External Resource Management Requires Further Development
, Heidi Hammarsten
Companies in a high-cost country need to invest in smart, systematic and efficient operations. Industrial management professionals have a holistic grasp of their area and, through a blend of practical experience and theory, know how to eliminate absurd options and use their knowledge and skills to make the right choices – even in an ever-changing business environment.
The training provided by Aalto PRO is based on Aalto University's tradition of strong research and expertise in supply chain management. Working life-based, applied research by Aalto University's BIT Research Center is among the feed-ins to our training in purchasing and production management. Our training has a long history and is being continuously developed on the basis of customer feedback and by consulting network members.
A production strategy forms part of a company's business strategy. New skills are required in order to elevate production and purchasing from a mere function to a key source of competitive advantage – old approaches no longer work. Stronger business skills, and partnership, resource and knowledge management are required in response to intensifying competition for customers, the need for efficiency, operation in a global network and the digital transformation.
It is easy to slip into part-optimization and continuously setting new goals."
When continuous change and the need to develop become perpetual, it is easy to slip into part-optimization and continuously setting new goals. Long-term strategy and development may also be forgotten.
However, the laws and basics of production have not changed. They still involve balancing supply and demand, competitive advantage, value creation and the generation of financial benefits.
However, while the key issues remain the same, the means of strategy implementation are changing. Strategy implementation is promoted by the activation of theory, models and concepts, the fueling of process innovations, and active dialogue among colleagues – including across industry boundaries.
Production management experts need to understand and solve future challenges and find up-to-date strategy implementation tools. The dynamics and holistic level of production, and the supply network, must also be managed.
Both customer satisfaction and efficiency are objectives of production management in a modern enterprise. The customer is served by good supply chain continuity and short delivery times. In turn, efficient production minimizes inventory and optimizes capacity utilization.
Key factors in a manufacturer’s production activities include production strategies, material and capacity planning, production as part of the supply chain, and the measurement and development of production.
Aalto PRO's purchasing training was launched at a time when pioneering enterprises were beginning to see how important purchasing is to getting results. ABB, Konecranes, Nokia Siemens Networks and Kemira were involved in designing the delivery of the first program alongside Aalto PRO's predecessor, TKK Dipoli.
The need to improve purchasing skills has not diminished. Kari Iloranta, who has completed a doctoral thesis on the topic, points out that Finnish industrial companies are markedly less profitable than they could be because the actions and decision-making of management teams are largely based on production-focused thinking and related beliefs that go back a century. In the Finnish industrial sector, management teams are overlooking up to 80 percent of their operations if they neglect external resources.
A pragmatic change in thinking, from operational purchasing to strategic external resource management is needed."
Silo-based purchasing management does not get the job done. In his thesis, Iloranta called for a pragmatic change in thinking, from operational purchasing to strategic external resource management. Such a change would have a significant impact on issues such as a company’s profitability, reporting practices and strategic processes. It would require investment in education at vocational qualification level and in the training of management and professionals.
Key issues in the development of purchasing include how to design and implement a purchasing and category strategy that produces the highest possible customer value; how to improve customer satisfaction through integration with other supply chain operations; how to make optimal use of global purchasing opportunities – and most importantly – how to lower costs while leveraging the value and skills potential of the supplier network as part of your own value creation.
The research and expertise of the Department of Industrial Engineering and Management and the BIT Research Centre have a major influence on the content of the industrial management program. Timo Seppälä, a Professor of Practice at Aalto University, has researched areas such as platform economy mechanisms and value generation in supply chains.
Companies are able to raise their profitability by bringing outsourced functions back inside."
The value generated by companies is comparable to GDP in the national economy. The more value that Finland generates, the more GDP it produces. A research project by the Research Institute of the Finnish Economy (Etla) led to the creation of a model for analyzing the distribution of a product’s added value between various parts of the supply chain. This involves several levels: from mines to raw material processors, raw material suppliers, subcontractors and end-product manufacturers, all the way to end-users.
Seppälä has shown how analysis of the value generated by all parts of the supply chain can support outsource/manufacture decisions. This enables companies to raise their profitability by bringing outsourced functions back inside.
Digital technologies are impacting on the business practices of industrial and service companies. The platform economy is enabling the creation of new production and service innovations – at lower product development and commercialization costs than previously – in industrial enterprises’ own markets.
"In this case, platform means digital resources, such as data, provided to a partner free of charge or for a small fee with the aim of generating innovations. This can lead to the creation of new markets, of the kind we have seen in the mobile phone markets. Examples can also be found in the industrial sector, such as General Electric’s Predix, Siemens’ MindSphare or IBM’s Watson software packages,” explains Timo Seppälä in an interview given to Aalto University.