible to push enough product through the stores to justify the cost of the space. Gateway was failing miserably in their retail stores and Dell was selling direct to customers. But that is not how Jobs was thinking at all. He was thinking about the brand, the customer experience, the joy that the stores would create. Larry Ellison, the CEO of Oracle was a close friend and Steve repeatedly invited him over to walk through his prototype store. “On each visit Jobs prodded Ellison to figure out ways to streamline the process by eliminating some unnecessary step, such as handing over the credit card or printing a receipt. ‘If you look at the stores and the products, you will see Steve’s obsession with beauty and simplicity—this Bauhous aesthetic and wonderful minimalism, which goes all the way to the checkout process in the stores,’ said Ellison.” It means absolute minimum number of steps. Steve gave us the exact explicit recipe for how he wanted the checkout to work. That is lean thinking at its best. Most experts predicted failure. “Maybe it’s time Steve Jobs stopped thinking quite so differently,” Business week wrote in a story headlines “Sorry Steve, Here’s Why Apple Stores Won’t Work.” The retail consultant David Goldstein declared, “I give them two years before they’re turning out the lights on a very painful and expensive mistake.” Gateway’s stores were averaging 250 visitors per week. On May 19, 2001 the first Apple Store opened in Tyson’s Corner Mall, one of the most expensive retail properties in the country. By 2004 Apple stores were averaging 5400 visitors per week! That year they had $1.2 billion in revenue, setting a record in the retail industry. In July 2011, a decade after the first store was opened, there were 326 Apple stores. The average annual revenue was $34 million, and the net sales in 2010 were $9.8 billion. They were not only profitable, but they boosted the brand and reinforced everything else that Apple did. The development of Apple stores and Apple products demonstrated an aspect of lean thinking that is not understood by most lean practitioners. It is not simply about cutting costs. It is about creating value in the customer experience by optimizing flow. Many lean writers and practitioners have not been willing to step up to the plate and address the issues of organizational structure and systems. But, if you don’t you are not likely to be lean. The story of Sony’s lost opportunity and the development of the iPod proves the point. Sony had a music division and contracts with a large number of the most popular bands and artists. They were a dominant force in the music business. They had another division that had created the Walkman, a personal device to carry and play music. They had a computer division producing personal computers. They even had software to sell music online. And, at the time, they realized that Napster and other free music download websites were destroying the profitability of their

References

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business. It was out of control. Within the Sony brand they had every piece required to solve the problem. However, the three big and powerful divisions fought among themselves and could not collaborate to develop a solution. At Apple Computer, there was a leader who understood disruptive technology. It wouldn’t be unfair to call Steve Jobs the Crown Prince of disruptive technologies. At that time, Apple was merely a personal computer company. They produced no personal or portable devices. But, Jobs loved music. He understood that the personal computer could be the music hub. He personally led the charge to develop the iPod, and there were no warring divisions within Apple. Jobs personally met with music royalty including Bob Dylan, Bono, the head of Universal, Sony, and other music studios. He went to Japan and found the disc drive at Toshiba that could hold a 1000 tunes. He developed an end-to-end solution that met the needs of the artists, the music studios, his own company, and most important, the customers who loved music! He practically lived with Jony Ive, the chief designer, whose aesthetic sense of elegant simplicity for not only the device, but even the packaging, created a unique brand image and advantage. The combination of iTunes software for your computer, the iTunesstore, and the iPod, met the needs of all key stakeholders. It was a victory of seamless integration. It eliminated waste in every component of the music delivery process. It could only have been achieved by an organization devoid of silos and a leader who understood the advantage of a seamless experience by the end user. In every instance of product development and marketing, Steve Jobs understood and demonstrated how eliminating waste from the flow of work and the flow of the customer experience results in the creation of value. Perhaps more than any other executive in our lifetime he understood the interdependence of the human and technical factors in product development and in their use. This is the lean that needs more of our attention.

Reference Edson, J. (2012). Design like Apple: Seven principles for creating insanely great products, services, and experiences. Hoboke, New Jersey, USA.

Performance Management Cycle, KPI, and OKR

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Data is of course important in manufacturing, but I place the greatest emphasis on facts. Taiichi Ohno (1912–1990)

12.1 The Performance Management Cycle Lean management must be an integral part of any enterprise and organization. Performance improvements and permanent adjustments are important factors for the successful implementation of lean structures. Performance management therefore integrates a cycle from performance measurement and analysis (Plan), the performance action and implementation (Do), the performance management controlling (Check) and the performance improvements and adjustments (Act) as illustrated in the lean performance management cycle in Fig.  12.1. The figure shows the lean performance management cycle as an iterative and continuous process for the control and improvement of processes, products, or services. The original P-D-C-A four-step framework is also known as Deming circle. PM is a basic and efficient methodology. It portrays the administration of enterprises, processes, HR, divisions, and associations to ensure that objectives and destinations are being reached. The objectives and destinations are gotten from client’s desires which are the bases of the key mission and vision in an endeavor. Performance measurement and the administration must be executed over the whole value chain and applies to all functions and department. PM reaches from the upstream value chain over the operation to the downstream supply chain management. Performance management involves defining what effective performance looks like, as developing the tools and procedures necessary to measure performance. The overall goal of performance management is to ensure that the organization and all of its subsystems

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_12

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146 Tier 3

Tier 2

Tier 1

Tier 1

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Supplir Supplier Supplier Supplier Supplier Supplier

Supplier Supplier

Supplier

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Supplier

Services Operations

Products

Customer

Customer

Customer

Customer Customer

Customer Customer

Supplier

Value Chain or Supply Chain Management (SCM) Upstream Supply Chain Management or Supply Side

Downstream Supply Chain Management or Demand Side

Fig. 12.1  Performance excellence. (Source: Author’s source)

(processes, departments, teams, employees, etc.) are working together in an optimum fashion to achieve the results desired by the organization. Performance management (PM) can be done externally (e.g., measurement by customers, by shareholders or analysts, measurement of supply base) and internally (management of organization). PM must include the entire value chain and all elements including USCM, Operations, DSCM, and support functions like finance, logistics, human resources (HR), or information technology (IT). Purely financial PM is not successful, so that all stakeholders and functions have to integrate and collaborate in order to achieve the excellent performance. The key questions related to performance management are: –– What is performance management? –– Where do I measure performance? –– What do I measure? –– How can I measure performance? –– When do I measure performance? –– How can I improve the performance? Enterprises must aim for PM excellence. Permanent measurement and improvements are crucial activities by top management. Performance management is a significant activity and must be pursued by all departments in an enterprise. In addition, there are certain characteristics of PM that can be described as follows: 1. PM has to be executed over the entire value chain from the upstream over the operation to the downstream supply chain management. 2. PM is a structural and systemtic approach in enterprises and organizations. 3. PM must be coordinated and implemented by top management.

12.2 Performance Excellence in Operations and Supply

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Operations and Supply Management 4.0

Performance Adjustment and Improvements (Act)

Performance Measurement and Analysis (Plan)

Performance Controlling and Management (Check)

Performance Action and Implementation (Do)

Fig. 12.2  Performance management across the value chain. (Source: Author)

4. PM deals with enterprises, processes, employees, departments, and organizations. 5. PM is using tools, mechanics, and procedures necessary to measure performance (BSC, Audits or EFQM). 6. PM goals and objectives to perform efficiently and effectively. 7. PM goals are relevant to customer and stakeholder expectations. 8. PM goals and objectives are derived from customer’s (and stakeholder) expectations which are the bases of the strategic mission and vision. 9. PM uses qualitative and quantitative measurables and key performance indicators (KPI). 10. PM strives for excellence and permanent improvements (Fig. 12.2).

12.2 Performance Excellence in Operations and Supply Performance excellence can be defined as achieving and maintaining outstanding and superior levels of performance that meet and exceed the expectations of the stakeholders (Helmold et al. 2019). There is a huge number of stakeholders for any business or enterprise and to be assessed as excellent these enterprises have to be achieving an outstanding level of performance for all of their different stakeholders; employees, customers, shareholders, owners, the wider community. To achieve sustained and superior levels of excellence, it is mandatory for enterprises and

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organizations to permanently assess the situation and to strive for improvement by initiating continuous improvement programs like the Toyota production system or excellence models. Excellence model allows the management of enterprises and organizations to understand the cause-and-effect relationships between what their organization does (actual performance), the enablers, and the results it achieves in comparison to set objectives (plan). The model comprises three integrated components. Fundamental excellence concepts underlie principles that form the foundation for achieving sustainable excellence in any organization. These principles can be described as: –– Adding value for customers –– Creating a sustainable future –– Harnessing creativity and innovation –– Managing with agility –– Developing organizational capability –– Leading with vision, inspiration, and integrity –– Succeeding through the talent of people –– Sustaining outstanding results The goal of any excellence initiative and program must therefore be to achieve world-class excellence as illustrated in Fig. 12.3. The system, developed by Dr. Marc Helmold, is similar to the German school grading system (1 = very good, 5 = failed). Companies usually start as the so-called laggards (Level 5). A laggard can be defined as organization that falls behind similar companies in the same industry. The next level is a “standard” performance (Level 4). Standard means in this context that enterprises have an average performance level in a certain sector. The next level is “expert” (maturity) in performance including some best practices (Level 3). After the maturity organizations will achieve the “best practice leader” (industry excellence) (Level 2) level. In this level, performance is outstanding within the industry. The last Operations and Supply Management 4.0 World Excellence Leader

Expert (Maturity)

Best Practice Leader Industry Excellence)

Standard User Starter (Awareness) Laggard

Fig. 12.3  Performance management excellence ranking. (Source: Author’s own figure)

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and highest level is the world class excellence level, in which organizations are benchmarks in terms of excellence on a global scale (Level 1).

12.3 Key Performance Indicators (KPI) Key performance indicators (KPI) are a set of quantifiable measures that a company uses to gauge its performance over time. These metrics are used to determine a company’s progress in achieving its strategic and operational goals, and also to compare a company’s finances and performance against other businesses within its industry. A key performance indicator (KPI) is a measure of your performance against key business objectives. High-level KPIs may focus on the overall performance of the enterprise, while low-level KPIs may focus on processes or employees in departments such as sales, marketing, or a call center.

12.4 Objective Key Results (OKR) The OKR system is a performance tool that sets, communicates, and monitors goals in an organization so that all employees work together in one direction. The development of OKRs is generally attributed to Andy Grove the “Father of OKRs,” who introduced the approach to Intel during his tenure there and documented this in his 1983 book “High output management.” Objectives and Key Results (OKR) is a popular leadership process for setting, communicating, and monitoring quarterly goals and results in organizations. The goal of OKRs is to connect company, team, and personal objectives in a hierarchical way to measurable results, making all employees work together in one unified direction. By using the SMART-objective methodology. OKRs consist of a list of three to five high-level objectives. Under each objective then usually three to five key measurable results are listed. Each key result has a progress indicator or score of 0–100% or 0–1.0 that shows its achievement. The advantages can be outlined as follows: Goal focused company alignment: align with your leadership team on top priorities and highest leverage activities each quarter Fit objectives into company vision, mission, and values to motivate your company with purpose Visibility into company, department and individual progress, wins, and road blocked areas KPIs are important for the plant floor because they are highly effective for exposing, quantifying, and visualizing muda (the Lean term for waste); and they are also highly effective motivators. The essence of lean manufacturing and the central theme of the Toyota Production System are to eliminate waste—to relentlessly eliminate all activities that do not add value for your customer. Effective KPIs quantify waste provide an early warning system for processes operating outside the norm and offer important hints to where improvement efforts should be focused.

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KPIs also function as very effective motivators. Motivation theory is a complex field with many diverse opinions. However, there is wide agreement that a central key to effective motivation is setting challenging but attainable goals (e.g., SMART goals, which are Specific, Measurable, Achievable, Realistic, and Time-specific). SMART goals are ideal candidates for plant floor KPIs. For example, a manufacturing plant with semi-automated processes introduced real-time visual KPIs as a means of motivating their operators. One of their engineers mistakenly set the expected run rate for a cell at 180 pieces per minute instead of the normal 140 pieces per minute. Hours later the engineer returned and was astonished to find the cell averaging 178 pieces per minute. Visual KPIs had motivated the operators to greatly exceed what the process engineers had thought was possible. There is a connection between the two real-time KPI perspectives: the lean manufacturing perspective of eliminating waste and the corporate perspective of achieving strategic goals. They are connected through waste. From a broad lean perspective, the seven major forms of waste in the manufacturing process include the TIMWOOD model. The model shows how objectives can be defined: • Transport: Distance, Time • Inventory: Money, Quantity • Motion: Time • Waiting: Time, Number of Operators waiting, Place of Waiting • Overproduction: Number of Goods, Money for overproduced Goods, Employees involved • Overprocessing: Employees involved • Defects: Number of Defects, Money (Loss Cost)

12.5 Case Study: Microsoft’s Strategy and Objectives Fiscal year 2019 was a record-breaking year for Microsoft. The achieved more than $125 billion in revenues and $43 billion in operating income and more than $50 billion in operating cash flow (Microsoft 2019) The enterprise returned more than $30 billion to its shareholders. The commercial cloud business is the largest in the world, surpassing $38 billion in revenue for the year, with gross margin expanding to 63%. Consumers, students, teachers, and more than 2 billion first line workers around the world are using Microsoft products. The mission statement to empower every person and every organization on the planet to achieve more is one of the key elements in the strategy of Microsoft. Microsoft IT platforms and tools enable small businesses to be more productive, multinationals to be more competitive, nonprofit organizations to be more effective, and governments to be more efficient. At present, Microsoft is a technology company, and every organization will increasingly need to build its own proprietary technology solutions to compete and grow. The organization embraces this approach to adopt best-in-class software and services but also build their own digital capability. Computing is becoming embedded in the

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world, in every place and everything. This era of the intelligent cloud and intelligent edge is shaping the next phase of innovation, powering intelligent systems, and experiences that previously would have been unimaginable, and transforming nearly everything around us. Across Microsoft’s businesses, we are innovating to empower our customers, and investing in large and growing markets to help them digitally transform.

12.5.1 Applications and Infrastructure In a world where every company is a digital company, developers will play an increasingly vital role in value creation and growth across every industry, and GitHub is their home. Since the acquisition of GitHub last fall, growth has accelerated. Today it is used by more than 40 million developers, including those who work at the majority of the Fortune 50. Microsoft is building Azure as the world’s computer, addressing customers’ real-world operational sovereignty and regulatory needs. Today, 95% of the Fortune 500 trust Azure for their mission-critical workloads.

12.5.2 Data and AI The variety, velocity, and volume of data is increasing—with 50 billion connected devices coming online by 2030, more than double the number today—and Azure is the only cloud with limitless data and analytics capabilities across our customers’ entire data estate. We brought hyperscale capabilities to our relational database services for the first time this year, and we offer the most comprehensive cloud analytics—from Azure Data Factory to Azure SQL Data Warehouse to Power BI.  The quintessential characteristic for every application going forward will be AI, and we believe it cannot be the exclusive province of a few companies or countries. That’s why we are democratizing AI infrastructure, tools, and services with Azure Cognitive Services, so any developer can embed the ability to see, hear, respond, translate, reason, and more into their applications. Azure Cognitive Services is the most comprehensive portfolio of AI tools available, and this year, we added new speech-to-text, search, vision, and decision capabilities, as well as updates to Azure Machine Learning to streamline the building, training, and deployment of machine learning models.

12.5.3 Business Applications Dynamics 365 uniquely enables any organization to create digital feedback loops that take data from one system and use it to optimize the outcomes of another, enabling any business to become AI-first. This year, we introduced Dynamics 365 AI, a new class of AI application built for an era where systems of record and

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engagement are converted into intelligence. And the Open Data Initiative we launched with Adobe and SAP last fall takes this even further, delivering on our vision to enable data to be exchanged and enriched across systems to provide unparalleled business insight. Microsoft is enabling our customers to digitize not only their business processes but to bridge the physical and digital worlds with our investments in mixed-reality cloud. The new HoloLens 2 is the most advanced, intelligent edge device available, offering two times the field of view and three times the comfort as the previous version. And, together with Dynamics 365 and new Azure mixed-reality services, it enables organizations to digitize physical spaces and interactions and empower their first line employees with the right information at the right time, in the context of their work. LinkedIn now has more than 645 million members and is the most comprehensive solution for every organization to manage and engage their most important resource—their talent. Our Talent portfolio—from Talent Solutions and Talent Insights, to employee engagement with Glint and LinkedIn Learning—enables every organization to attract, retain, and develop the best talent in an increasingly competitive jobs market.

12.5.4 Modern Workplace Microsoft 365 empowers everyone—enterprises, small businesses, and first line workers—with an integrated, secure experience that transcends any one device. We are helping every business build out their system of communication and collaboration to drive their productivity as well as their business transformation. We are infusing AI across Microsoft 365 to enable new automation, prediction, translation, and insights capabilities. Meetings are more inclusive in Microsoft Teams, presentations more accessible in PowerPoint, videos more searchable in Stream, and emails more relevant in Outlook. And with Workplace Analytics and Microsoft Search, we distill knowledge and insights from data to help people work smarter, not longer. Office 365 Commercial has 180 million users. Our EMS install base exceeded 100 million. And the Outlook apps on iOS and Android also surpassed more than 100 million users for the first time. Microsoft Teams had a breakout year with more than 13 million daily active users and 19 million.

12.5.5 Gaming In gaming, Microsoft is pursuing our expansive opportunity to transform how games are distributed, played, and viewed. Our new breakthrough game streaming technology, Project xCloud, will enter public trials this fall. It will put gamers at the center of their gaming experience, enabling them to play games in high-fidelity wherever and whenever they want, on any device.

12.5 Case Study: Microsoft’s Strategy and Objectives

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Microsoft Game Stack brings together our tools and services to empower game developers—from independent creators to the biggest game studios—to build, operate, and scale cloud-first games across mobile, PC, and console. Our growing Xbox Live community is key to our approach, and for the first time we are enabling developers to reach these highly engaged gamers on iOS and Android. Finally, we increased our first-party game studios to 15 this year to deliver differentiated content for our fast-growing subscription services like Xbox Game Pass, which is now available on both console and PC.

12.5.6 CSR Beyond these three pillars, we are working to foster a sustainable future where everyone has access to the benefits and opportunities created by technology. As a reflection of the importance, we place on advancing environmental and social progress, Microsoft’s board of directors has a Regulatory and Public Policy Committee that works together with me, my leadership team, and others across Microsoft to oversee our commitments to environmental sustainability and corporate social responsibility. No single company is going to solve macro challenges like climate change alone, but as a global technology company, we are well-positioned to enable and accelerate digital transformations that lead to a low-carbon future. That is why we are stepping up our commitment. Over the past year, we expanded our work through our operations, investments, partnerships, and advocacy across initiatives spanning both environmental and social responsibility. We continue to operate carbon neutral across our worldwide operations, driven by an internal carbon tax, as we have every year since 2012. And we’ve taken new steps over the past year to align our carbon-reduction efforts with the latest climate science by setting a goal to reduce our operational emissions by 75% by 2030, which puts us on a path to exceed the ambitions of the Paris Accord two decades ahead of schedule. This year, we raised our carbon fee to $15 per metric ton, a near doubling of the previous fee, to put sustainability at the core of every part of our business. We’re also extending our carbon reduction targets beyond our own operations. We will cut carbon emissions by 30% across our global supply chain by 2030. And in October, we extended our carbon-neutrality commitment to our products and devices with a pilot to make 825,000 Xbox consoles carbon neutral. We are committed to ensuring our datacenters are among the most sustainable in the world. By the end of this year, we will achieve our target of powering our datacenters with 60% renewable energy and will aim to reach 70% renewable energy within the next 4 years. In fact, when I was in Sweden this spring, we announced our plans to build some of the most advanced and sustainable datacenters to date, powered from 100% renewable energy and with zero-waste operations. And, we are also working with our customers and partners to help them use technology to reduce their own environmental footprints and create their own solutions for a more sustainable planet. Our AI for Earth program, as an example, has expanded access to massive environmental data sets that can help others generate

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valuable insights about the health of our planet, including the conditions of our air, water, land, and the well-being of our wildlife. And it supports organizations that are applying AI to environmental challenges, by helping them harness the full power of cloud computing. We are working with organizations around the world to enable young people— including those who identify as female and under-represented minorities—with the digital skills required for the future. For example, we are the largest funder of Code. org, which teaches coding skills and reaches students in almost every country. We know that there is a broadband gap, and that s why, in the United States, our Airband program is using a mixed-technology approach, including TV whitespaces, to connect 3 million people living in unserved rural areas to broadband by 2022. And we are working in more than 20 countries, harnessing this same technology to bring broadband to rural communities elsewhere. We also know that access to affordable housing is a significant barrier for many, and this year, we launched a major initiative to expand housing options for people who work in the Puget Sound region where we are headquartered. We believe that everyone should be able to choose to live in the community where they work, not just our employees and business partners, but all those who serve the broader community, from teachers and small-business owners, to first responders and medical practitioners. That is why we are putting $500 million to work in loans and grants to accelerate the construction of more affordable housing in the region. Finally, more broadly, we have expanded our support for the nonprofit sector. We work closely with nonprofit organizations to help them accelerate their organizational transformation with technology, and, in fiscal 2019, Microsoft donated or provided discounted software and services worth more than $1.5 billion via Microsoft Philanthropies. Our employees generously donated an additional $170 million (including company match) through our employee giving program to support nonprofits in local communities around the world.

References Helmold, M., Dathe, T., & Hummel, F. (2019). Erfolgreiche Verhandlungen—Best-in-class Empfehlungen für den Verhandlungsdurchbruch. Wiesbaden: Springer. Microsoft. (2019). Retrieved from www.microsoft.com.

Sustainability Management and Social Responsibility

13

It takes 20 years to build a reputation and five minutes to ruin it. Benjamin Franklin (1706–1790)

13.1 CSR and Lean Management Corporate social responsibility (CSR) is also known by a number of other names. These include corporate responsibility, corporate accountability, corporate ethics, corporate citizenship or stewardship, business ethics, responsible entrepreneurship, and triple bottom line, to name just a few. As CSR issues become increasingly integrated into modern business practices, there is a trend towards referring to it as “responsible competitiveness” or “corporate sustainability.” CSR is understood to be the way firms integrate social, environmental, and economic concerns into their values, culture, decision-making, strategy and operations in a transparent and accountable manner, and thereby establish better practices within the firm, create wealth and improve society. A key point to note is that CSR is an evolving concept that currently does not have a universally accepted definition. Generally, CSR is understood to be the way firms integrate social, environmental, and economic concerns into their values, culture, decision-making, strategy, and operations in a transparent and accountable manner and thereby establish better practices within the firm, create wealth, and improve society. As issues of sustainable development become more important, the question of how the business sector addresses them is also becoming an element of CSR. The World Business Council for Sustainable Development has described CSR as the business contribution to sustainable economic development. Building on a base of compliance with legislation and regulations, CSR typically includes “beyond law” commitments and activities pertaining to:

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3_13

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• • • • • • • • • • • • • •

corporate governance and ethics health and safety environmental stewardship human rights (including core labor rights) sustainable development conditions of work (including safety and health, hours of work, wages) industrial relations community involvement, development, and investment involvement of and respect for diverse cultures and disadvantaged peoples corporate philanthropy and employee volunteering customer satisfaction and adherence to principles of fair competition anti-bribery and anti-corruption measures accountability, transparency, and performance reporting supplier relations, for both domestic and international supply chains Lean manufacturing concepts focus primarily on improvements of the operational processes and efficiency. Another goal is to reduce waste and thus to reduce operating costs. In the last years, sustainability has become more and more important, so that any organization must deploy sustainability elements alongside a lean organization. Sustainability or Corporate Social Responsibility (CSR) has the following elements as shown in Fig. 13.1. The figure shows that there is a strong need to align the lean implementation process with the sustainability strategy in order to avoid the negative impacts that lean production could have on the environmental and social components of sustainability. Although the concept of corporate social responsibility (CSR) has been advocated for decades and is commonly employed by

Fig. 13.1  CSR maturity levels (Helmold and Samara 2019)

13.3 Global Compact Principles

157

corporations globally, agreement on how CSR should be defined and implemented remains a contentious debate among academia, businesses, and society. This gap is problematic for corporations because they are increasingly being required to align with societal norms while generating financial returns. In order to remedy this problem, the following definition is presented: corporate social responsibility is a business system that enables the production and distribution of wealth for the betterment of its stakeholders through the implementation and integration of ethical systems and sustainable management practices. Many of the concepts in the proposed definition are commonplace among CSR practitioners and organizations, the validations for the key segments—production and distribution of wealth, stakeholder management, ethical systems, sustainable management practices—coupled with the application of a systems approach and other business practices make the definition unique and conclusive.

13.2 CSR Maturity Levels Maturity is a measurement of the ability of an organization for continuous improvement in CSR as shown in Fig. 13.1. The higher the maturity, the higher will be the chances that incidents or errors will lead to improvements either in the quality or in the use of the resources of the discipline as implemented by the organization.

13.3 Global Compact Principles Corporate sustainability starts with a company’s value system and a principles-­ based approach to doing business. This means operating in ways that, at a minimum, meet fundamental responsibilities in the areas of human rights, labor, environment, and anti-corruption. Responsible businesses enact the same values and principles wherever they have a presence, and know that good practices in one area do not offset harm in another. By incorporating the ten principles of the UN Global Compact into strategies, policies, and procedures, and establishing a culture of integrity, companies are not only upholding their basic responsibilities to people and planet, but also setting the stage for long-term success. The UN Global Compact is a principle-based framework for businesses, stating ten principles in the areas of human rights, labor, environment, and anti-corruption. Under the Global Compact, companies are brought together with UN agencies, labor groups, and civil society. The framework provides a universal language for corporate responsibility and a framework to guide all businesses regardless of size, complexity, or location. Joining the UN Global Compact means to take an important, public step to transform our world through principled business. Participation makes a statement about values, and it benefits both society and companies’ long-term success. Corporate sustainability starts with a company’s value system and a principled approach to doing business. This means operating in ways that, at a minimum, meet fundamental responsibilities in the areas of human rights, labor, environment, and

13  Sustainability Management and Social Responsibility

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Leading Mature Established Improving Basic

Fig. 13.2  Global compact principles. (Source: United Nations)

anti-corruption. Responsible businesses enact the same values and principles wherever they have a presence, and know that good practices in one area do not offset harm in another. By incorporating the Global Compact principles into strategies, policies, and procedures, and establishing a culture of integrity, companies are not only upholding their basic responsibilities to people and planet, but also setting the stage for long-term success (Fig. 13.2).

13.4 Case Study: Volkswagen’s Lean and Green Award The Volkswagen Wolfsburg plant receives the “Lean & Green Management Award 2019” in the “Automotive OEM” category for its efficient and sustainable production. More than 250 works from more than 10 countries and 20 different industries participated in the competition. “We are proud that our persistent work has been successful in saving resources and that we have been awarded the prestigious ‘Lean & Green Management Award’ for this,” said Stefan Loth, Head of Volkswagen’s Wolfsburg plant. “At the Wolfsburg location, we prove that efficient vehicle production while at the same time conserving resources is not only possible, but makes sense. Because the production also carries an ecological responsibility. The deliberate use of raw materials and energy plays a key role in our environmental commitment. In terms of production efficiency, Volkswagen’s parent plant focuses on its “PQM” strategy—productivity, quality, and crew”. Every year more than 400 workshops take place, with which the Wolfsburg workforce improves the processes and thus reduces the production costs per vehicle. The plant consistently uses the Volkswagen Production system that describes the basics, standards, and methods by which the manufacturing processes are designed, executed, and constantly developed. The Volkswagen parent plant is also on course for sustainability and the implementation of the “Zero Impact Factory” environmental program. An important building block for protecting the environment and promoting biodiversity are, for example, the process water basins located on the plant site. Thanks to the internal operating water cycle, every drop of water passes through the site about four to six times, helping to keep water consumption per vehicle very low. The “Lean & Green Management Award” is awarded annually by the consultants Growth Consulting Europe and Quadriga Consult and the trade publication AUTOMOBIL

Reference

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Fig. 13.3  Volkswagen Lean and Green Award 2019. (Source: Volkswagen)

INDUSTRIE. The award was recently ranked as one of the highest rated sustainability awards in Germany in a study by the University of Hohenheim (Fig. 13.3).

Reference Helmold, M., & Samara, W. (2019). Progress in performance management. Industry insights and case studies on principles, application tools, and practice. Heidelberg: Springer.

Audits and Quality Management Systems (QMS)

14

There are two kinds of people, those who do the work and those who take the credit. Try to be in the first group; there is less competition there. Indira Gandhi (1917–1984)

14.1 Lean Audits 14.1.1 Audit Types Audits can be described as a systematic and structured performance evaluation and assessment of a system, process, or product or any other area by internal or external auditors. The aim of an audit is to evaluate and approve or disapprove the assessed area by standardized criteria and questions, to define areas for actions, and to ensure the sustainable implementation of the actions and improvement areas. Assessment criteria in audits are based on customer and stakeholder expectations. Audits can be clustered in systems, process, product, control, and special audits as shown in Table 14.1. Lean audits are conducted to determine if the business is properly implementing and lean management methodologies are implemented into the company and value chain (Helmold and Terry 2016). This is achieved by a detailed 360° analysis how lean processes with a goal towards recognizing opportunities to improve processes and to eliminate waste.

14.1.2 Quality Management Systems (QMS) A Quality Management System (QMS) describes in enterprises and organizations the management function and all organizational activities, which serve the

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Table 14.1  Audit types Audit type Description Systems Evaluation of the quality management system of organizations by external audit certification agencies (TÜV, DEKRA). Examples: DIN EN ISO 9001:2015, TS 16949, International Railway Industry Standard (IRIS) or IATF 16949 Process Evaluation of a (manufacturing or service) process to qualify or disqualify a audit process-oriented example of a product or service by assessing a reference process from supply side, incoming material to the despatch (also from other customers). Examples: VDA 6.3, SEAP (railway) Product Planning and execution of the assessment of a finished product to be delivered to audit the customer. The audit consists of checking the specification, drawings, capacity, and other important aspects and normally involves the trial run of the entire manufacturing process (e.g., 300 parts, run at rate). Examples: VDA 6.5, part production approval process (PPAP), production approval process (PAP) Control Control audits aim to control the progress of previously conducted audits. audit Other Any other audits in areas like safety, health, environment, tax, and financials. audits Examples: 5S audits, tax audits, environmental audits (ISO 14001), IT audits (ISO 27001), financial audits or health, safety, and environment (HSE) audits. Table 14.2 QMS

QMS norm ISO 9001:2015 VDA 6.1 IATF 16949 IRIS EN 9100 ISO 13485 TL 9000

Industry General quality management system in several industries Automotive industry Automotive industry Railway industry Aerospace industry Medical industry Telecommunications industry

Source: Author’s own table

improvement of the process quality, the work quality, and thus the product and service quality. QMS are using lean features for process improvements. Table  14.2 outlines the most common standards of QMS in certain industries.

14.2 Case Study: 5S Audits in Berliner Kindl Schultheiss Brewery With 5S Audits, the Berliner Kindl Schultheiss Brewery (Radeberger Group), makes sure, that all processes (purchasing, operations, logistics, production control, and planning) are evaluated along the seven most important levers for their optimization. On the basis of these results, further measures can be derived on the way to a lean and smart production. With the audit, the management receives an objective

Reference

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Fig. 14.1  5S-Audit in Berliner Kindl Schultheiss brewery. (Source: Author’s source)

assessment of lean. It includes 2 days of on-site operation and is conducted in the form of a walk-through with short interviews with the people in charge. At the end of the second day, the results will be presented. Measured is u. a. Lean maturity relative to the seven key levers of production optimization. These include, for example, the plant structure, the use of process-oriented technologies, the time-to-market, and employee motivation. The evaluation of the respective dimensions is based on a SWOT analysis. The lean audit provides a solid basis for planning further project steps. Thus, the identified potentials can be used for a Nordstern workshop to develop appropriate target states and measures. Finally, in order to achieve this, there is an extensive set of methods in the context of the Schneider co-developed lean-factory design concept. This interdisciplinary optimization concept, developed at Landshut University of Applied Sciences, is based on many years of research and numerous best practice projects. The audit can be repeated annually to measure project progress and to set and prioritize the following steps. The Berliner Kindl Schultheiss Brewery conducts the 5S-Audits on a monthly basis as shown in Fig. 14.1. It can be seen that the five categories (sort, set in order, shine, standardize, sustain) are analyzed. The Audit is linked to a dynamic action plan and progress control.

Reference Helmold, M., & Terry, B. (2016). Global sourcing and supply management excellence in China. Procurement guide for supply experts. Singapore: Springer.

Outlook of Operations and Supply Management 5.0

15

Simplicity is the ultimate Sophistication. Leonardo da Vinci (1452–1519)

15.1 Trends and Impacts on Operations and Supply Management 15.1.1 Flexible Sensors and Software Manufacturers want flexible operations that allow them to use one production line to make multiple products. However, the benefits of flexibility are hard to capture because time-consuming changeovers are required to prepare machinery to manufacture different products. By implementing lean tools, such as single-minute exchange of dies, manufacturers can remove non-value-adding activities from the changeover, thus significantly accelerating the process. Companies, that implemented lean methods and Operations Management 4.0 will be able to benefit from these technologies (Küpper et al. 2017). New sensors and software make it possible for machines to automatically identify products and load the appropriate program and tools without manual intervention. Because the changeover is automated, operators can focus on performing value-adding activities.

15.1.2 Predictive Algorithms and Virtual Maintenance Lean Management in 2030 will include algorithms and virtual tools. In many manufacturing industries, equipment breakdowns and failures lead to high inventory levels, significant working capital cost and low efficiency (Küpper et  al. 2017). Companies can use lean methods, such as autonomous or preventive maintenance,

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to significantly increase the overall equipment effectiveness (OEE). By using autonomous maintenance, for example, companies assign responsibility for specific do-­ it-­ yourself maintenance activities to their operators, significantly reducing the downtime required to correct minor issues. Leading manufacturers are making most of these lean methods by using advanced analytics algorithms and machine-learning techniques to analyze the huge amounts of data collected by sensors. The output identifies the potential for breakdowns before they occur. Such predictive insights prepare operators to perform autonomous maintenance at the optimal time, thereby reducing disruptions and minimizing unnecessary downtime and replacement costs.

15.1.3 Digital Quality Systems and Poka Yoke Lean Management 2030 methodologies will use digital error prevention appliances. Production capacity is wasted if products do not meet specifications. Even worse, if a company ships poor-quality products to customers, they will incur higher costs and likely lose trust in that supplier. Many lean management tools, such as self-­ inspection, poka yoke, and jidoka, have been developed to reduce the probability of mistakes and increase the rate and speed of error detection. For example, the analysis by Boston Consulting Group shows that self-inspections improve the process of providing feedback to engineers and operators, thereby accelerating error detection and reducing the number of defects by 50–70%. However, to achieve zero defects, manufacturers must support self-inspections by using a data-driven analytics approach to identify the root causes of errors. Operations Management 4.0 technologies and innovative lean methods allow such support by providing reliable context data and the ability to conduct detailed tracking. The analysis of errors is enhanced through, for example, camera-based visual inspection, correlation models, and real-time monitoring of process parameters (Küpper et al. 2017).

15.1.4 Digital Human Resources and Automated Training Elements of health, safety, and environment (HSE) are among the most important production paradigms. To ensure operator safety, one lean approach uses signs to tell operators where they may walk. Another lean approach uses detailed tracking of incidents and near misses to identify areas for improvement. Companies can use low-cost wireless sensors to improve the effectiveness of such efforts. For example, they can fit operators with sensors that will alert them to the presence of dangerous gases or the possibility of a clash with nearby forklifts or trucks. Companies can further improve safety by using virtual reality to train workers. Offsite training in a virtual environment is more efficient and effective than training in an actual work environment, and the approach appeals to the younger generation of workers. Seeking to reduce the high accident rate among new hires, a provider of service rigs developed immersive-training sessions in which workers practice often-dangerous tasks in a virtual simulation of the work site (Küpper et al. 2017).

15.2 Lean Management Integration

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15.1.5 Digital Resource Planning and Sustainability Future ERP systems will be integrated into the entire value chain from raw material makers to the final end customers. Digitalization will enable a transparent and sustainable supply chain including departments like procurement, operations, marketing, planning, logistics, finance, human resources, and distribution (Helmold and Terry 2016).

15.2 Lean Management Integration When it comes to the outlook of Operations and Supply management for the future 10 years, one can say that tools and processes will become more digitalized, virtual, and autonomous. After digitization as a megatrend has long been in the foreground, artificial intelligence (AI) is increasingly becoming the focus of technically induced social change. AI or KI (German: Künstliche Intelligenz) stands for a group of technologies and applications that implement intelligent and IT-based solutions based on digital infrastructures and often using mass or big data. At present, the focus is on user behavior when shopping, in social media or in media consumption. Examples from everyday life are image and speech recognition, navigation and driver assistance systems, customized advertising, dating services or translation programs, the results of which have become virtually error-free. Automated emergency detection, control of energy consumption, or remote control of household appliances are summarized under the term Smart Home. However, the applications of AI will have a significant impact on lean management and the digital synchronization of supply network systems. The use of Artificial Intelligence also extends into the artistic sphere and space. It is reported by machines that make images in the style of famous artists (Siebenmorgen 2016) or recognize composers. Where mass data is available on the Internet, which can be statistically analyzed, patterned, computed, and used predictively by high-performance computers, the use of artificial intelligence is more likely than in areas where mass data is not available. Although the term AI was invented by John McCarthy at the Dartmouth Conference back in 1956 (Helmold and Samara 2019), it is only now, with the ever-increasing amount of available data and the development of computers, that it is unimaginable to reach unimaginable masses of information and data. There is a distinction between “weak AI” and “strong AI.” Weak AI refers to technologies with strong application relevance and the goal of developing a very concrete solution in clearly defined, given problem contexts. All of today’s AI systems fall into the category of this weak AI. The strong AI, in contrast, has a much wider and more ambitious goal: it attempts to mimic or even surpass the full intellectual ability of humans, regardless of a concrete problem context. It can be seen that AI and related technologies, on the one hand, are subject to high expectations, on the other hand, but also to defensive responses. The idea that machines can behave like humans and that all expressions of life as well as machines are connected to each other via the Internet leads to a new boom in dystopian expectations of the future. The discomfort of losing the idea of the uniqueness

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of human consciousness and control over the machines is supported by impresarios such as Stephen Hawking and Elon Musk, who see tremendous momentum in AI, capitalist monopolists dominating the market, and warnings speak out against abuse. In addition to the still unclear developments in society as a whole, sectorspecific solutions are formulated and tested in concrete terms, e.g., in the working world (Smart Factory, Smart Office, Ambient Environment), in leisure time (chess computer, gaming, navigation), and in the health sector (smart devices for rehabilitation, diagnoses). Operations in ever smaller devices, in everyday life. This raises the question of how and by what means new employment opportunities can be created. Major shifts are indicated in the industrial sector (Industry 4.0), in trade, but also in the media, jurisdiction, agriculture, or insurance (Siebenmorgen 2016). New professions are expected in the service, IT, and media sectors. Changes in favor of both low and high skilled occupations and elimination of intermediate skills are likely. As a necessary consequence of the expected job loss, a far-reaching restructuring of the social system in the direction of the unconditional basic income and a robot tax is discussed. Terms such as Smart Home, Smart Cities, Smart Region, and Smart Health summarize developments aimed at further developing technical and social infrastructures. Smart City comprises a city development in which the “large technical systems” are to be optimized, integrated, and monitored on the basis of digital networking. The processes of the municipalities are to be accelerated, made more transparent and more inclusive by digital techniques, whereby participatory processes are modified. At the supra-local level, it is expected that the digital infrastructure will enable companies and workers to be kept or won. Cooperations and voting could be made easier, including mobility offers and mobility platforms. Smart and lean factory of the future will be able to produce the required amount of product, while spending fewer resources than at present. One of the important aspects of the new industrial revolution is the ability to work with and to react on-real-time demands in a systematic end-to-end supply chain process, which will direct the production of a significant reduction in the time form of instant just-in-­ time pull production. Data and virtual simulations will affect the optimization of ordering, planning, and production times significantly (Helmold and Samara 2019). In the Lean Management concept 2050, it is forecasted that flexible manufacturing facilities will occupy an integral part of the whole value chain and will be equipped with cyber-physical systems, which is a single whole of the internet and the real physical objects. Such integration has significant advantages: the interaction with the environment, adapting a rapidly changing environment, rapid reconfiguration, self-optimizing will lead to shorter lead times and the reduction of waste by a more resourceful process. Using a variety of sensors and built-in mechanisms have a significant impact on the structure optimization of the company, as well as it can lead to a substantial conservation of resources of the enterprise. This approach can further convert the production system into an environmentally safe, efficient advanced manufacturing.

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15.2.1 Case Study: Lean Supply in Airbus Through AirSupply Airbus SE, formerly Airbus Group SE, is a company based in the Netherlands that is active in the aerospace and defense industry. The Company operates through three segments: Airbus Commercial Aircraft, Airbus Helicopters, and Airbus Defense and Space. The Airbus Commercial Aircraft segment focuses on the development, manufacturing, marketing, and sale of commercial jet aircraft and aircraft components, as well as on aircraft conversion and related services. The Airbus Helicopters segment specializes in the development, manufacturing, marketing and sale of civil and military helicopters, as well as on the provision of helicopter-related services. The Airbus Defense and Space segment produces military combat aircraft and training aircraft, provides defense electronics and global security market solutions, and manufacturers and markets missiles. For the commercial side, more than 75% of the value creation is done by suppliers. The suppliers are supplying components and systems, which are assembled to subsystems by Airbus operational sites. These subassemblies are produced in four different countries and then shipped downstream to the final assembly as shown in Fig.  15.1. The subassemblies are delivered from different national sites to the final assembly lines. Airbus uses the AirSupply system, which integrates ERP systems on the downstream side. AirSupply is a single supply chain solution for direct deliveries to Airbus by its suppliers in the downstream supply chain (Siebenmorgen 2016). The integration of ERP systems makes the supply or value chain very transparent, so that actions for improvements can be allocated quickly to shortcomings. Additionally, the model enables to synchronize companies’s manufacturing and logistics systems digitally and physically through the application of lean management tools (Helmold and Samara 2019). The portal is shared by the main European aerospace companies within the BoostAeroSpace hub. The AirSupply collaborative hub helps manufacturers and

• More than 75 percent

external value creation

• Suppliers are supplying

components and system

• Subassemblies are

produced in four different countries • Subassemblies are delivered from different national sites to the final assembly lines • OEMs and Suppliers are using one ERP-System Platform • Integrated Systems enable Lean Processes over the Value Chain

Fig. 15.1  AirSupply network. (Source: Author’s own figure, adopted from SupplyOn)

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From individual supply chain portals ... Fragmentation Portal

Portal

Portal

Suppliers

Portal

Suppliers

Portal

Suppliers

Portal

Suppliers

… to a unique aerospace and defense supply chain platform Process Integration + AirSupply

Suppliers

Lean Integration

Fig. 15.2  AirSupply. (Source: Author’s own figure, adopted from SupplyOn 2020)

suppliers to gain visibility, as well as ensure control and integration for critical business processes. This common secured platform for European aerospace and defense industry players results from the BoostAeroSpace cooperation led by Airbus, Dassault Aviation, Safran, and Thales as shown in Fig. 15.2. It provides a single solution for the aerospace community connecting original equipment manufacturers (OEMs) and suppliers, standardized supply chain collaboration processes and shared formats for data exchange, and one platform for a single supply chain process collaboration via the internet (Software-as-a-Service provided by SupplyOn, with worldwide service).

References Helmold, M., & Samara, W. (2019). Progress in performance management. Industry insights and case studies on principles, application tools, and practice. Heidelberg: Springer. Helmold, M., & Terry, B. (2016). Global sourcing and supply management excellence in China. Procurement guide for supply experts. Singapore: Springer. Küpper, D., et  al. (2017). Boston Consulting Group. When lean meets Industry 4.0. The next level of operational excellence. Retrieved November 28, 2019 from https://www.bcg.com/ publications/2017/lean-­meets-­industry-­4.0.aspx. Siebenmorgen, F. (2016). Industrie 4.0. Das Potenzial schon heute nutzen. Retrieved November 28, 2019 from https://www.supplyon.com/wp-­content/uploads/import/DE_SCM%20 Magazin_Industrie%204.0.pdf. SupplyOn (2020). Efficient SCM processes in the aerospace industry. Retrieved 2.1.2020. https:// www.supplyon.com/en/solutions/airsupply/.

Glossary of Lean Management Terms

Standards should not be forced down from above but rather set by the production workers themselves. Taiichi Ohno (1912–1990)

5S Seiri (整理), Seiton (整頓), Seisō (清掃), Seiketsu (清潔), and Shitsuke (躾) Workplace method for eliminating waste and making the workplace more efficient 5Why Analysis Root cause analysis by asking five times WHY? A Andon アンドン Audio-visual tool in operations to stop the production Ato Hoju Replenishment system Atokotei Hikitori あとこうてい引き取り Pull system B Bacho 場所 Place, location Baka 馬鹿 Stupid Baka Yoke 馬鹿 System to avoid any human and stupid mistake C Chaku Chaku-Line

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Helmold, B. Terry, Operations and Supply Management 4.0, Future of Business and Finance, https://doi.org/10.1007/978-3-030-68696-3

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ちゃくちゃく Chaku Chaku is a way to operate a semi-automated manufacturing line. One or more workers walk around the line, add parts to the processes, and then start the process. While the process works on the part automatically, the worker adds the next part to the next process, and so on. Chiiku (知育) Intellectual knowledge and develop logical thinking for fundamental survival skills CSR Corporate social responsibility Business model that helps a company be socially accountable D Design for manufacturing Product development in line with the objectives to produce the part in an efficient and lean manner Dou 道, マツダ道 Path, best way, road. Mazda way or mazda path E Engineering Functional department for product development ERP Enterprise resource planning F Flow principle Material is flowing between the operations G Gemba 現場 The real place, production shopfloor Gembutsu 現場 Working on the right products Genchi 現地 Working with the right facts H Heijunka 平準化 Leveling production

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I Ichiban 一番,いちばん The best, the most successful J Jidoka 自動化 Jidoka is one of the most important lean methods for ensuring built-in quality. The commonly used English word for jidoka is autonomation, based on autonomous and automation. Others call it intelligent automation, and again others describe it as automation with a human touch (remember the additional character 人 for human) K Kaizen 改善 Change for the good Kaizen is a compound of two Japanese words that together translate as good change or improvement Kanban 看板 Visual planning system KPI Key performance indicators Quantified and numeric objectives L Learning, studying 勉強 Continuous learning and studying M Mottainai もったいない or 勿体無い A term of Japanese origin that has been used by environmentalists. The term in Japanese conveys a sense of regret over waste Muda 無駄 Waste Muri 無理 Unreasonableness; impossible; beyond one's power; too difficult; by force; perforce; forcibly; compulsorily; excessiveness; immoderation, and is a key concept in the Toyota Production System (TPS) as one of the three types of waste (muda, mura, muri)

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Mura 斑 Unevenness; irregularity; lack of uniformity; nonuniformity; inequality O OKR Objectives and key results Quantified and numeric objectives P Poka Yoke ポカヨケ Mistake-proofing or inadvertent error prevention PDCA Plan, Do, Check, Act: it is an iterative four-step management method used in business for the control and continuous improvement of processes and products Performance Management (PM) PM is a basic and efficient methodology. It portrays the administration of enterprises, processes, HR, divisions, and associations to ensure that objectives and destinations are being reached. The objectives and destinations are gotten from client's desires which are the bases of the key mission and vision in an endeavor. Performance measurement and the administration must be executed over the whole value chain and applies to all functions and department S Seisan Hoshiki 生産方式 Method to prevent any form of waste in production Shopfloor Production place, operations SPOC Supplier managers work closely with the respective specialist departments and are the sole contact for suppliers (Single Point of Contact, SPOC). A single point of contact in an organization is a central point of contact for one or more suppliers. Depending on the context, there are also similar terms for the SPOC concept such as single contact person or key account manager Supermarkets The location where a predetermined standard inventory is kept to supply downstream processes T Taiiku (体育 Modern education integrating mental and physical education TIMWOOD 7 Types of waste

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Tokuiku 徳育 Kuiku means to develop your rational interpersonal skills as a leader. Rational development (tokuiku) is different from logical development (chiiku) Toyota Way Toyota Way トヨタウェイ Centralizing the customer within the philosophy of operations V Value-add Everything the customer is willing to pay Value stream mapping The value stream mapping process helps companies to create a detailed visualization of all steps in the work process. It is a representation of the flow of goods from supplier to customer through the entire value chain and organization Visualization Making results, gaps, processes, or activities transparent, normally via a dashboard. Important tool in lean management W Waste Anything, which will not be paid by the customer. Must be reduced or eliminated