Lean Management Of Global Supply Chain

Yasuhiro Monden, Yoshiteru Minagawa

• Publisher: WSPC
• Year: 2015
• Topic: Biological Sciences
• eBook ISBN:
  9789814644990
• Subtopic: Science General
• Index: Biological Sciences

This book is the first among many books in supply chain management, which provides the readers with insights on how to select the best global supply chain out of inter-firm network, fables system or market firms. This process is clearly expounded in the book through case studies, which include Apple, Toyota, BMW, IKEA and Taiwan TSMC. The main editor, Prof Yasuhiro Monden, is the founding father of Lean Production Management who published Toyota Production System from IIE in 1983, which is called the classic of Lean System.

This book will explain how the global supply chain (GSC) could be organized by considering causal relationships of the stage differences in (1) market needs, (2) product design architecture, and (3) product life-cycle, for the purpose of reducing the total costs of GSC.

Contents: -->
Readership: For the general public, researchers and students who are interested in understanding the global supply chain.
Key Features:

• Principal editor is Prof Yasuhiro Monden, who was one of the fathers of Lean Production Management
• Dr Monden published Toyota Production System: the 1st edition from American Institute of Industrial Engineers, 1983, which is called the classic of lean production system

Part I

Lean Management of Global Supply
Chain Management

1

Lean Management of Global Supply
Chain: Dynamic Combination Model
of Market, Product Life-Cycle, Product
Design, and Supply Chain

Yasuhiro Monden
University of Tsukuba

1. Theme of the Study

1.1. Proposition for building the optimal supply chain: Causal relations among market needs, product life-cycle, product architectures, and supply organizations

In this chapter the author will explore what kind of open inter-firm networks (open supply chain) will be cost-efficient (or “lean”) for formulating the global supply chain. The chapter uses the knowledge of production and operations management, managerial and cost accounting, organization theory, and the institutional economics to explicate the causal relationships among (i) market needs, (ii) product life-cycle (PLC), (iii) product design architectures, (iv) supply organizations, and (v) production costs. Since each of these five factors has various levels and dynamically varies depending on the environmental changes, the author coins the scheme of system selection in each environmental condition as the “Dynamic Combination Model” of supply chain.

The structure of this chapter is as follows: the author assumes a general proposition that the optimal forms of the open inter-firm network or the global supply chain will be determined based on the causal relationships above-mentioned. After the theoretical and logical analysis is done, the author will verify such proposition based on the various case studies about the IT industry and the automotive industry. The optimality will be judged based on the cost minimization criterion per unit of the product, but this cost efficiency criterion will be re-examined in the final conclusion section.

Now when each of the above-mentioned four factors (or dimensions) is divided into only two main levels for simplicity, though each of the factors usually has more than two levels, then it follows that:

(1) Market needs or wants entail the differences in the high-end market M₁ for the wealthy customers or the low-end market M₂ for the less-wealthy customers.

(2) Product design structures include product made of complex, custom-order parts A₁ or product made of simpler, standardized modular parts A₂.

(3) PLCs are the different stages of life period that transit mainly from the growth stage L₁, to the maturity stage L₂.

(4) Organizational forms of the global supply chain will be identified as various forms from the hierarchical vertical-integration S₁ to the pure market-firms network S₂ via the Keiretsu network or the fabless network.

Since these factors are directly correlated with other factors one by one, let us consider the causal relationships, step by step, to construct the general causal theory among all factors in order to configure the optimal supply chain.

The result will be the author’s proposition that the best form of the global supply chain structure in terms of cost efficiency will be the optimal combination between the various levels in the aforestated four factors (or four dimensions), and its brief summary is as follows:

(1) The hierarchical vertical-integration or Keiretsu network (i.e., inter-firm network), S₁, is best suited for the stage of the complex-type product A₁, for the wealthy customers’ market M₁, and the growing stage of the PLC L₁. That is, the optimal point or vector (M₁, A₁, L₁, S₁) in the four dimensional space as depicted in Fig. 1.

(2) The pure market network S₂ is best suited for the simpler, modular-type product A₂, for the less-wealthy customers’ market M₂, and in the maturity or declining stage of PLC L₂, in the advanced countries (while the market S₂ is suited well for the growing stage of PLC L₁ of the emerging countries). That is the optimal point or vector (M₂, A₂, L₂, S₂) in the four dimensional space in the advanced countries as depicted in Fig. 1.

Fig. 1. Dynamic Combination Model of the cost minimum combination points in the four dimensional space in the advanced countries.

Since the top management of the firm should transit the position of the best business model (or the vector in the optimal point in the Euclidean space of four dimensions in Fig. 1) to some optimal balance, the role of top management must be to shorten, as much as possible, the distance between the optimal point and the actual point because if the distance became longer the acquisition cost of unit product would be higher.

The optimal combination points may not be on the linear line that starts from the origin point (M₀ = 0, M₀ = 0, M₀ = 0, M₀ = 0). The direction suggested by the dotted-arrow tip in Fig. 1 is of the firms of the wealthy market (or advanced countries), where the optimal point will transit toward the north-eastern direction from the optimal point 1 to the optimal point 2, with the assumption that even the firms of advance country must provide the modular product to the less-wealthy market when their industry cycle matured, whereas the optimal point of the firms of the less-wealthy market (or emerging countries) will transit reversely from the point 2 to the point 1.

1.2. Dynamic business model for lean management

The “business model” in this chapter stands for the combination of four factors (or dimensions) that can minimize the unit production or purchase cost of product or service. However, since each business model consists of such four factors, the author will use the specific form of supply chain or specific form of organizations (including even the network of the independent firms in the competitive market) in order to represent the concrete business model.¹

Further the actual optimal point must be the “zone” rather than the “point”, because the growth period of PLC, for example, must have a certain length of the period rather than a single time point.

In case of the firms of the advanced countries, Sony and Panasonic, for example, have experienced relatively longer period of growth before they got into the maturity. When did their transition of PLC happen in the past? It was the time when the firms of the emerging or middle-advanced countries, such as Samsung and LG Electronics have made their disruptive innovation in the Chrystal panel television or semi-conductor in terms of their sales prices. For the zones of other factors see Fig. 3.

Because the earlier proposition is a general theory of the causal relationships the author will first make a theoretical analysis (see Sec. 2) and then make verifications (see Sec. 3) of this proposition through the case studies on the IT industry (especially the smartphone of Apple and Asian brand-makers) and the automotive industry (European, Japanese, and American automakers).

2. Reasons of the Causal Relations among Various Factors

2.1. Several concepts in the Dynamic Combination Model

Before getting into the verification of the earlier proposition on the Dynamic Combination Model, let us first clarify several concepts in the proposition in detail.

2.1.1. Concepts of the “production or purchase costs per unit” of product or service

2.1.1.1. “Make of buy” decision should be made by the “unit production cost” and the “unit purchase cost”: A case study of Toshiba

Toshiba has once been manufacturing the standard Alkaline Battery in their group’s subsidiary company called Toshiba Battery Inc. But since the global price of the “rare metal” as main materials of the battery has doubled during three years from 2005 to the end of 2007, Toshiba decided to sell their manufacturing facilities of Toshiba Battery to FDK of Fujitsu group, and to procure all of the volume out of FDK and to sell them with Toshibha brand (The Nikkei, 2008).

In this way Toshiba decided to “Buy” the battery instead of “Make” in their own house. However, this decision was not made based on the reason why Coase’s “transaction costs” (which is the cost of “purchase management” for buying the battery from the market) became cheaper than the in-house “managerial cost” for making them at home.² criterion for this “make or buy” decision was that the “unit purchase cost” (= market price) from the FDK became cheaper than the “unit manufacturing cost” at Toshiba plant (i.e., Toshiba Battery Inc.).

The real reason was that the (incremental) unit manufacturing cost of a battery (= direct material cost + processing costs) at Toshiba plant became more expensive than the unit purchase cost from FDK, under the increased material purchase costs of “rare metals”. Right now all of the Japanese Alkaline Battery makers (Mitsubishi electricity, Fujitsu, Toshiba, and Sony) except Panasonic and Hitachi are all paying just a commission as a fabless commissionaire (i.e., original equipment manufacturer or OEM manufacturing).

2.1.2. Concept of the “product design architecture”

The product design architecture is the basic design idea about how the product designer will consider the basic design about the following two matters (Fujimoto, 2004, pp. 124–126):

(1) The way of matching between various functions of the product demanded by customers and the various structural components of the product.

(2) The connection (interface) rules between the various structural components. In other words, the architecture implies (i) the way of connection between functions and structures, and (ii) the way of connection between various components (or parts).

In case of an automobile, each function of a car is supported by many components while each component is also contributing to the various functions. Such product like an automobile is called an “integral” type product. However, in case of a personal computer, for example, the correspondence between functions and components is almost “one to one matching”. Such product is called a “modular” type product.³

However, since the above-mentioned two types of products are merely conceptual dichotomy and the real product contains both types of parts (output of suppliers or in-house manufacturing processes) as its composing parts, it would be practically useful to consider the architecture of any product as a “hybrid” architecture product. Thus, the grade of hybridity depends on the grade of product complexity or simplicity in their hybrid design architectures (Monden & Larsson, 2014).

2.1.3. Concept of the “supply chain structures”

2.1.3.1. Two concepts of parts from the product design architectures: Specialized parts (or custom-made parts) and common parts

From the viewpoint of product design architecture there are two concepts of parts.

(1) Group of specialized exclusive-use parts for a specific model of a certain company, which is called an “integral” type. The example is a kind of specific part to be utilized only for a certain car-model (such as the hybrid car of “Prius”) of Toyota Motors.

(2) Group of common parts (commonly usable parts, or standard parts), which is called a “modular” type. For example, a printer of various printer-makers can be utilized for almost any company’s personal computer system such as Dell, Lenovo, etc.

Fig. 2. Hybrid architecture product and supply chain consisting of four kinds of suppliers.

2.1.3.2. The suppliers from the inter-firm network and the suppliers from the market

Since both kinds of the parts are supplied by a certain firm of Keiretsu network or by a firm in the competitive market, they will be classified into the four groups supplied by the following four different types of suppliers (see Fig. 2):

(1) “Closed” custom-parts suppliers from inter-firm network (or called Keiretsu);

(2) “Open” custom-parts suppliers from market;

(3) “Closed” module-parts suppliers from inter-firm network (or called Keiretsu);

(4) “Open” module-parts suppliers from market.

Here the “Keiretsu” is a group of firms in the inter-firm network, which are formed and controlled by a core company and has a long-term transaction relationship with the core company. They are allied with the core company in terms of capital ownership, managerial directors, or inter-firm transaction as major suppliers, etc.

As an example of the (2) “Open” custom-parts suppliers from market, the case of Apple’s iPhone is raised. As will be expl...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Japan Society of Organization and Accounting (JSOA)
• Editorial Board
• Contents
• Preface
• About the Editors
• List of Contributors
• PART I: Lean Management of Global Supply Chain Management
• PART II: Lean Management and Performance Evaluation in the Business Operations
• PART III: Related Topics in Managerial & Cost Accounting
• Index