12. Models of Business Processes
DE + IA (INFO 243) - 26 February 2007
Bob Glushko
Plan for Today's Class
- More supply chain patterns
- Patterns "in the middle"
- Information supply chains
- "Modes of exchange" patterns
- Pattern resources for scavenger hunt - MIT, RosettaNet
Supply Chain - Conceptual Model
Design Goals for Supply Chains
- Especially for direct goods that are inputs to manufacturing processes, the things that businesses buy need to get to specified places at specified times in specified quantities according to manufacturing plans and sales forecasts.
- The right stuff in the right amount at the right time in the right place
- Get as close to zero inventory THAT YOU OWN without ever losing a sale or having to shut down the assembly line
Supply Chain Design
- Your business model and strategy sets the framework for design of the supply chain
- Supply chain structures (like the number of suppliers and distributors) are shaped by industry characteristics and product architectures
- Supply chains reflect many interconnected decisions about allocation of materials, production, and distribution responsibilities
Location of Tier 1 Suppliers?
Visibility of Secondary Tiers?
Location of Distributors and Inventory?
Indirect vs Direct Sales?
- When a firm manufacturers products and sells them through distributors and resellers this is the indirect sales pattern
- Some products are almost always sold through indirect channels
- In a direct sales strategy a firm sells its product directly to the companies or consumers who buy them without any middlemen or resellers
- Sometimes this "directness" is a fundamental part of the value proposition for timeliness (morning newspaper) or freshness (Farmer's Market)
- But for other products there may be a choice of a direct vs indirect sales strategy
Dell's Direct Sales Strategy
- At age 19 in 1984, Michael Dell started a business building PCs to order out of his dorm room at the University of Texas.
- Dell Computer Corporation grew rapidly to 1988 IPO doing "build to order"
- Decided in 1990 that it could accelerate growth by putting its computers in retail stores
- Dell sold more computers, but by 1993 it was losing money doing so
- In 1994 Dell returned to "build to order" strategy
The Build to Order Pattern
-
Simple in concept, but complex in execution, requiring competencies in product design, process engineering, and supply chain management
- Requires more modular design to enable configurability and concurrent assembly of sub-components
- Often used in conjunction with "just-in-time" pattern whose goal is minimizing inventory by having suppliers deliver their raw materials or components to a manufacturing location "just in time" for them to be used
- Building to order instead of forecast means a lot less inventory so the rapid obsolescence of components is less harmful
Dell's Build to Order Strategy Adds "Demand Chain Management"
- Dell doesn't just take orders, but actively shapes them by customizing its "recommended" offerings to buyers based on inventory, opportunity for higher margin, qualification of buyer, other factors
- Final assembly takes place only after customer places order
-
Requires very close coordination with small number of suppliers
- Customer orders result in signals to suppliers to deliver components to Dell assembly plants (newest one is in Nashville)
Buzzwords in the "Middle"
- The Internet has been a disruptive force on many traditional business model patterns, particularly in the value chain activities of supply and demand chain management
- Disintermediation – cut out the middleman
- {re} Intermediation – introduce new middleman
Patterns in the "Middle"
-
Marketplaces and Auctions
- Bring together sellers (or their catalogs)
- Bring together buyers (or their RFIs or RFQs)
- Match buyers and sellers
- Provide critical mass and infrastructure for other service providers
Marketplace - Physical Model
Marketplace - Conceptual Model
- Glushko & McGrath's definition:
- A "market maker" or "market operator"
- Participating businesses
- The services these businesses provide to each other
- The messages and documents that are exchanged
to request and perform the services
Attacking Supply Chain Problems
- Supply chain problems primarily result from poor visibility
and lack of collaboration
- The visibility problem can be attacked by the use of technologies and strategies that
speed information flow across the chain or that allow more information to be shared in controlled ways
- Dell's efficient use of inventory information to shape its offerings shows how improved visibility can add value
It All Began With Drayer
- What was the problem that Procter and Gamble wanted to solve for its customers?
- The initial solution was Continuous replenishment or vendor managed inventory (VMI)
- A better solution is Collaborative Planning, Forecasting and Replenishment
- Ralph Drayer: "But the biggest benefits from [the pilot project we did with Wal-Mart] were the soft benefits. "
The Information Supply Chain
- These kinds of business models in supply chains have led us to a new conception of supply chains that focuses on the information exchange patterns
- The flow of materials and goods in a supply chain is accompanied by information about it
- But information about supply chain activities and processes is increasingly separated from the physical flow of materials and goods
- The information supply chain has become especially important because new technologies and techniques are providing relatively greater leverage than interventions with the physical supply chain
Design Issues for the Information Supply Chain
- What information is exchanged?
- Which entities in the supply chain are able to exchange information?
- What is the frequency of this information exchange?
Modes of Exchange
- But withholding or controlling the flow of information has long been a source of competitive advantage; why do some firms share information while others won't?
- The Mode of Exchange is "the set of standard procedures, common practices, communication patterns, and norms governing routine behavior in the value chain relationship between a supplier and its customer"
- This is a much broader definition of what's exchanged that simply "exchange of money" which is what many economists focus on.
- The mode of exchange also governs the extent of exchange of information and know-how, the development or non-development of trust, and norms of reciprocity or fairness in the relationship
Exit Mode
- In the exit mode, problems with suppliers result in a change of suppliers
- Auctions are the big "weapon" against suppliers in exit mode
- The US auto industry has generally worked in exit mode, especially in lower tiers
Voice Mode
- In the voice mode, problems are resolved by collaboration, which creates opportunities to
improve processes and designs
- Collaborative design and inventory planning software are key technologies for voice mode relationships
- The Japanese auto industry has generally worked in voice mode
Summary: Technical Requirements for Successful Supply Chain Collaboration
- Can our systems exchange information?
- Can our systems understand the information they get from each other?
Summary: Non-Technical Requirements for Successful Supply Chain Collaboration
- Can our firms and people talk to each other?
- Do we have a common vocabulary or reference model (like SCOR or RosettaNet) so we can understand each other's roles in the patterns we are trying to follow?
- Do we have executive sponsorship that encourages us to talk with each other about how to be more efficient and effective in our supply chain?
- Do we trust each other?
The MIT Process Handbook -- "Organizing Business Knowledge"
- There is an infinite amount of knowledge that could be recorded about business
- The handbook uses the business model archtypes as the framework for hierarchically organizing progressively specialized types of businesses
- The MIT folks imagined it as a collaborative knowledge repository to which people would contribute, with discussion lists, etc. but that didn't really happen. Maybe it was ahead of its time, or more likely the people who would have done it have been hired by IBM, SAP, HP, etc to build their own proprietary process and knowledge libraries
MIT Process Library -- Amazon
MIT Process Library -- Distribute Health Information on Internet
Rosetta Net -- Three Level Hierarchy
For Wednesday 28 February
- Chapter 4 of Document Engineering [128-147]
- Chapter 6 of Document Engineering
- Microformats [Online]
- Cover Pages -- XML Applications
- OASIS Technical Committees
- Universal Business Language 1.0 (Sections 1-6.4)
