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

By Marc Helmold and Brian Terry

Fierce competition, globalisation and the permanent liberalisation of markets have changed the face of supply chains and operations drastically. Companies, which want to survive in a hostile environment, must establish the optimum combination of supply and operations. This book provides a holistic and practical approach to operations management 4.0 and supply management 4.0. It combines operations and supply best practices across the value chain. It explains comprehensively, how these new paradigms enable companies to concentrate on value-adding activities and processes to achieve a long-term sustainable and competitive advantage.

The book contains a variety of best practices, industry examples and case studies. Focusing on best-in-class examples, the book offers the ideal guide for any enterprise in operations and supply in order to achieve a competitive advantage across all business functions focusing on value-adding activities.

• Language: English
• Publisher: Springer
• Release date: Apr 12, 2021
• ISBN: 9783030686963

Book preview

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021

M. Helmold, B. TerryOperations and Supply Management 4.0Future of Business and Financehttps://doi.org/10.1007/978-3-030-68696-3_1

1. Introduction: The Value Chain

Marc Helmold¹   and Brian Terry²

(1)

IU International University, Berlin, Germany

(2)

Regents University, London, UK

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 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.

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Fig. 1.1

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

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

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Fig. 1.2

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

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 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.

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Fig. 1.3

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

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 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.

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Fig. 1.4

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

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 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 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).

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