Step 3: Apply lenses and search out hot spots

Step 3 is concerned with successively examining the network in different ways and using a technique to search out areas of interest.

Supply and value chain network mapping could become an immense task in order to find anything meaningful. There are two techniques that can help to simplify the activity and enable what available resources we have to be focused more precisely. These are the use of different lenses through which we will examine the network and also by using a technique called hot spot analysis.

Supply and value chain network mapping is more than sketching out how the network exists and is organized. Hines and Rich (1997) suggest there is a distinction between traditional supply chain mapping and the process of developing a more detailed map, ie one that begins to reveal where intervention might be directed. They suggest looking at the supply chain in a number of different ways such as physical structure, process flow, responsiveness and how demand is or is not transmitted. However, looking at these factors is not enough as risk, CSR and information flows are missing, yet the underlying concept of looking at the network in different ways is helpful. Once we understand the physical structure of a network, if we can successively examine it from different perspectives, as if looking through a series of different lenses, then we will see the network in different ways. The different lenses we might use here include (these are expanded in Table 12.1):

• Process flow lens - a lens to examine the flow of materials, information and how demand is managed.

• Cost driver lens - a lens to help see all the cost drivers and where they are introduced into the network.

• Value lens - a lens through which we look for where and how value is introduced or added, where innovation might come from or how quality is created, assured or possible.

• Risk lens - a lens that helps us see where risk lies or is introduced.

• CSR lens - a lens to examine the network specifically for CSR impacts or potential risks against a corporate policy or framework.

Lenses therefore help us to see supply and value chain networks in different ways and look for different things. The output of each examination can then be merged to create a detailed map. However, even with the help of the lens philosophy we can still be overwhelmed by the complexity of one or more network and so here we can complement the lens approach by using hot spot analysis.

Hot spot analysis is an approach to cut through complexity and pinpoint areas to focus on without having to analyse a complex system. Instead of trying to study an entire supply and value chain network, hot spot analysis works together with our lenses by looking for areas where we are most likely to find a problem or 'hot spot', this then guides us to in these localized areas to see if there are any opportunities or areas where intervention would be beneficial.

The idea of hot spot analysis is something I learnt at an early age. As an electronics engineer, I've been trained to open up a defective piece of electronic equipment and fault find. There are many structured ways of doing this and typically I would have circuit diagrams and an array of test equipment at my disposal that would help. However, I have been opening up electronic things since childhood. As soon as I could operate a screwdriver I would have the back off as many things as I could get my hands on, but with no knowledge or training then. I learnt as I went, after connecting myself directly to the National Grid electricity network on many occasions I learnt what not to touch and where the risk areas were. I also learnt that simply looking, smelling and touching could find the majority of faults. This is less so today with miniaturization, but back then when things went wrong something often got hot. Components or circuit boards would appear burnt or hot to the touch and the familiar smell of insulation breakdown provided vital clues as to what and where something had gone wrong. This process was helped with familiarity regarding where to search first. If the unit was dead then the first place to look was the power supply and work up from there. Once the 'hot spot' was located it was simply a case of homing in on exactly what had happened and swapping out the defective component.

This same approach can help with supply and value chain network to identify where intervention is needed, except here we are not searching for a burnt component or the source of a smell, instead we are looking in the places where we might expect to find something. For example, if we are looking at a network through our CSR lens then there are known processes, industries, practices, geographies where there is, according to historical understanding, known potential issues or risks we should be concerned about and where hot spots are likely to exist.

If we are sourcing timber or lumber then we know there are issues around sustainability depending upon where it originates from. If the processing needed to create the products we buy uses harmful chemicals and this processing takes place in countries where there are few controls over discharge and pollution then this is a hot spot. If we are buying palm oil as an ingredient for food production then, depending upon where this is being sourced from, this is a hot spot as there are known impacts for this raw material.

Identifying hot spots is a matter of research and being informed about how things get made and produced. There is no magic reference point as it all depends on what is being sourced. Therefore we need knowledge and expertise and this usually resides within an organization somewhere and if not can be obtained through discussions with external stakeholders, experts and suppliers. Table 12.1 provides a starting point for what we are looking for using each lens and the sorts of hot spots that might be relevant.

Step 3 is accomplished by reviewing the physical network a number of times, each time as if looking through a different lens. Examine how the network exists and functions with this specific lens in mind. For example, if we are looking through the cost driver lens then the objective is to consider all the places and activities in the network where cost is introduced and how much each step costs. It would be fantastic if it were possible to precisely

TABLE 12.1 Lenses and hot spots

Lens

Focus and questions to answer

Areas to focus improvements

Process flow lens

The flow of materials, information and how

Hot spots to look for

• Wastage and inefficiency

• Unnecessary steps

• Relationships demand is managed.

• Build network-wide relationships

• Improve network-wide forecasting

• Share resources

• Remove redundancy

• Change locations

• Linearly integrate

• Vertically integrate

• Measure performance

• Reduce variability and uncertainty

• Collaborate to improve

Cost driver lens

A lens to help see all the cost drivers and where they are introduced into the network

Hot spots to look for

• Inventories

• Transportation

• Processing

• Distance

• Leakage

• Uniqueness

• Overheads and administration

• Regulation or costs that cannot be influenced

Adapted from Porter (1985)

• Economies of scale

• Increase capacity utilization

• Reduce inventory (eg through better forecasting)

• Reduce transportation (eg by changing product, packaging, processing points)

• Reduce distances/change locations

• Cross-industry learning and knowledge sharing (eg of best practice)

Value lens Risk lens

A lens through which we look for where and how value is introduced or added, where innovation might come from or how quality is created, assured or possible.

Hot spots to look for

• Points of greatest transformation or processing

• Patented or unique value adds (that others cannot copy)

A lens that helps us see where risk lies or is introduced

Hot spots to look for

• Geographies

• Industries

• Processes

• Innovation

• Improve upstream knowledge of our business and needs

• Drive out inefficiencies (eg using Lean or Six Sigma type approaches)

• Review linkages between firms and activities

• Switch suppliers

• Develop the relationship

• Manage the relationship

• Reduce access to IP (eg by spitting processing activities)

• Supplier and supply chain auditing

• Contingency planning

CSR lens

A lens to examine the network specifically for CSR impacts or potential risks against a corporate policy or framework

Hot spots to look for

• Geographies

• Industries

• Processes

• Supplier, supply chain and factory/plantation auditing

• Local knowledge and representation

• Invest in original producers

• Build direct relationship with original producers

FIGURE 12.14 The supply and value chain network activity and linkage table

The supply and value chain network activity and linkage table

quantify how cost is added right back up the supply chain. Such intelligence would enable effective decision making around what value or steps in the supply chain we want to pay for, however this understanding is hard to come by. Therefore once again we need some detective work and this is helped by looking for cost hot spots. Porter (1985) identified 10 major cost drivers and these can help direct us and therefore can become our hot spots to search for when using this lens. An adapted list is given in Table 12.2.

As we apply each lens and identify hot spots the findings should be recorded on the map at each point. If we can quantify something, eg what cost is added then we should do this, but where this is not possible a simple rating system can help and the more visual we can make it the easier our map will be to interpret. Figure 12.14 shows a supply and value chain network table that can be applied to each activity and linkage and considers the risk and opportunities for each lens.

Step 4: Network risk and opportunity analysis

Step 4 is concerned with consolidating and prioritizing all risks (including CSR risks) and opportunities identified in the supply and value chain network.

For risks, use the supply side risk assessment process and tool outlined in Chapter 9 and list, assess and prioritize all the risks identified within the network.

FIGURE 12.15 Supply and value chain network opportunity analysis

Supply and value chain network opportunity analysis

Similarly, by reviewing the entire supply and value chain network map, extract a list of the opportunities that have been identified using each lens. Quantify the scale of the opportunity, either in direct financial benefits if known or by attributing a scale according to the value that is possible relative to all the other opportunities. Then use the opportunity analysis matrix shown in Figure 12.15. Each opportunity should be plotted according to the internal ease of implementation (ie the degree to which both have control and influence over this opportunity and the ease by which we can realize it) and external ease of implementation (the anticipated degree to which it will be possible and likely to realize this opportunity easily and quickly working with other players in the network). The scale of the benefits should be represented by the size of the bubbles that are plotted, relative to one another. The result is a visual representation of the potential opportunities that enable effective decision making regarding which ones should be pursued.

Step 5: Summarize and optimize

Step 5 is concerned with summarizing the full supply and value chain network map, both in terms of a visual representation and the priority risks and opportunities identified. As for many strategic tools used within purchasing the key question we need to ask here is 'so what?' In other words, so what is this map telling us and what should we focus on moving forward. This summary can then inform a unique supply and value chain network strategy and approach to optimize it.

 
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