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Chapter Outlines - Supply Chain Management 4223-002

Supply Chain Logistics Management Bowersox 4
th
Edition
PART ONE: SUPPLY CHAIN LOGISTICS MANAGEMENT
CHAPTER 1/6
Chapter 1: 21st-Century Supply Chains (page 2)


Chapter Outline:

1 2 3. Introduction
EDI electronic data interchange
o Telephone or fax
o Processing and delivery technique
World of commerce was impacted by computerization, the Internet, and inexpensive transmission
capabilities
21
st
century is the dawn of the informational or digital age
The frequent occurrence of service failures is being replaced by a six-sigma performance
o Six-sigma performance reflects a level of achievement having an error rate of 3.4 defects per
million or 99.99966%
Perfect orders, which are deliveries that are at the correct location on time, damage free, and correctly
invoiced are now the expectation in todays world.


4 5 6. The Supply Chain Revolution
Supply chain revolution & logistical renaissance
o These two massive shifts in expectation and practice concerning best-practice performance of
business operations are highly interrelated
Supply chain management consists of multiple firms collaborating to leverage strategic positioning
and to improve operating efficiency
Supply chain strategy a channel and business organizational arrangement based on acknowledged
dependency and collaboration
o Acknowledged dependence between business firms created the study of what became known
as distribution or marketing channels
Logistics the work required to move and geographically position inventory
o Process that creates value by timing and positioning inventory
o Combination of inventory, transportation, order management, warehousing, materials
handling, and packaging as integrated throughout a facility network.
Commercial trading challenges were overcome by firms developing business relationships with other
product and service companies

7 8 9. Why Integration Creates Value
Three perspectives of value: economic, market, and relevancy value
o Economic
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Traditional perspective
Builds on economy of scale in operations as the source of efficiency
About doing things as well as possible
Customer take-away of economic value is high quality at a low price
o Market
About presenting an attractive assortment of products at the right time and place to
realize effectiveness
Focuses on achieving economy of scope in product/service presentation
Customer take-away: convenient product/service assortment and choice
o Relevancy
Value involves customization of value-adding services, over and above basic product
characteristics and physical location
Relevancy value means the right products and services, as reflected by market value
Customer take-away: unique product/service bundle


7 8. 9. Table 1.1: Integrative Management Value Proposition
Economic Value
Lowest total cost
Economy-of scale efficiency
Product/service creation
Procurement/Manufacturing strategy
Market Value
Attractive assortment
Economy-of-scope effectiveness
Product/service presentation
Market/Distribution strategy
Relevancy Value
Customization
Segmental diversity
Product/service positioning
Supply chain strategy


10 11 12. Generalized Supply Chain Model
Supply chain structure and strategy results from efforts to operationally align an enterprise with
customers as well as the supporting distributive and supplier networks to gain competitive advantage
o Operations are usually integrated from initial material purchase to delivery of finished products
and services to customers
Value results from the synergy among firms constituting a supply chain as a result of five critical flows:
information, product, service, financial and knowledge
o Logistics is the main channel of product and service flow within a supply chain arrangements
o Every firm engaged in a supply chain is involved in performing some aspects of logistics
The generalized supply chain arrangement logically and logistically links a firm and its distributive and
its supplier network to customers
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The integrated supply chain perspective shifts traditional channel arrangements from loosely linked
groups of independent businesses that buy and sell inventory to each other toward a managerially
coordinated initiative to increase market impact, overall efficiency, continuous improvement, and
competitiveness
o Ex. Many firms are extremely competitive through several different supply chains, to the
degree that supply chains become the main competition, which leads to conflicts of interests
and confidentiality issues
A factor that adds complexity to understanding supply chain is the high degree of mobility and change
in typical arrangements
o A firm may be actively engaged in a supply chain during certain times, such as the Christmas
season. Ex. Toys R Us added 600 express stores during the 2010 Christmas season

10 11 12. Figure 1.1: The Integrated Supply Chain Framework
The message conveyed by the figure is that the integrated value-creation process
must be aligned and managed from material procurement to end customers in order
to achieve effectiveness, efficiency, relevancy, and sustainability

13 14 15. Integrative Management and Supply Chain Processes
Attention is always focused on achieving improved integrative management across all aspects of
business
Since the industrial revolution, achieving best practice has focused managerial attention on functional
specialization
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Accounting practices were adopted to measure departmental performance
Eight key processes (listed in next part on outline)
Simultaneous operational achievement of these 8 processes forms the essence of achieving both
operational integration and performance excellence
Integrative management seeks to identify and achieve lowest total process cost by capturing trade-offs
that exist between functions
Three important facets of supply chain logic resulted from increased managerial attention to:
Collaboration
Enterprise extension
Integrated service providers

13 14 15. Table 1.2: Eight Supply Chain Integrative Processes
Demand planning responsiveness the assessment of demand and strategic design to
achieve maximum responsiveness to customer requirements
Customer relationship collaboration the development and administration of
relationships with customers to facilitate strategic information sharing, joint planning,
and integrated operations
Order fulfillment/service delivery the ability to execute superior and sustainable
order-to-delivery performance and related essential services
Product-service developmental launch the participation in product service
development and lean launch
Manufacturing customization the support of manufacturing strategy and facilitation of
postponement throughout the supply chain
Supplier relationship collaboration the development and administration of
relationships with suppliers to facilitate strategic information sharing, joint planning,
and integrated operations
Life cycle support the repair and support of products during their life cycle, including
warranty, maintenance, and repair
Reverse logistics the return and disposition of inventories in a cost-effective and
secure manner

16 17 18. Collaboration
Collaboration of operating information, technology and risk has been encouraged by national
legislation to keep US-based firms competitive
The increasing importance of collaboration has positioned the supply chain as a primary unit of
competition

19 20 21. Enterprise Extension
The central thrust of enterprise extension is to expand managerial influence and control
beyond the ownership boundaries of a single enterprise to facilitate joint planning and
operations with customers and suppliers
Information sharing paradigm widespread belief that achieving a high degree of cooperative
behavior requires that supply chain participants voluntarily share operating information and
jointly plan strategies
Information sharing is essential
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Process specilization paradigm the commitment to focusing collaborative arrangements on
planning joint operations with a goal of eliminating nonproductive or non-value-adding
redundancy by firms in a supply chain
Another contributing force to supply chain development is the rapidly changing managerial
attitude toward integrated service providers

22 23 - 24. Integrated Service Providers (ISPs)
Firms developed the practice of outsourcing work to business that are specialists in the
performance of specific functions
ISPs provide a range of logistics services to accommodate customers, ranging from order entry
to product delivery
Commonly known as third (or fourth) party service providers
Types of ISPs
Outsourcing
Transportation modes
Public warehouses
Value-added services
Third and fourth-party service providers
Asset or nonasset-based service providers

25 26 27. Responsiveness
Responsiveness is essential in the supply chain
Anticipatory (or push) is the traditional business practice to the emerging
Responsive (or pull) time-based business model.
Also referred to as a demand driven

25 26 - 27. Anticipatory Business Model (Push)
The key point from this model is that almost all essential work has been traditionally performed
in anticipation of future requirements
This makes this model very risky

25 26 27. Figure 1.8: Anticipatory Business Model

Forecast Buy components and materials Manufacture Warehouse Sell
Deliver

28 29 - 30. Responsive Business Model (Pull)
Seeks to reduce or eliminate forecast reliance by joint planning and rapid exchange of
information between supply chain participants
Similar to the build-to-order concept but much quicker




Forecast
Buy
Components
and Materials
Manufacture Warehouse Sell Deliver
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28 29 30. Figure 1.9: Responsive Business Model


31 32 33. Postponement
Postponement strategies keep supply chain responsive
Postponement strategies and practices serve to reduce the anticipatory risk of supply chain
performance
Types of postponement:
Manufacturing (or form)
Geographic (or logistics)
Combined

31 32 - 33. Manufacturing Postponement
Building directly for customer specifications
From an integrative management perspective, the goal is to achieve desired customer
satisfaction at the lowest total cost
The ideal application would be that the firm would manufacture the base product but
not finalizing specifications until the order is made by the customer. It is then they
would add colors or accessories

34 35 36. Geographic Postponement
The basic notion of geographic postponement is to build and stock a full-line inventory
at one or a limited number of strategic locations
Geographic and manufacturing types are exact opposites in practice, but have the same
goal
AKA logistics postponement
Meeting customer demand quickly while minimizing inventories
The anticipatory risk of inventory deployment is partially eliminated while
manufacturing economy of scale is retained in geographic postponement
Many applications of geographic postponement involve service supply parts
o Critical and high-cost parts maintained in central inventory to assure
availability for all potential users
o When demand occurs, orders are electronically transmitted to the central
service center and expedited shipments are made to the forward center,
using fast, reliable transportation
o Result highly reliable customer service with reduced overall inventory
investment
Geographic postponement substitutes accelerated delivery of precise order
requirements for the anticipatory deployment of inventory to local market
warehouses.
Unlike manufacturing, in geographic postponement, systems retain
manufacturing economies of scale while meeting customer service requirements
by accelerating direct shipments
Sell
Buy Components
and Materials
Manufacture Deliver
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When combined, manufacturing and geographic postponement offer alternative ways
to reduce risk associated with anticipatory distribution
Both postpone risk until customer commitments are received
When both are combined, the result is a highly flexible strategy

37 38 39. Barriers to Implementing Responsive Systems
The greatest barrier to adopting responsive arrangements is the need for publicly held
corporations to maintain planned quarterly profits
o This accountability creates expectations concerning continued sales and financial
results, which drive promotional and pricing strategies to load the channel with
inventory to create timely sales
A second barrier to implementing responsive operations is the need to establish and sustain
collaborative relationships

40 41 - 42. Financial Sophistication
Time-based strategies are important, but the question is, How fast is fast enough. The managers
must understand the economics. The process of creating value says that faster, more flexible, and
more precise ways of servicing customers are justified as long as they can be provided at competitive
prices.
o Ex. With hydraulic fracturing in the oil and gas industry, the company must understand how the
economics on how much proppant to pump until the cost outweighs the production benefit

Three aspects of financial sophistication are: cash-to-cash conversion, dwell time minimization, and
cash spin

40 41 42. Cash-to-Cash Conversion
The time required to convert raw material or inventory purchases into sales revenue
Generally related to the inventory turn: higher the inventory turn, the quicker the cash
conversion
Goal of supply chain is to control and reduce order receipt-to-delivery time in an effort to
accelerate inventory turns

43 44 - 45. Dwell Time Minimization
Measures the productivity of supply chain
Dwell time is the ratio of time that an asset sits idle to the time required to satisfy its
designated supply chain mission
o Ex. Dwell time would be the ratio of time a unit of inventory is in storage compared to the
time that it is moving or otherwise contributing to achieving sales or operational objectives
To reduce dwell time, supply chain needs to be willing to eliminate duplicate inventory and
non-value added work

46 47 - 48. Cash Spin
Term for describing the potential benefits of reducing assets across a supply chain, sometimes
referred to as free cash spin


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49 50 51. Globalization
Increase demand in developing countries leads to huge market opportunity. Individuals in developing
countries are not as interested in fashion and technology but rather quality in basic life goods, such as
refrigerators, washing machines, food, clothing, etc

52 53 - 54. Summary
Processes that create value happen within individual firms and between firms linked together by
supply chains
Supply chain integration is hard to maintain and requires continuous redefinition. So they are viewed
as being very dynamic