SCM Textbook Chapter 1

VIETNAM LOGISTICS
RESEARCH AND DEVELOPMENT

Li 4th FI
Vietnam Maritime INSTITUTE
Building, Ho 89, Pasteur Str., Ben Nghe Ward,
CCopyright 2018, Vietnam Logistics Pesearch and DevelopmentDist
(VIL
1, HCMC.
Institute
CONTENTS
CHAPTER 1.. ********' ***** ******** ****i***4au *ae**d#*4 ********** ***************** ******* **
1.1 New Market Realities. ************************* roet****i******* ************

**********'**** ******* ****'***** .. 1
1.2 Supply Chain vs. Logistics Management. *********°*'***'*°**********'**"**************d********************
1.3 Roles of Supply Chain Management in an Organization. *************************'*******************
1.4 The Strategic Importance of Supply Chain Management...

*****'***************"*****"****************
1.5 Generalized Supply Chain Model ********"*******°***''****'*******°*****'***************°******** 10
1.6 SCOR Model . *******°****°**********"1**********************°"********************* ************** * **** . 13
1.7 Supply Chain: Making the Vision a Reality... ****************** ***********************° 13

1.8 Scope of Supply Chain and Goals. **o*s*** * s*i ****"**************** *****"************** 14
1.9 Barriers to Effective Supply Chain Relationships..

1.10 How to Overcome the Barriers. 7
1.11 The Future ofSupply Chains. .dessssssnsitsssstnr************************************************-*** 19

24
1.12 Supply Chain Inaction-The Price...
1.13 Future Challenges Looking Toward the Next Decade
-
. 25
1.14 Value Proposition.

************************°******'** '***************************************.**
27
CHAPTER 2.
Chain Component. .28
Warehousing- An Integrated Supply
********************************
2.1.
Warehouse Strategy and Functionality..**0***********°*******°****************** ***************.30
2.2.
.30
2.3. Strategic Warehousing.. *posos** P****** ********************"*****'*****"******'**********************
**rt****°°*°*°***********'****"********'*****'***** ******'************** .31

2.4. Warehouse Functionality..
*se*ds************************** *****'*****'******'******* .
************** 37
2.5. Warchouse Operations..
Warehouse Ownership Classification.**r ***********
*'******** ****°****°*******°**************** . 41
2.6.
aup*o*********°***************** ******"*****"*****************************. 45
2.7. Warchouse Planning.
******************* 49
Initiating Warehouse Planning...
**?*°******************"'**"****
2.8.
**********************
******** . 51
2.9. Warehouse Management Systems...
* * *
53
2.10. Conclusion..
nnrstoa****t*re*************************""*******************************
o******°**°*********
o * * . .
*******'*********"********************
55
CHAPTER 3.. 444essoun .
Chain Component... e************"*************

**************** 55
3.1 Inventory-A Critical Supply
r0ruotot************"'*°** "********************s***s+or 56
3.2 Inventory F l o w . .
57
and Principles.****°
****°°*********'****'*****°********.*n.
3.3 Inventory Functionality
PIATA Higher Diploma Module-Supply Chain Management

In Supply Chain Management
fa
L
sstat okunet
VIETNAM LOGISTIcS RESEARCH AND DEVELOPMENT INSTITUTE (VL)
4th FI Vietnam Maritime Building, No.89, Pasteur Str., Ben Nghe Ward, Dist.1, HCMC.
CCopyright 2018, Vietnam Logistics Research and Development Lnstitute
3.4 Inventory Functionality.. * **************************************** *******.*** *********** .59

3.5 Inventory-Related Definitions
**********°***************************** ***** ******°°***********6l
3.6 Inventory Carrying Cost. ** ****°*******.*****************°***************"************************
************.. 044
*
**
3.7 Planning Inventory and Inventory Management Practices..**********°************°**********... 06

3.8 Economic Order Quantity. ************************************************** ************** .67
3.9 Safety Stock.. **************************°*********** **************"*********
********" 69
3.10 Product Classification.. °*.************************
*****************************°* *******.****
3.11 Lead-time Issues of Inventory..**************

****************"****************************************.73
3.12 Bullwhip Effect..
*****************************°***************°.*********°**********° ***.**** .79
3.13Conclusion. ***.***.**********°*.*****.*****.****************°****°**°****°**********°******* .81
CHAPTER 4. ************************************************°*******°°°********************°*******°*************** 82
4.1. Introduction... *.************ *** ******e*****.**********************************°****************** 82
4.2. Goals of supply chain information technology.. *********.a*** ***** *****.82
4.3 Information Technology Infrastructure. . ******.*****°.*****e*********************************.84
4.4. The Role of Information Systems and Technology in SCM. 87
4.5. The importance of information in an integrated SCM environment . *******.*****ses. 87
O
4.6. Inter-organizational Information Systems. *************** 88

4.7. E-commerce in Supply Chains..*********"********* ******°° * * * * . a * . 89
4.8. Electronic Data Interchange (EDI)..*********°**°****** *°*****°°*
4.9. Bar Coding..

********. ********************************************" 94
4..10. Radio Frequency Identification (RFID)... ******°*****************°***°*°**********.*****e********.*
. 96
4.11. Supply Chain Tracking Systems. .99
*************°*******"****************e******o*************.**
4.12. Warehouse Management System (WMS)..**************************************************°****** 103

CHAPTER 5. *** *******
************ *********** 114
STRATEGIC ALLIANCES IN SUPPLY CHAIN.. *********

.114
5.1 Introduction.. ***************°** *** ******** 114
5.2 Strategic Alliance.. *******" 116
5.3 Conceptual Model of Alliance Development. ******** 118
5.4 Developing a Trusting Relationship ******** .119
5.5 Challenges to Strategic Alliance. ******e********** ********** **** ****"******* .121
5.6 Third Party Logistics (3PL).******************"***** ******** °******** . 122
5.7 Market Trends. ******* ************** ***° °*************** 125
FIATA Higher Diploma

in Supply Chain Management Module 1-Supply Chain Management
VIETNAM LOGISTICS RESEARCH AND DEVELOPMENT
4th FI Vietnam Maritime
Building, No.89, Pasteur Str., Ben INSTITUTE(LI
CCopyTight 2018, Vietnam Logistics Research and Nghc Ward, Dist.l, HCMC
Development Institute
5.8 3PL Development.

******************* * a.* *****************************'*** .126
.
5.9 Key Growth Drivers.
************** **** ** ****- ********************* 126
5.11 Disadvantages and Issues of 3PL
Outsourcing. 129
5.12 3PL Service Offerings.
****** ****************************************'****** **
*** 130
5.13 IT Systems provided by 3PL.. ***************"******.*******.** *.* . . 130
5.14 Fourth Party Logistics
(4PL)/ Lead Logistics Provider (LLP). *******************.
131
5.15 Benefits of 4PL Concept.. ***************************** ************ ********sr. 138

5.16 Models of 4PL.. 1399
5.17 Challenges and Issues within 4PL Environment...********** ********* *******°****** 140
CHAPTER 6...
*************************°***************************************************°******************************** 141
6.1 Introduction: Role of Transportation to Supply Chain...
***********
*******.
141
6.2 Transport Functionality, Principles, and Participants..

*************************************" 142
6.3 Importance of an Effective Transportation System.. ******************°°*********** 146
6.4 Transport Cost Characteristics...************.***. *********************.************************
147
6.5 Carrier Pricing Strategies.. ********* *************************** ********************** *

150
6.6 Guidelines for Distribution Strategy Formulation /Re-engineering.. ***************** 151
CHAPTER 7. ****************°*********°************°************.
* **°***°**** 158
7.1. Introduction...
Aa*************************************************************** *a*******. ******.***** 158
72. Benefits of Quality to Supply Chain Management...*************** **********.**** 158
7.3. Implement a QMS...************"**************"***********************°******* ******************* 159
74. Supply Chain Related QM... *******************************************************a*o . .-.ia^... 160
7.5. Product Realization... ******************°******.**. ***********°*.******* 168
1.6. Supplier Capability Assessment...************ *******
************°******** -.. 180
1.7. Logistics Audit and Control... * *********°************* 186
CHAPTER 8.. e***************°****************************************************** e .......... 192
8.1 Introduction... *********************°************ *****°***********a* . ... 192
8.2 Why is Performance Measurement Important?. ****"************************ * * * * * ***
192
8.3 Importance of Accurate Cost Data a***************** ******* ***
******************** 194
8.4 Total Cost Analysis Concept..************* ************************** ***°**°oo*u. 195
8.5 Cost Trade-offs. *******************
4***************************
1955
8.6 What General Approaches are available to measure performance of Supply Chains?
196
FIATA Higher Diploma iii

n
Supply Chain Management Module1 - Supply Chain Management
L VIETNAM LoCISTICS RESEARCH AND DEVELOPMENT INSTITUTE (VLD
4th FI Vietnam Maritime Building, No.89, Pasteur Str., Ben Nghe Ward, Dist.1, HCMC
oCopyright 2018, Vietnam Logistics Research and Devclopment Instirute
8.7 The Balanced Scorecard. **************************************************************. 197

8.8 The Supply Chain Council's SCOR Model..*******°*********'***************°***** . 198
8.9 The Logistics Scoreboard..e******************************************** ****.****************.

203
8.10
Activity Based Costing. *********°***************°**°***°*****°******°**°°** 20I5
8.11 Economic Value Added. *********°*******°*******.*****************s*** ********°****°**

. 205
8.12 Selecting of Measurements.. ****************. 206

8.13 Possible Impacts of Function-Based Measures..
S......**. ******** ******** 207
8.14 Possible Supply Chain Measures. .
***************°****°
********** ****** 209
8.15 Getting Started to use Performance Metrics. ********* ******** ****.********** 212
8.16 Strategic Logistics Plan..********°°******°********* *******************

215
8.17 Corporate Strategic Planning Process.. ********* **********************************°** 218

8.18 Developing a Strategic Logistics Plan.
****°********************************219
8.19 The Logistics Plan.*********°*********°********°*******************°°***°°***°**********°°*****°°*°*°******** 219
CHAPTER s************************
*************°***************°°************ 222
****°°°°°**°*°***
9.1 Introduction..*****************
**°*******°*°°***°*°**°********************°********* *°******°***222
9.2 ISPS.....
******************************************
******°**°***°*°**°*****°*°*****°****°°*°°****°*****°**°*°**°*°°° 224
9.3 C-TPAT..
*************************°***********°***************°*************"***°°***°°****************°***°*********
226
9.4 PIP...
********************°********** *** ******** ****
*****************°******.*°*°***********
227
9.5 FAST.. ******************"
********°*°**************************°************ ... 227
9.6 SAFE Framework& AEO..
*******°************************************ ********* . 228
9.7 CSI.. *e************************ **** ************°********************°*************
230
9.8 ISO/PAS 28000....
9.9
*******************************°******"***************************°**********°*****233
Conclusion.. 234

inSupply Chain Management
Module 1-Supply Chain Management
VIETNAM LOGISTICS RESEARCH AND DEVELOPMENT IVSTITUTE VL)
4F Vietsam Martine
Baildiog io39, Pasez St, Ben Nge Wed, Dis 1,
CLopynig 2012, Ve2n Lvgjnics Peveeth zd Derpmt r
HO/
CHAPTER 1
INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
Objectives:
To differentiate between logistics management and supply chain management
To establish the overall understanding and appreciation of impaa of supply chain
management on organization peziormance
To introduce and understand the supply chain relationship management model and some of
the barriers to effective supply chain relationships /collaboration
To establish the role of intermediaries in supply chains
1.1 New Market Realities
witnessed a period of change unparalleled in the history

of
In the last two decades, managers bave stabilization of political
the world in terms of advances in technology,
globaliztion of markets, and
mumber of word-clas domestic and foreign cormpetitors,
economies. With the increasing in order to stay
their internal and external processes rapidly
organizations have had to improve
competitive market strategies focused on creating and
began to develop detailed
In the 1960s-1970s, companies and
Organizations also realized that strong engineering, design,
capturing customer loyalty. to support these
market requirements. Design engineers
functions were necessary which then had to
manufacturing needs into product
and service specifications,
cost As the demand for
customer n e w products
had to be able to translate
and at a reasonable
be produced at a high level
of quality were required to
become increasingly fex+ble
manufacturing organizations
to develop n e w oDes in
escalated in the 1980s, order to meet
and proceses or
and responsive to modify existing products
ever-changing customer needs.
realized that material and
manufacturing capabilities improved, managers
n the 1990s, intermal
as on their
ability to meet customer
organizations'
had a major impact sourcing strategy.
Service inputs from suppliers base znd the organization's
on the supply
increased focus was not enough. Geting
the products to
needs. This led to an producing a quality product
a cost-effective manner,
Managers also realized that that they wanted, in
and in the quantity Renaissance" was also
Customers when, where, how, of challenge. More recentiy, the "Logistics networks aimed
type and logistics
informañon tecnologes
new
constituted an entirely
üme-reducing
set of
0orn, spawning a whole
at meeting these challenges.
are launched and
products
In today's environmet, new tolkeep and costly to replace.
business have changed. increasingly dif+cult and new players, and must
be rules of Customers a r e
powerhouses an
busineSses are born every day. from
traditiona!
etects September 11 of
competition
etnciencies. Ihe
Compan
anies face
find
intense
new
revenue
opportuniies
and increase
even more
volatile, with
added security concerns
Ontinue to market
eavironment
OI have made the global

2001
tor global travel and logistics
Module-Supply CainManagement
FLATA Higher Dipioma
Suprply Chaun Management
4th Fl Vietoam Maritime INSTITUTE (VL)
Building, No.89, Pasteur Str., Ben Nghe Ward, Dist.1, HCMC
Fa yas stbte devepnet OCopyright 2018, Vietnam Logistics Research and Development Institute
Today than ever, businesses

more
depend on strategic relations with their customers and suppliers
to create value systems that will
network economy emerging where
provide a
competitive edge in the market. In effect, there is a new
in real time. The companies trade with suppliers and customers over the Internet
virtual corporation is now a
functions including design, reality, with companies outsourcing a wide range of
manufacturing, distribution, and others so that
core
competencies. However, ensuring a seamless, consistent customer they can focus on their
time automation of
inter-organizational business processes that span acrossexperience requires real-
trading partners.
Traditional business practices, such as e-mail, faxes, and voice mail introduce delays and often re-
quire data to be re-entered multiple times. Hence, the need for
integration that can automate business processes that encompass dynamic business-to-business (B2B)
a diverse
legacy applications and systems within the range of packaged and
corporation and among supply chain member
organizations. The ability to develop these B2B relationships and realize their
shortest possible time is critical to the potential in the
long-term success of any modern business.
business can afford not to efficiently automate business Indeed, no
processes with trading partners.
Businesses are continually forging closer relationships with their customers. Customers
informed from contact to completion of expect to be
transaction, 365 days a year, 7 days a week, 24 hours a day.
Rather than adding the costly human resources that would
a level of traditionally be required to maintain such
service, customers now interact directly with company information via automated
e-mail systems, self-service Web sites, and information portals. Companies systems
customers to help themselves to their information.
Customers
are
empowering their
not only expect their interaction to be
real time, but also to be
personalized, with information that represents their specific history with the
company.
In order to meet
these demands, businesses must be able to
applications with those of their suppliers and customers integrate their information systems and
Not surprisingly, this has led to a tremendous reliably, securely, and in a timely manner.
growth B2B integration as companies look for
in
ways to automate and accelerate their business
processes and become e-businesses, responding to
customer demands immediately and
making changes as market opportunities shift.
The Industry 4.0 Idea has started since 2012 and now
becomes very popular, coming with loT, new
decade ofE-commerce. The
"Logistics 4.0" term also raised
E-business, and B2C integration significantly improves

the key principles organizational performmance by supporting
of business success:
Faster to market with new products and services
Better service
Better sales process
Lower operational costs
Lower production costs
Lower inventory costs
FIATA Higber Diploma

2
ioSupply Chaio Management Module I-Supply Chain Manageroent
VIETNAM LOGISTIcS RESEARCH AND DEVELOPMENT INSTITUTE (VLI)
4th Fl Viemam Maritinme Building, No.89, Pasteur Str., Ben Nghe Ward, Dist.1, HCMC.
OCopyright 2018, Vietnam Logistics Research and Development Instinute
However, e-business also adds a significant amount of complexity (e.g., security, reliability, fault
tolerance, govenment regulations, etc.) not to mention the money and time required to integrate an
organization's business applications. Companies are undertaking significant restructuring initiatives
to be able to function in the new era of electronic commerce. Presented with a deluge of
information on "dot-coms", servers, B2B requirements, B2C and online customer and supplier
for this new
linkages, many executives are now struggling to develop a comprehensive strategy
market environment.
that beneath
After the initial wave of excitement about e-business, many companies are recognizing
the Web, here must still be a physical distrnbution and sourcing structure. All of a sudden, supply
these discussions often overlook a critical
chain management (SCM) is back in vogue. However,
the movement of materials from point A to point B.
point SCM is concemed with more than just chain member organizations with a partic-
The goal of SCM is the creation of value for the supply "new
chain. For this reason, we will refer to these
ular emphasis on the end customer in the supply create the maximum value
been designed and developed to
and improved" supply chains that have
for supply chain members as "value systems."
since
chains has become even more apparent
The need to create system of managing supply
a new
have imposed a
2001. In response to the terorist attacks, organizations
the events of September 11, the automotive indus-
number of measures, including deep
discounting to sustain profitability (i.e., the federal
in leadership, and even appeals to
downsizing of the workforce, changes
try), significant
govermmeat to restrict
international competition (textiles).
around to take on
has been predictable:
there are fewer people
The impact on many organizations levels, plant closings, and
cost pressures, high inventory
significant such as
an increasing workload,between customers and supplierS. n some industries, that
conflicts commitments" to reflect the fact
increasing the term "deferred
telecommunications, companies are using forecasted quantities from their suppliers. In response
agreed-upon to
they are not willing to purchase the traditional adversarial approach
have reverted to
to these events, some organizations
chain relationships.
managing supply
to confront an important message:
forced many managers
On the other hand, the impact of
9/11 has and simply doesa't
work. In fact, the recent
chains is broken
supply need to improve performance
across
the old model of managinghas, more than ever, reinforced the electronics, transportation, industrial
downturm in the economy
industries such as
automotve,
and
chain. In is no longer an option,
the entire supply that rais1ng pnces
executives realize
others-senior This leaves only one
quipment, and many increasing sales in a tlat economy.
of dramatically
neither is the possibility chan.
across the supply
option: reducing costs economies. Tbese regions
and emerging
new markets
trermendous growth
in to supply chains. A
n addition, there is dimensions and complexity
and will add new
production to
economy like Toyota are moving
will plug into the global Automotive giants
automotive industry.
Case in point is the
these countries. transportation services
and
chains cven more, in tems ot costs and
will stress supply costs, warehousing
movement, reight
ade low increases fluctuatioas of cargo
The processes.
warehousing services. in less time to plan logistics
Production costs
will result
Chain Managemes
Module 1- Supply
FATA Hgher Dplooa
Supply Chan Management
VIETNAM LOGISTICS RESEARCH AND DEVELOPMENT INSTITUTE (VLD
Ben Nghe Ward, Dist. 1, HCMC.
4th Fl Vietmam Maritine Building, No.89, Pasteur Str., Institute
CCopyright 2018, Vietnam Logistics Research and Development
3PLs are assuming more of their customers

Outsourcing remains a mainstay of OEMs. And
needed to handle these tasks and deliver the
workload and responsibilities. Increasing expertise is
time. Customers are also demanding high service
expected service level, which is increasing all the
levels consistently.
likely to build shareholders' value. Wal-

Companies which use supply chain strategies are more
Mart used supply chain to become a low-cost leader' Dell uses supply chain to deliver reliably and
refined its products to be able to innovate repeatedly
and rapidly.
JIT, Apple
1.2 Supply Chain vs. Logistics Management

describe as the supply chain revolution and a
What managers experiencing today we choose to
shifts in expectation and practice concerning the
related logistical renaissance. These two massive
but they are significantly different
performance of business operations are highly interrelated,
aspects of contemporary strategic thinking.
the value chain or demand chain) Management
consists offirms
Supply Chain (sometimes called and to improve operating efficiency. For each
fim
collaborating to leverage strategic positioning is a
reflects strategic choice. A supply chain strategy
involved, the supply chain relationship
and relationship management. Supply
channel arrangement based on acknowledged dependency
that span across functional areas within
individual
chain operations require managerial processes
customers across organizational boundaries.
firms and link trading partners and
activities along the supply chain
Supply Chain Management is defined as the integration of
customer orders, distribution orders, inventory ordering,
placement of manufacturing8
linking orders.
orders, cash flows and ultimately supplier
move and position
in contrast to chain management, is the work required to
supply
Logistics, within the broader
chain. As such, logistics is a subset of and occurs
imventory throughout a supply
frameworkof a supply chain. Logistics is
the process that creates value by timing and positioning
of a fim's order management, inventory, transportation,
inventory; it is the combination a facility network.
materials handling, and packaging as integrated throughout
warehousing, a continuous process
and synchronize the overall supply chain as
Integrated logistics serves to link of logistical work has
chain connectivity. While the purpose
and is essential for effective supply to
over the decades, the way
the work is performed continues
remained essentially the same
radically change.
to the process
Logistics management, by The Council of Logistics Management, refers
as defined
and storage ofgoods, services
implementing and controlling the eficient, efectiveflow
of planning, to the point of consumption for
the purpose of
and related information from point of origin
conforming to customer requirements.
"the process of
the Council of Logistics Management (CLM), 1993 as
Logistics by
is defined
effective flow and storage of goods,
services
implementing and controlling the efficient,
planning, for the purpose of
information from the point of origin to the point of consumption
and related "the design and
Another author defines logistics as
requirements".
conforming to customer
FLATA Higher Diploma Module 1- Supply Chain Management

in Supply Chain Management
VIETNAM LOGISTICS RESEARCH AND DEVELOPMENT INSTITUTE (VL)
4th FI Vietnam Maritime Building, No.89, Pasteur Str., Ben Nghe Ward, Dist.l, HCMC.
CCopyTight 2018, Vietmam Logistics Research and Development Institute
PNtNert
a yar sstnde
to
operation physical, managerial, and informational systems needed to allow go0ds
of the
that wil have an
overcome time and space. Logistics entails the planning and control of all
factors
time, and at the optimum cost.
impact on getting the correct product where it needs to go, on
in an
Superior logistical performance is a primary area in which organizations participating
integrated SCM initiative can make significant improvements. Logistical management is Vital not
and other distribution
only to manufacturing and assembly industries but also to retailing, transport,
or service-oriented
industries. Owing to intensive competition in global markets, logistical
management is considered an important source of competitive advantage.
as a core
"world-class firms are more apt to exploit logistics
A study done by CLM found that to inter-
can certainly be extended
than their less advanced competitors." This logic fims do
competency what the best-of-the-best logistics
organizational supply chains. The CLM study identified
to achieve world-class status. Key focus areas include:
structural approaches to guide
selection of strategic and
Positioning concerning the
logistics operations
excellence and boundary-
achievement of logistical operating
Integration of intermal
solid supply chain relationships
spanning development of
accommodation, and flexibility.
The firm's agility with respect to relevancy,
performance
Measurement of intermal and external
allows supply chain
activities. SCM
the importance of logistics
increase
Integrated SCM ill only level. At its limit, this means
at the interorganizational the
members to optimize logistical
performance materials supplier across
of materials from the raw
of the movement of
integrated management from current logistics practices
a major departure
This represents coordination between
chain to the end customer. eftorts with limited
characterized by independent
many companies, often
organizations.
the movement of products across
be challenged to manage
professionals will continue to that meets customers' service requirements.
Logistics manner
This
the entire supply chain.
cost-effective
a timely
and
the supply chain in requires a logistics strategy that encompasses logistics strategy
within each of the
Meeting this challenge driver for the specit+c modes, carrier
the primary transportation
Overall strategy will be Distribution networks,
activities
member organizations. and all other related
order processing,
Supply chain warehousing, chain (not just
management, the entire supply
management, inventory logistics strategy is now chain
The scope of
the desirable for each supply
need to be addressed. necessary or
chain). It
will no longer be
each individual unit in the activities independently.
manage its logistics
Dember organization to
Organization
in an
Chain Management
1.3 Roles of Supply fim to fim,
Chain management
vary from
supply diferences of
managed that make up management's
honest
activities to be structure, individual activities to
its
Tbe fim's particular
organizational of
and the importance
epending on a
constitutes logistics, I-l, and note
the important activities
opinion about what chain as shown in Figure
the supply of Logistics
Management,
operations. Follow along the Council
according to
that lake place. Again,
ModuleSupply Chain Management

Management
Chain
n
Supply
VIETNAM LOGISTICS RESEARCH AND DEVELOPMENT INSTITUTE (VLD
Ben Nghe Ward, Dist. 1, HCMC.
4th FI Vieoam Maritime Building, No.89, Pasteur Str.,
Vietnam Logistics Research and Development Institute
OCopyright 2018,
Figure 1-1 organizes these components, or activities, as to where they are most likely to take place
in the supply channel. The list is further divided into key and support activities, along with some of
the decisions associated with each activity.
Customers
Transportation Warehouslng Transportation
Information
flowa
Factory
Transportation
Werehousing Transportation Vendor/plants/ports

Figue 1-1:The Immediate Supply Chais lor an Individual Organizadon
Key Activities
Customer service standards

Cooperate with marketing to
a. Determine customer needs and wants for logistics customer service
b. Determine customer response to service
c. Set customer service levels
Transportation
a. Mode and transport service selection
b. Freight consolidation
c. Camier routing
d. Vehicle scheduling
e. Equipment selection
f. Claims processing
g. Rate auditing
Inventory management
a. Raw materials and finished goods stocking policies
b. Short-term sales forecasting
c. Product mix at stocking points
d. Number, size, and location of stocking points
e. Just-in-time, push, and pull strategies
Information flows and order processing

a.Sales order-inventory interface procedures
TA
FIATA Higher Diploma 6
in Supply Chain Management Module 1- Supply Chain Management
VIETNAM LOGISTIcs RESEARCH AND
4th FI Vietnam Maritime DEVELOPMENT INSTTUTE (VLID
Building, No.89, Pasteur Str., Ben Nghe Ward, Dist. 1, HCMC.
OCopyright 2018, Vietnam Logistics Research and Development Institute
b. Order information transmittal

methods
c. Ordering rules
Support Activities
Warehousing
a. Space determination
b. Stock layout and dock design
c. Warehouse configuration
d. Stock placement
Materials handling
a. Equipment selection
b. Equipment replacement policies
c. Order-picking procedures
d. Stock storage and retrieval
Purchasing
a. Supply source selection
b. Purchase timing
c. Purchase quantities
Protective packaging
Design for
a. Handling
b. Storage
c. Protection from loss and damage
to
Cooperate with production/operations
a. Specify aggregate quantities
b. Sequence and time production output
Information maintenance
a. Infomation collection, Storage, and manipulation
b. Data analysis
c. Control procedures
take place in every
activities are separated
because certain activities will generally
ey and support within a
take place, depending on the circumstances,
Ogistics channel, whereas others will 1-3. They either
are on the
"critical" loop, as shown in Figure
particular fim. The key activities
essential to the effective coordination and
of logistics or are
Contrbute most to the total cost
Completion of the logistics task.
of readiness to which the logistics
level of output and degree
C
Customer service standards set the to the level of customer service
Logistics costs increase in proportion
ystem must respond. the logistics costs to support that
standards for service also affects
the costs to exceedingly high
POVIded, such that setting service requirements can force logistics
vel of service. Setting very high

levels.
7
Module 1Supply Chain Management
In Supply Chain Management
AL VIETNAM LOGISTIcs RESEARCH AND DEVELOPMENT INSTITUT E (VL)
4th FI Vietnam Maritime Building, No.89, Pasteur Str., Ben Nghe Ward, Dist.1, HCMC.
Supply Chain
Physical supply Physical distribution

(Materials management)
Sources Plants/
Customers
of supply operations
Transportation Transportation
Inventory maintenance Inventory maintenance
Order processing Order processing
Acquisition Product scheduling
Protective packaging9 Protective packaging
Warehousing Warehousing
- Materlals handling
Materials handling
Figure 1-2: Possible Activities in an Organization's Immediate Supply Chain
has
Transportation and inventories are the primary cost-absorbing logistics activities. Experience
shown that each will represent one-half to two-thirds of total logistics costs. It is transportation that
adds place value to products and services, whereas inventories add timne value.
Transportation is essential because no modem firm can operate without providing for the movement
of its raw materials and/or finished products. This essential nature is underscored by the financial
strike or
strains placed on many firms by so-called national disasters, such as a national railroad
In these circumstances,
independent truckers' refusal to move goods because of rate disputes.
markets cannot be served, and products back up in the logistics pipeline deteriorate or become
to
obsolete.
Customer order processing
(and transmittal)
Transportation Customers
D
Inventory
maintenance
or supply
Figure 1-3: The Critical Customer Service Loop
to
Inventories are essential to logistics management because it is usually not possible or practical
between
to customers. They serve as buffers
provide instant production or sure delivery times customers while
and demand so that needed product
availability may be maintained for
supply manufacturing
to seek more efficient methods for
providing flexibility for production and logistics
and distributing the products.
Its costs minor compared to transportation or

usually are
Order processing is the final key activity. the tota
is an important element in
maintenance costs. Nevertheless, order processing
inventory
FIATA Higher Diploma Module 1- Supply Chain Management

TAin Supply Chain Management
VIETNAM LOGISTICS RESEARCH AND
4th FT DEVELOPMENT INSTITUTE (VILI
Victnam Maritime Building, No.89, Pasteur
Str., Ben Nghe /ard, Dist.), HCM
la (as astnte atynert OCopyright 2018, Vietnam Logistics Research and Development Institute
time that it takes for a customer to receive

goods or services. It also is the activity that triggerS
product movement and service delivery.
Support activities, although they may be as critical as the key activities in any particular
circumstance, are considered here as contributing to the logistics mission. In addition, one or more
of the support activities may not be a part of the logistics activity mix for every firm. For example,
products such as finished automobiles or commodities such as coal, iron, or gravel that do not need
the weather and security protection of warehousing will not require the warehousing activity, even
though inventories are maintained. However, warehousing and materials handling are typically
conducted wherever products are temporarily halted in their movement to the marketplace.
Protective packaging is a support activity of transportation and inventory, as well as of warehousing

and materials handling because it contributes to the efficiency with which these other activities are
carried out. Purchasing and product scheduling often may be considered more a concern of
production than of logistics. However, they also affect the overall logistics effort and specifically
the efficiency of transportation and inventory management. Finally, information maintenance
supports all other logistics activities in that it provides the needed information for planning and
control.
1.4 The Strategic Importance of Supply Chain Management
The key objective of supply chain management is to provide customer satisfaction by having the
Corect product in the correct place at the correct time. Competition worldwide is increasing.
to most companies. The concept of satisfaction has
Creating customer satisfaction is important
contribute to a feeling of overall satisfaction and are made
multiple dimensions. These dimensions
up of considerations of:
Cost what customers receive

for what they paid
to achieve the purchase
Convenience the effort expended
-
both included and promised

Confidence in the support services
and retain customer
and competition, the ability to satisty
In an age of global markets, supplies office operations are vital. Fims
proposition. Back
oyalty is no longer a simple marketing value for money, quality
competitiveness by providing customization,
cuTently strive to increase instance include speed to market or
and service. Customization of the service
component may for
TEsponsiveness to customer enquiries.
the Internet store delivered to your
books selected from
onsider Amazon.com, which provides and based on convenience.
The marketing proposition simple
is
(within a stated time period). operation of Amazon
or from a bookshop. If the
back-ofice
The same product could be purchased to meet a promised delivery date
book once ordered, or fails
takes six weeks to deliver the same applies to FedEx with its
ner the customer would
be dissatistied. The
that
the
en probability is
10am promise. Speed 1s becoming an ot its
important aspect of service
cvery next day before the entire length supply chain from meat
controls its supplies along
PrOVISioD. McDonald's franchise outlets
worldwide.
cups to 28,000
enasing and paper
the supply chain
in global markets, the stakes
are
bigh. Managing
major companies operating markels
compealors,
belore
and achieve competitive
and reach
ers the capability to create
Module- Supply Chain Management

FLATA Higher Diploma
n Supply Chain Management
VIETNAM LOGISTICS RESEARCH AND DEVELOPMENT INSTITUTE
4th FI Vietnam Maritime Building, No.89, Pasteur (VLJ)
Str., Ben Nghe
Wsrd, Dist. 1, HCMC.
OCopyright 2018, Vletnam Logistics Rescarch and Developrment Institute
advantage by providing increased customer satisfaction through delivering the

right time at greater valuc for right product at the
money as a result of reduced overall cost. The
1S to support business purpose of opcrations
strategy while the purpose of supply chain is management to
operations strategy. support the
1.5 Generalized Supply Chain Model

The general concept of an integrated supply chain is typically illustrated a
participating firms into a coordinated competitive unit (see Figure by line diagram that links
see the
supply chain comprises external suppliers from 1-4). Within the model, one can
1 tiered suppliers
customers (procurement, onwards), internal
warehousing, manufacturing, transporting), distribution
(distributors, retailers) and end-users. network
These intermediaries play different role depending on their

whether they be location within the supply
in the upstream or downstream of the chain,
intermediaries add costs rather than value to the supply chain. Often, in developing countries,
countries where organized retail works supply chain. Case in point is India. In
very closely with the farmers, thereby developed
chain intermediaries, the food value chain eliminating supply
in India is characterized
Food products have to by numerous intermediaries.
physically move between
multiple agents, before they reach the food
processor or retailer. Handling of product at
multiple levels
higher levels of wastage but also adds to the cost of the by multiple entities not only results in
is not uncommon in the food product. Cost escalations
chain because of non-value added costs. of from 40%-60%
Relationship Management
Information, product, service, financial, and knowledge flows
Supplier
Network E
M N
D
Integrated
Enterprise Distributive
Network
Market
Procuremert
Distribution
N
Manufacturing/
M
E
Capacity, information, core competencies, capital, and human resource constraints
Figure 1-4: Generalized Supply Chain Model

A 10
in Supply Chain Management Module 1- Supply Chaio
Management
VIETNAM LOCISTICS RESEARCH AND DEVELOPMENT INSTITUTE
(VL)
Li 4th Fl Vietnam Maritime Building, No.89, Pasteur Str., Ben Nghe Ward, Dist. 1, HCMC.
In the case of steel, the supply chain is functional integration of a number of value addea
services provided by many intermediaries, starting from the steel producer to the finished
product. These intemediaries are involved in the processing of large quantities ofa wide range
of steel products. An example is a service center which buys or contracts the material from steel
brokers. It processes steel products to different dimensions and modify the chemical
composition in accordance with varied customer requirements. Service centers have slitters,
levellers, saws, shears, burning units, plasma tables, grinders, cut-to-length lines a l l the
specialized equipment needed for efficient pre-production processing. There are also
intermediaries which are providing precision processing to close tolerances, quality monitonng
and inspection, and statistical quality control.
In the pharmaceutical industry, the intermediaries include industry suppliers of fine and
specialty chemicals, lab equipment, R&D research, pharmacy stores, retail chains,
supemarkets, mail order companies, hospitals, clinics, homes for elderly.
The current phase of Supply Chain Integration (Phase 3) evolved from the following phases:
Phase 1: Optimization of individual functions

Phase 2: Optimization of cost and quality between individual organizations
with synchronized goals and involved managers
Phase 3: Management of entire supply chains
chains have existed. The real issue is whether

As long ashumans have traded goods, supply
to other
their supply chains, or abdicate this responsibility
companies will choose to manage "invisible hand" to
have depended on Adam Smith's
entities. For thousands of years, businesses each
merchant in Venice,
silkworm farmer in China to the cloth
optimize supply chains. From the his individual gain by negotiating with direct suppliers
element of the supply chain tried to optimize maximize his income. Today, we have
individual customers to
to keep his costs down, and with
the multiple links of a supply chain can improve performance
countless examples of how managing
by significant amounts.
model are threefold:

The principles of the new
chain is the end customer. Until the end

customer
into a supply
The only entity that puts money his money back and forth among supply
a product,
the rest of us are shutihng
decides to buy
chain members.
stable over the long

term is one in which every
element of
the supply
solution that is for
The only from the business. It is shortsighted
material to end customer, profits
chain, from raw cost problems by punishing suppliers
and customers.
can solve their
businesses to believe they causes is inherently unstable and unsuccessful
without solving root
and problems the best solutions,
Shifting costs chains will solve problems, implement
over the long term.
The best supply
their members.
and share the benefits among
value added. SCM is not just

about cost. It's
is about economic and
uncludingquality, technology, delivery,
management
Supply chain final product or
service,
of a
we wil be unable to meet the needs of
about the total content the total content,
can't manage
after-sales service. If
we
Our customers.
Module 1-Supply Chain Management

VICTNAM L.OGISTICS RESEARCIH AND DEVELOPMENT INSTITUTE (VLJ)
4th FI Vietnam Maritime Building, No.89, Pusteur Str., Ben Nghe ard, Dist. I, HCMC
OCopyright 2018, Victnan Logistlcs Roseurch and Development Instituto
To nchieve these goals, supply chain management stratcgy should be an inhcrent part of any
corporate stratcgy; just as product strategy, markeling strategy, and financial strategies are
elements.
The context of an intcgrated supply chain is multi-firm relationship management within a

framework characterized by capacity limitations, information, core competencies, capital, and
human resource constraints. Within this context, supply chain structure and strategy results from
cfforts to operationally link an enterprise with customers as well as the supporting distributive and
supplier networks to gain competitive advantage. Business operations arc therefore integrated from
initial material purchase to delivery of products and services to end customers.
Value results from the synergy among firms

comprising the
critical flows (sec bidirectional arrow at the top of
supply chain with respect to five
Figure 1-4).
Information
Product
Service
Financial
Knowledge.
Logistics is the primary conduit of product and service flow within a
Each fim engaged in a supply chain arangement.
supply chain is involved in performing logistics. Such
may or may not be integrated within that firm and within logistical activity
overall supply chain
Achievement of logistical integration is the main
focus and desire for performance.
competitive advantage in the market place in which the organization is organizations to achieve
competing.
Thegeneralized supply chain arrangement illustrated in Figure 1-1 logically and
fim and its distributive and
supplier networks to end customers. The
logistically links a
figure is that the
integrated value-creation process must be
message conveyed in the
end-customer product /service delivery. managed
from material procurement to
The integrated supply chain perspective shifts traditional channel
groups of independent businesses that buy and sell arrangements from loosely linked
coordinated initiative to increase market inventory to each other toward a
managerially
impact, overall efficiency, continuous
competitiveness. practice, many complexities serve to cloud the
In improvement, and
chain as directional line
diagrams. For example, many individual firms simplicity of illustrating supply
in multiple and simultaneously
competitive supply chains. To the degree that a supply chain participale
of competition, firms becomes the basic unit
participating in multiple arrangements may confront loyalty
confidentially and potentially conflict of interest. issues related to
Another factor that serves to add

complexity to understanding supply chain structure is the
degree of mobility and change observable in hign
fluidity of supply chains as firms enter and exittypical arrangements. It's interesting to observe the
without any apparent loss of essential
For example, a firm and /or connectivity
service supplier may be
during selected times, such as a peak selling actively engaged in a supply chain structurc
scason, and not during the balance of a year.

inSupply Chain Managenent 12
Module I-
Supply Chain Management
VIETNAM LOGISTICS RESEARCH AND
L 4h FI
Vietnam Maritime Duilding,
No.
DEVELOPMENT INSTISUTE (VI)
89, Pasteur Ben Wurd, Dist 1, M .
Str., Nghe
OCopyright 2018, Victnam Logistics Rosearch and Developrment Institule
1.6 SCOR Model
Managers responsiblc for supply chain process improvement planning, implementation, and
measurement received a much needed framework to guide their effortsin November 1996 when the
then69-member Supply chain Council introduced its Supply Chain Operations Relerence Model
(SCOR). Member companies, including such diverse industry leaders as Dow Chemical, Merck,
Texas Instruments, Compaq, and Federal Express, worked together for over six months to develop
the model. Specifically, they defincd common supply chain management processes, matched these
processes against "best practice" exainples, and benchmarked performance data as well as oplimal
software applications. The result was a tool for
Measuring both supply chain perfomance and the effectivencss of supply chain re
engineering, as well as;
Testing and planning for future process improvements.
This model was tested both in a mock supply chain situation and internally at RockWell
Semiconductor Systems with highly positive results.
chain members on the

At the core of the SCOR model is a four-level pyramid that guides supply
road to integrative process improvement. Level One consists of a broad definition of the four key
is the point at which supply
chain process types (i.e., plan, source, makc, and deliver) and
supplycompetitive
chain objectives are established. Level Two defines the 26 core supply chain process
with which supply chain partners can jointly
categories established by the Supply Chain Council infomation
structure. Level Three provides partners with
present their ideal or actual operational Level Four focuses on
chain process improvement.
useful in planning and setting goals for supply
efforts.
implementation of supply chain process improvement
inter-organizational supply chain partners a basis for

major benefit of SCOR is that gives
The it
to talk about and
for the first time, with something tangible
integration by providing them, often to look at real
break down functional silos and allowed people
work with. The framework helped to the
chain management improvements. It gave people
issues and practices holding back supply in mind.
chance to look at the supply
chain with company-wide needs
the Vision a Reality

1.7 Supply Chain: Making
alike have been focusing intensely on supply
chain
In the past 20 years, academics and practitioners define
to properly Supply Chain Management, explain how
Academics have labored to implement supply
management.
management and encourage practitioners
it differs from traditional logistics build sustainable competitive
lower logistics costs, and
customer service,
chain practices to improve Chain Management and the various
all the attention being paid to Supply
advantage. Despite chain management. In
exist of truly seamless, integrated supply
initiatives pursued, few examples dream than a reality.
remains more of a pipe
Chain Management
ruth, Supply
stated benefits of Supply Chain Management have
attempts lo realize the
Practitioners, in their
number of initiatives
including:
launched a
Efficient Consumer Response (ECR)

3
FLATA Higher Diploma ModuleSupply Chain Management

TUTE (VLJ)
ND DEVELOPMENT r.NSTI.
RESEARCH A S tr., Ben Nghe Ward,
01st. I, I-ICMC.
YCETNAM LOGLSTJCS g, N 89 Pasteur lo5t1tule
Bui. ldin pm ent
4th Fl Vie111am Maritime am
o.. '.cs Resea rch and Develo
Log
8, Vie tn 1s11
OC:opyrigbt 201
• Vendor-Managed ln_ventory �I) FR)

• Replenishmenl (CP
Collaborative Planning, Forecast:ulg, and
. . .ati. es ain benefits to organiz.oti ons. In fact, many
Not all of the Supply Chai n M� gem ent IDiti
organizations still carry large mventory of goo
!
�s Pped in the supply chain due to interue
competition.
• · a wide vari ety o f different supply
From corporate-and orgaruzat10n-W1·de perspective, there are
chain strategies targeting at achieving concrete results:
• o fit margins thro ugh strong

Market Saturation Driven: focusing on generating high pr
brands and ubiquitous marketing and distribution.
• Operationally Agile: Configuring assets and o_perations. to r�act nimbly to emerging
consumer trends along lines of product category or geographic region.
• Freshness Oriented: Concentrating on earning a premium by providing the consumer with
pr oduct that is fresher than competitive offerings.
• Consumer Customization: Using mass customization t o build and maintain close
relationships with end consumers through direct sales.
• Logistics Optimizer: Emphasizing a balance of supply chain efficiency and effectiveness.
--- - -
• Trade Focused: Prioritizing "low price, best value" for the c onsumer (as with the lo gistics
o ptimizer strategy but focusing less on brand than on dedicated service to trade c ustomers).
1.8 Scope of Supply Chain and Goals
It is im��t to un�e�stand the key characteristics that distinguish Supply Chain Manag ment
e
from �ad1honal �og1stics Management. Supply Chain Management is
IM?agmg the entir� process as products are transfonned an initia ti vo focuse s on
from raw materials into finished goods
delivered to the ultunate customer. Supply chain management ·
1·s priman· 1Y conccmed w1·th thrce
flows:
• Product/service
• Information
• Money
The scope of supply chain is extremely broad,

involving multiple · .
finns p crfonn . busmes, s
functions. These functions include not
· nlY . ing
. o 1 o g1s ti' c s, transport
. af .
i n, and ware housing, but also
sourcmg and procurement, manufacturing . o
ate als h. andbng,
inventory management, and customer scrvic;, � � forecastin�, ordc� procc�sing,
p Y c h� manageme�t re
departments /functional areas within o q\Ures the mtegrat1on of
rganiza: as
accounting,_ purchasing, and logistics. And p :i � uc
ng �d sales, prod�cti�n,
im o t it r �r sk�ti
ar
among tradmg partners' accomplis hed thr . fi �• c qw c integratton and coordmatto n
• . ough 1 n onnation sharing
1'nfionnatJ on sh anng underscore The need 1or
c-. coordma und
s the importance Of str0
ng rel ati.· o • tion
•
partners. nships among supply chain
d
� lll
_FlATA Higher Diploma
Supply Chain Manageme
nt 14
Module l - Supply
Chain Mnnogcment
VIETNAM
4th LOGISTICS RESEARCH AND
DEVELOPMENT
FTVietnam Maritime Building, No.89, Pasteur INSTITUTEHCM.
Str., Ben Nghe Ward, (VLI)
fo ssraR (Payt Copyright 2018, Vietnam Logistics Research Dist.i,
and Development Institute
The broad goal of supply chain

management is to effect a
grave with the fewest resources and the highest customerseamless flow of products from cradle to
service possible. By working
firms in a supply chain should be able to
decrease togethcr,
costs of transportation, ordering, inventory,
storage and handling across the entire supply chain while and
customer. The four major goals of Supply Chain improving the quality of service for each
Management
are:
Waste reduction
Time compression
Flexible response
Unit cost reduction.
Achievement of these goals should lead to increased customer satisfaction, customer retention, and
revenue growth. Without effective collaboration, the flow of material and information will be
disrupted or inhibited. For this reason, it is helpful to have a systematic approach to defining and
conducting collaboration.
1.9 Barriers to Effective Supply Chain Relationships
Several impediments to supply chain collaboration including:
Widespread resistance to change

The required time investment
Lack of trust
Poor communication
Continued presence of functional silos
them are
the collaborative mindset needed to overcome
Understand these barriers and developing

the first steps toward achieving true integrated
Supply Chain Management.
Lack of Trust
with
maintained an arm's length relationship
last century, most fims have
For the better part of the are found to engage
in various questionable
In addition, many firms
their suppliers and customers. Where these negative behaviors
with trading partners.
business practices in their
relationships i 's not
lower levels of trust
and commitment. Given this heritage,
chain will be met
OcCurred, there were significantly collaborative relationships
a c r o s s the supply
initiatives to establish
Surprising that
with skepticisn and distrust.
Management Principles
Commitment to Supply Chain
Little Understanding of or
with relationships in their own function, say

comfortable dealing other
somewhat comfortable when
the relationship involves
Most managers are less external
purchasing. But they become comfortable when it comes to dealing with
logistics or least
in the company. Any they're
unclions
chain.
organizations in their supply importance
begin to understand the
increases as managers chain as
comfort levels betterment of the whole supply
The inter-organizational working for the c o l l a b o r a t i v e behavior
if they
to
and commit achieve true
ofintegrated activity Fims will
never
particular part.
OPposed to just their 15
Chain Management
Module 1- Supply
Management
in Supply Chain
INSTITUTE (VL)
AND DEVELOPMENT
VIETNAM LOGISTICS RESEARCH Dist. 1, HCMC.
Pasteur Str., Ben Nghe Ward,
4th FI Vietnam Maritime Building, No.89, Institute
Research and Development
OCopyright 2018, Vietnam Logistics
ps stndk deeynet
and lor sharing sensitive information. This barrier to

cannot overcome their fear of losing autonomy troubling because management
adoption of Supply Chain Management initiatives especially
is
the
ime is a precious commodity. Faced with what they perceive to be a time-consuming effort, few
collaborative approach, its benefits, and its
will make the effort to understand the new
managers
implementation requirements.
Fear of Relinquishing Control
Most managers want to be evaluated on actions that are completely under their control
Understandably, no one wants to be held accountable for results that are partially the responsibility
of others, be they inside or outside of the organization. Because many supply chain initiatives
demand joint efforts and close cooperation, it is easy for supply chain managers to feel at the mercy
of another company or individual as they work to achieve a certain level of supply chain
time for processing an order. This
performance. For example, take an initiative to reduce total cycle
activity is not completely controlled by any one company of manager. For many, this is a major
barrier to embracing the collaborative approach.
Different Goals and Objectives

The goals of the various partners may differ significantly - not for any sinister reason but simply
because they face different competitive situations, diferent financial circumstances, and different
environment as defined by company size, ownership, and culture. If the overall supply chain goals
are not universally accepted, the likelihood of agreeing on joint supply chain initiative is slim.
Inadequate Information Systems
Most firms do not possess the information systems to gather all of the information required to
integrate the processes and systems of all the supply chain participants. In fact, many companies
stillstruggle with using and comprebending all the traditional data they gather on their own
logistics performance. Imposing an entirely new set of information requirements that spans
company boundaries may be beyond the capacity of the existing systems. Eforts to build consensus
-around a set of information and performance measures must be consistently suppoted by tne
highest levels of management for any measure of supply chain collaboration to succeed. Firms also
must invest significantly financial resources in information systems to support the new supply chain
information requirements.
A Short-Term "Wall Street" Focus on Outcomes
The fact that top management in major public corporations must pay so much attention to wa
Street, and, as a consequence, to short-term performance, is a huge barrier to successful suppiy
chain initiatives. The reason: The effort associated with these initiatives typically requies
considerable time and involves significant investment in resources. If top management is constanuy
besieged by Wall Street and stockholders, it may have scant opportunity to invest the time and
effort necesary for true supply chain integration. It is easy for trade press to tout the benefts o
integrated supply chains and collaborative behavior. However, a management under siege may no
have the luxury of waiting for the benefits of integrated behavior to occur.
Involvement in Too Many Supply Chains
FIATA Higher Diploma 16

i n Supply Chain Management Module 1 Supply Chain Managemen
Li
lossstite haynent
4th FI Vienam Maritime INSTITUTE (VLI)
Building, No.89, Pasteur Str., Ben Nghe Ward,
OCopyright 2018, Vietnam Logistics Research Dist.I, HCMC.
and Development Institute
Involvement in multiple supply chains, both

to supply chain management. The problern horizontally and vertically, poses another major
hurdic
revolves around competition and competitive actions.
Many manufacturing companies sell their
directly with each other. products to multiple retail customers that compete
The retailers, for their
part, sell products from multiple
direct competition with each other. Firms need to be able to manufacturers in
figure out how to keep their
in each supply chain unique and
mutually beneficially without giving away competitive initiatives
to participants in their other information
supply chains. This is a daunting task. In fact, it may mean that the only
way to implement Supply Chain Management successfully is to work with just a few supply chains
and, in the remaining situations, simply conduct transactions in an arm's
length manner. This may
explain why most success stories only involve two large trading partners. Typically, these
relationships do not extend beyond one tier, either upstream or downstream.
1.10 How to Overcome the Barriers
Identifying the major barriers to supply chain management success is only the first step. Because
Supply Chain_Management represents a significantly different business model and style of
management, firms need to drastically change their philosophies and strategies to make it happen.
The actions described below will help organizations make the necessary changes and overcome the
bariers to Supply Chain Management.
Develop a New Breed of Manager
Because of the long history of am's length relationships, the new collaboration required by Supply
Chain Management will not be embraced quickly or easily. And if it's not fully supported by top
management, it won't be embraced at all. Company leaders must visibly support the new approach
and drive a collaborative culture down through the organization to all levels of operating
management. If organizations are going to ask their people to share information with other
companies, make sacrifices for the sake of the supply chain, develop stronger relationships, and
change their current logistics practices, top management must lead the way. Through their
words
and actions, the leaders need to demonstrate that Supply Chain Management is a worthy goal whose
implementation will company performance in the long run.
improve
Build Relationship-Management Skills
of the new
manager. breed of A strong
Relationship management is one critical skill required of successful Chain Management
is a core requirement Supply
relationship with trading partners increase the likelihood that Supply Chain
program. Such relationships may significantly
Management initiatives will be successfully implemented.
is through intensive training and
The best way to develop a relationship-management capability
the importance of forging strong relationships with
education. Top management needs to recognize these training efforts.
that commitment by supporting
rading partners and demonstrate
Establish Ioter-organizational Teams
teams to and implement supply chain initiaüves is an effective

develop
Using inter-organization Chain Management bamiers. Top-level
executives should set
way to overcome many of the Supply
17
A T A Higher Diploma Module Supply Chain Management
DEVELOPMENT
INSTITUTE (VLD
AND
RESEARCH
Ward, Dist. 1, HCMC.
LOGISTICS
Ben Nghe
No.89, Pasteur Str.,
VIETNAM
Vicmam Maritime Building, and Development Iastinute
4th Fl Research
Victnam Logistics
OCopyright 2018,
from partnerine
with their counterparts
collaborative teams
the example by participating
on
programs to foster an
units can work together on joint training
organizations. Inter-organizational function area fits within the
SCM concept and to show how each
understanding of the integrated collaboration produces optimal
demonstrate how
should also
larger supply chain scheme. Training
results for all.
and objectives, for
the barrier of conflicting goals
The most effective approach to overcoming for setting joint goals
in a process of open dialogue
is involve supply chain members
example, to is mandatory. If supply chain
conflicts that may arise. Consensus building
and resolving any is little hope that the
and performance levels, there
members cannot agree on c o m m o n objectives
kind of competitive advantage. Forming joint teams of individuals
supply chain will deliver any ideas regarding
levels will facilitate the sharing of
from different disciplines and management of the partnering companies
be necessary for top management
conflicting goals. In the end, it may culture, and orientation to achieve the desired
to sit down and iron out differences in philosophy,
performance levels.
Create New Performance Measures

chain goals
Evaluation and performance measures must becarefully aligned to the overall supply
and linked directly to the reward system.
If this doesn't happen, individuals likely will start working
chain objectives. These measures can be part of "gain-sharing
a
at cross-purposes to the supply across the supply
are tied to improvements realized
bonus scheme" in which employee bonuses line managers
needs to reassure
chain. As a means of controlling the measures, top management
effort-and only through this joint activity can optimal
that supply chain performance is a joint
results be achieved.
to
and recognition processes that are closely linked
The challenge is to craft individual reward to sub-
can be difficult because it often requires people
supply chain performance measures. This To illustrate, an
to benefit the entire supply chain.
optimize their functional performance in order seek to
retail customers would normally
individual charged with planning transportation loads to
in the context of the overall
build full truckloads to reduce overall transportation costs. However,
smaller loads more frequently to minimize expensive
supply chain, it may be more effective to ship the transportation load planners
retail inventories and maximize product availability. That changes thar
now must be measured on crteria
evaluation and reward system. This individual's performance
the lowest transportation costs.
go beyond simply achieving
Invest in Information Technology and the IoT

a wide variey
SCM is the management of a system incorporating multiple companies performing
entities is crucial, which makes
of functions. Coordination and cooperation among these
communication and information exchange a vital component of successful SCM. The ability o
a host of benefits to the supply chain
exchange more information at an increased speed brings
can realize faster information
significantly reduced order cycle times being one of them. Companies
now available.
exchange by investing in the state-of-the-art loT technologies
To address the technology challenge, it's essential to have a champion in the information system
(IS) department. This should be someone wbo understands

the relevance of supply chain
and
with functional managers to develop
infomation requirements and wbo can work effectively
18
FLATA Higher Diploma Module I- Supply Cbain Managenent
4th FI Viotnam
Maritime Dullding, No.89, Pasteur Str., INSTITUTE (VL)
Ocopyriglht 2018, Vietnam Loglstlcs Research Ien
ho ard, Dist.I, HCMC.
nnd Devclopment Institutc
incorporatc the
cross-organizational informational
partnering organizations, it's advisable torequirements.
To assure system
across the compatibility
different supply chain member companies to
bring together several IS maunagers from the
develop common data formats and performance
measures
It is encouraging to note the emergence of

enterprise resource planning (ERP) systems and Wecbby
based information solutions that can make supply chain information sharing a reality. One study
Forrester estimated that by the end of 2001 more than 70 percent of companies were sharing
demand, inventory, and order-status information with their trading partners. With the increasing
ability to share these types of information, companies will be able to create systems for tracking and
sharing performance metrics that relate to overall supply chain outcomes.
Develop a Long-Term Focus in Boardrooms and on Wall Street
Today's businesses are managed largely with a short-term perspective. Yet SCM requires short-term
sacrifices so that the entire supply chain can benefit in the long run. As is the case with individual
managers, most companies continue to be evaluated from a short-tem, quantitative perspective. For
SCM to succeed, however, organizations must foster an environment where the long-term
implications of supply chain initiatives are considered and rewarded.
The only way to correct the short-term focus of most corporations may be a public relations
campaign directed at different stakeholders to explain SCM's benefits and the necessity of investing
now for the future. A growing body of evidence suggests that those companies with world-class
chains significantly outperform the rest of the pack. This may be the best message
to
supply
stockholders and Wall Street as you buy time to build the collaborative supply chain relationships
necessary for success.
Engage in More Practical and Applied Research

what practitioners can do to overcome the bariers to
To this point, we have focused mainly on
to the academic community.
successful SCM. This last suggestion, however, applies equally
for any discipline or business function. But theory development is

Theory development is importantresearchers to test propositions and adjust theory
based on repeated
aniterative process that requires studies of
recently have conducted more practical
researchers
empirical research. While academic need evidence demonstrating how supply chain
SCM implementations, more are needed. Managers be used to support
performance. This evidence can
initiatives can improve organization-wide resources. Solid evidence
etforts to train managers, overcome resistance, and obtain the necessary

more time from
Wall Street.
buy
o1SCM's value can also help research, role in the
the academic comnunity can playa positive
In addition to theapplied to bridge the gap between
management. Their main challenge here is
chain
advancement of supply research that makes a solid
connection between supply chain
SCM theory and practice through get the support to implement
That link will belp practitioners
performance and business success.
their supply chain initiatives.
Chains
1.11 The Future of Supply
Collaborative Chaias
19
Moduile Supply Chain Man agernent
Supply Chain Manageroent
DEVELOPMENT
INSTITUTE (VLI)
AND
RESEARCH Dist. 1, HCMC
Str., Ben Nghe Ward,
LOGISTICS
ALi
VIETNAM
Maritime Building. No.89, Pasteur Institute
4th FI Vietnam
Victnan Logistics
OCopyright 2018,
within the
distribution
to streamline
the flow of goods
Replenishment programs aredesigned all
for collaborative replenishment,
of which build on
channel. There are several specific techniques to actual sales experience
the common denominator of rapidly
replenishing inventory according will need to be positioned
when and where inventory
The intent is to reduce reliance on forecasting to respond to demand on a just.
or end-user demand and instead allow suppliers
to meet consumer extensive cooperation and
programs require
in-time basis. Effective collaborative replenishment for automatic
channel participants. Specific techniques
information sharing among distribution
continuous replenishment, vendormanaged inventory, and
replenishment include quick response,
profile replenishment.
Quick Response
suppliers to improve inventory velocity while
QR is a cooperative effort between retailers and
providing merchandise supply closely matched to consumer buying patterns. QR is implemented by
monitoring retail sales for products and sharing information across the supply chain to
specific
available when and where it is required. For
guarantee that the right product assortment will be
example, instead of operating on 15-to 30-day order cycles, a QR arangement can replenish retail
inventories in 6 or fewer days. Continuous information exchange regarding availability and delivery
reduces uncertainty for the total supply chain and creates the opportunity for maximum flexibility.
With fast, dependable order response, inventory can be committed as required, resulting in
increased tumover and improved availability.
Continuous Replenishment
CR and VMl are modifications of QR that eliminate the need for replenishment orders. The goal is
to establish a supply chain arrangement so flexible and efficient that retail inventory is continuously
replenished. The distinguishing factor between CR and VMI is who takes responsibility for setting
target inventory levels and making restocking decisions. In CR, the retailer makes the decisions. In
VMI, the supplier assumes more responsibility and actually manages inventory for the retailer. By
receiving daily transmission of retail sales or warehouse shipments, the supplier assumes
responsibility for replenishing retail inventory in the required quantities, colors, sizes, and styles.
The supplier commits to keeping the retailer in stock and to maintaining inventory velocity. In some
situations, replenishment involves cross-docking or Direct Store Delivery (DSD) designed to
eliminate the need for warehousing between the factory and retail store.
Functional to Process Integration
One of the oldest and potentially most

productive trends is the continued migration from functiona
to process integration. While the work of
logistics itself has remained relatively the same over tne
past decade and will continue to remain the same during the next 10
continue to change rapidly is how we view work. As years, what has and wI
within organizations, the traditional notion of a pockets power and control developeu
of
department became with bein8
departed from the rest of the organization. While departments may remainsymonymous
the preferred method o
managing work, the reality is that process-oriented, self-directed work teams are
solution for significant increasingly tne
breakthroughs in efficiency. Managers realize that functional
only important in tems of the contribution functions make to the processes they serve.excellence
In terms os
TA FIATA
in
Higher Diplona 20
Supply Chain Management Module 1-Supply Chain Management
VIETNAM LoGISTICS RESEARCH AND DEVELOPMENTINSTITUTE VILD
4th FI Vietnam Maritime Building, No.89, Pasteur Str Ben Nghe Ward, Dist 1, HCMC
CcopyTight 2018, Vietnam Logistics Research and Development Institute
cards are to
organizauon structure, the concept of functional departments is as obsolete as punch
information technology.
total cost is beyond queston.
The validity ot trading among functional areas to benefit
costs
coshng
Information technology extensions such as ERP are starting to support more sophisticated substantial
functions. While there has been
approaches, lessening the diff+iculty of measuring across
progress, major opportunities to shift to the process focus remain.
and have each been integrated

marketing functions
First, while purchasing. production, logistics,
between these areas. This
within their individua processes, there has been less progress integrating
firm's major functional
divide is recognized by most managers. Further integration
across a
boundaries is the first step toward additional process integration.
with external supply chain

substantial advancement of process integration
Second, there must be more consistency in the definition,
partners, particularly with service providers. This requires establish common language and
to
execution, and measurement of supply chain processes
expectations.
and what paid to do. The
measured they are
Third, most employees will do what they
are on
to coordinated
reward structures from department related budgets
challenge is to convert metric and metrics based on one plan,
and potential of meaningful
process-related incentives. The reality become reality. There has been substantial
which in tum is based on one forecast, will increasingly and accuracy
more opportunities
remain as additional cost information
progress in this area, but
will lead to more refined processes
with reduced duplication.
Vertical to Virtual Integration

chain conflict by owning consecutive levels in
the
firms have tried to reduce supply
Historically, business strategy is a legendary attempt
at using ownership
business process. Henry Ford's original and management of
Ford's dream was full ownership
to achieve vertical supply chain integration. increase relevancy. Ford's rubber
in order to reduce waste and
the entire value-creation process finished car in 7 days.
raw iron ore to a
plantations, ships,and foundries converted
investment and an
is that it requires tremendous capital
The problem with vertical integration Ford's vertical supply chain is
structure. Re-creating Henry
Incredibly complex organization and synergy of external supply chain
therefore, must harness the experise
infeasible today. Firms, material and service suppliers to
integrating operations with
partuers to achieve success. Virtually financial barriers of vertical
the
and extemal work overcomes
torm a seamless flow of internal

the benetfits.
ownership while retaining many of
worked with third-party logistics
retail firms have traditionally
While many manufacturing and there is a growing trend to outsource
movements of products,
providers to handle physical acivities are being outsourced to
as well.
Stafi and process design
knowledge processes collection, maintenance, and analysis
are outsourced to
consultants. Information design, become an activity considered
specialization will increasingly
infomation integrators. Knowledge such competency to focus on
The benefits of outsourcing
tor outsourcing by the virtual enterprise. to virtual integration. While
drive hms from vertical
will continue to
Core business requirements their supply chains, relatively few
toward virtually infegrating
most firms have taken initial steps
21
FLATA Higher Diploma Module 1Supply Chain Managemnen!
n Supply Chain Managerment
VIETNAM LOGISTICS RESEARCH
AND DEVELOPMENT INSTITUTE (VILD
Pasteur Str., Ben Nghe Ward, Dist.1, HCMC.
4th FI Vietnam Maritime Building, No.89,
Research and Development Institute
firms have achieved full-scale implementation.

To move to virtual integration, three shifts must occur. First, managers who interface with material
and service suppliers must learn how to manage assets and activities that they do not directlv
control and cannot directly see but whose perfomance they can and must monitor to ensure
success. These suppliers represent a firm's extended family and will contribute as much to the future
success or failure of the supply chain as any intemal department. A fim's management strategy
must reflect the recognition that a supply chain is only as strong as its weakest supplier link.
Second, supply chain partners must have a common vision of the total value creation process as
well as shared responsibility for achieving it. Fims must carefully identify and select partners with
complementary visions, strategies, and operational capabilities. Partners must interface their
operations in ways that reduce duplication, redundancy, and dwell time while maintaining
synchronization. Additionally, firms must spread the risks and rewards of collaboration to solidify
goal attainment. Evolving the structures to facilitate virtual integration is neither easy nor quick.
Finally, fims must extend management practices beyond suppliers to include suppliers' suppliers.
Suppliers' views on resource needs and constraints, threats, opportunities, and weaknesses must be
considered when setting goals, objectives, and action plans as they play increasingly vital and
ireplaceable roles in creating end-customer value.
Highly Customizable
Starr(1966) was probably the first to introduce the concept of modularization. It

design whereby the product is assembled from a set of standardized constituentimplies product
a
units. Different
assembly combinations from a given set of standardized units give rise to different
and variations.In essence, modular design marries flexibility with standardization.endIt products
opportunities for exploiting economies of scales from a product design provides
Dell computers. Dell's
prodücts are highly customizable. perspective. An exarnple 1s
Item No of Options
Processor
OS
Monitor 14
Memory
HD
Network Card
Speaker
| Keyboard
Mouse
| Graphic Options
PSU
Table 1-1: Number
of Options for Optiflex 380DT
The number of
options available 604,000.
Postponement
FLATA Higber Diploma
in Supply Cbain
Managemeot Module 22
l -
Supply Chain Management

A
lo au atahte dvntpnst
VIETNAM
l h Fi
LOGISTICS RESEARCH AND DEVEJOPMENT
Victnam INSTITUTK (VI)
Maritime Dullding, No.89, Pasteur tr, Beu Nghe Ward,
OCopyriplht 2018, Vlctnam L.ogistica Resoarch nnd Disr1, JCMG.
Davelopment Institule
When the idea ofl

postponement was introduced by Alderson (1950), the of
was based on one
company's perspectivc. 1The ideu of postponernent was concept
defined
postponenent
the product as a later date until
the customer order was reccived. Tho
as diflcrentialing
cxpanded by Bucklin (1965) and Zinn & conccpt was evenlually
Bowcrsox (1988). Indcpendently, in the 1960s,
modularization was introduced by Starr (1965) which
the postponement concept had cventually led to customization. By this time,
dovcloped into forn, timc and plucc postponcment.
The concept was
restricted to just one cntity i.c. the manufacturer.
In the 1990s, the ideu of
merging mass customization with
model, more entities within the supply chain were involved postponement
becamc a rcality. In this
unlike the carlier postponcment modcl
whereby only the manufacturcr was involved (Hock ct al 1998).
manufacturers, wholesalers, distribution centers and resellers collaborateSuppliers, transporters,
to ensurc the tirnely
delivery of products to end uscrs.
Zinn & Bowersox (1988) has developed 5 types of postponement:

Labeling
Packaging
Assembling
Manufacturing
Time
Labeling Packaging Assembly Manufacturing

(final stage) (Initlal stage)|
Low level of High degree of

customization Customization
The warehouse plays the role of customizing products, at a complex level when products are
manufactured, less complex when assembly is required and the least complex when labeling is
needed.
LabelingAn example is canning. For companies which sell canned products to other companies, cans
are labeled. One reason is the uncertainty in allocating the proportion of the materials for
cach label at the point of canning. There is no difference in the quality of the product under
when they receive orders and
the labels. These companies postpone their labeling operation
just before the goods are distributed.
Packaging
23
FLATA Higher Diploma Module- Supply Chain Management
n Supply Chain Management
DEVELOPMENT INSTITUTE (VL)
RESEARCH AND
VIETNAM LOGISTICS Ben Nghe Ward, Dist. 1, HCMC.
No.89, Pasteur Str.,
4th FI Vietnam Maritime Building, Research and Development
Institute
OCopyright2018, Vietmam Logistics
of materials. Such materials

An example is the use packaging from a bulk
of different
consumer goods such
as baby diapers.
In some countries
include polyolefin or detergent or
to weak purchasing power.
diapers are sold in smaller packs due
Assembling postponement is an ideal way of

When companies have product variant assembling if modularization is used. Many
not delay delivery
achieving it. Customization should
electronic products fall into this category.
Manufacturing received.
Products are manufactured until customer orders are
Time than the manufacturing plant. The aim

Finished products are shipped to a central DC, closer
With the emergence of e-commerce,
is to respond quickly to customers' requirements.
location of the inventories at the time the
virtual inventory are independent of the physical
vendors to keep the books are kept at
orders are placed. Amazon.com works with
warehouses which are often located in cities and near to airport. Working with parcel
delivers and vendors, books are drop shipped to end users.
1.12 Supply Chain Inaction

-
The Price
has clearly improved over the past 20

The effectiveness of logistics and supply chain operations
do
of truly integrated supply chains, many succes stories
years. And while there are few examples
and Hewlett
exist. The competitive advantage developed by leaders such as Wal-Mart, Dell,
other
Packard through their supply chain operations has been well documented. In addition, many
SCM programs. By
companies have improved their performance by implementing targeted
reduced their stockout levels by 65
adopting CPFR, for example, Johnson & Johnson and Rite Aid
percent, improved overall service levels by 4 percent, and increased fill rates by 4 percent. By
implementing an online system that linked suppliers, manufactures, and customers, Cisco Systems
led to
eliminated most of the paperwork needed on the supply side of its operations. This initiative
an estimated savings of $250 million per year.
These kinds of improvements should be incentive enough for companies to pursue SCM
aggressively. But perhaps even greater incentives are the negative consequences of not embracing
or
SCM. The comparative success of Wal-Mart vs. Kmart is probably the most chronicled example
the competitive disadvantages of lagging bebind a supply chain leader. But another instructive
example can be found in a business sector very familiar to supply chain managers: small-package
delivery. For y ears, the U.S. Postal Service (USPS) commanded a dominant share of the smal
parcel business in the United States. But by not responding to the logistics investments and supply
chain initiatives of competitors such as United Parcel Service and Federal Express, USPS lost
significant portion of this market share in a comparatively short timeframe. In today's busines
environment, companies cannot afford to stand by and lose market share as competitors make major
investments in their supply chain capabilities.
Despite such examples, there is clear anecdotal and empirical evidence that integrated supply chan
management has eluded most organizations and that significant bariers to collaboration still exust
24
a i n Supply Chain Managenent Module 1 - Supply Chain Management
VIETNAM LOGISTIcS RESEARCH
Ath F1 AND DEVELDPMET
Vietnam Maritine SSTITUTE (VLI
Building. ?io 39, Pastru , Beu ige Hed, Liz 1, HCM.
CCoprizht 2012, Vietnam Lzjtics Pevarh d
enbnen las
It is time for
practitioners and academics to heed the waming
Commit to the
risky, challenying path required to make the SCMsigns, refocus their efforns, zrd fully
vision a reality.
1.13 Future
Challenges- Looking Toward the Next Decade
Given the extreme
changes that have occured in SCM and pracices during the
appropriate question is What can weconcepts
Everal decades, an
- past
forward during the next 10 years? The expect to happen as the world
moves
chain Tequirements will be primary determinant of the shape and form of future supply
the nature of demand that needs
to be serviced.
The supply chain renaissance
significant lessons have beendeveloped
a sound foundation
to guide
learned over the past decades, the supply
chain managers. While
finished. The globalízation of business process of change is far from
promises
logistical competencies of most fims. Few will be
to offer new and
unique challenges for the
Challenges will also íncrease in the environmental able to escape the
impact of a global economy.
issues. The full ramification of aspects of logisics, often referred to as green
long-term cradle-lo-cradle responsibility for the environnental
impact of all products and services is just emerging.
making major business coramitments to supply chainFinally, will fully expect that customers
firms can
partners neary perfect logistical
periomance. Even in today's operational evironment, fims thatexpect build strong customer and
supplier relationships must be committed to operational excellence. Tolerance for
will become even less in the future. logistical error
Logistical systems of the future will face complex and challenging

more so than today, logistics will be required to performance requirements. Even
support multiple-product distribution to globally
dispersed heterogeneous markets.
Barring a catastrophic event, it is difficult not to expect a world population exceeding eight billion
people by the year 2025. To put this population growh into perspective, at a bare minimum it will
be necessary to provide logistical support for one additional
person for every four in the world
today. People in
general will
increasingly have
resources to participate in economic
growth.
However, significant differences are expected in lifestyle and related social priorities. Evidence
suggests that consumers of the future will demand services and conveniences contained in the
products they purchase. For instance, such items as frozen meat might well be precooked and ready
for consumption when bought. To the extent that this service/comvenience pattern accelerates, more
value will be added to the typical product before it begins the logistical process. To support this
trend, the complexity of the total manufacturing/marketing system will increase
The priority placed on development of integrated management skills rests on the contribution that
Superior logistics performance can make to business success. A fim can achieve sustainable
competitive advantage when important customers perceive that it has the capabilities to logistically
outperform competitors. A prerequisite to strategic logistics is the development and implementation
of supply chain integration. Managing logistics on an integrated basis is becoming increasingly
relevant for the following reasons.
First, there is considerable interdependence between areas of logistical requirements that can be
exploited to the advantage of an enterprise. The idea of a tolal movement /storage system offers
efsiciency and synergistic potential. Throughout the logistical system, management is faced with
ever increasing labor costs. Since logistical work is among the most labor-intensive performances
2S
FLATA Higher Diploma
in Sepply Chain Managetnent Module-5upply Chain Management
VTETNAM LOGISTICS RESEARCH AND DEVELOPMENT INSTITUTE (VL)
A Building, No.89, Pasteur Str., Ben Nghe Ward, Dist.1,

4th Fl Vietnam Maritime
HCMC.
Institute
managers must develop methods to substitute capital for labor

wIthin an enterprise, logistics
intensive processes. Complete integration increases the economic justification for substituting
capital for labor.
Second, a narrow or restricted functional approach may create dysfunctional behavior. The potential
exist that concepts relevant solely to market distribution, manufacturing support, or procurement
can create diametrically opposite operational priorities and goals. The failure to develop integrated
logistical management creates the potential for sub-optimization.
Third, the control requirements for each individual aspect of operations are similar. The primary
objective of logistical control is to reconcile operational demands in a cross-functional manner
focused on overall goals.
A fourth reason for the integration of logistical operations is an increasing awareness that
significant trade-offs exist between manufacturing economies and marketing requirements and that
these can be reconciled only by a soundly designed logistical capability. The traditional practice of
manufacturing is to produce products in various sizes, colors, and quantities in anticipation of
future sale. The postponement of final assembly and initial distribution of products to a later time
when customer preferences are more fully identified can greatly reduce risk and increase overall
enterprise flexibility. Innovative new systems are emerging to make use of logistical competency to
increase responsiveness and reduce the traditional anticipatory commitment and risk of business.
A final, and perhaps the most significant, reason for integration is that the complexity of future
logistics will require innovative arrangements. The challenge for the new millenniumis to develop
new ways of satisfying logistical requirements, not simply using technology to perform old ways
more efficiently. While this is similar to the
challenge faced in the 1990s, the stakes are getting
higher. In the world of the future, leading firms can be expected to increasingly use integrated
logistical competency to gain differential advantage. The broad-based achievement of integrated
logistical management will remain a prerequisite for such innovative breakthroughs.
The combined impact of these factors is that logistics will increasingly be managed on an integrated
basis. However, the job of reengineering logistics as an integrated
process is far from completed.
Research continues to point out that a significant number of firms worldwide have only made
limited progress toward logistical integration. Approximately 10
percent of North American
have achieved a level of integration that facilitates their use of logistical competency to gainfims
and
maintain customer loyalty. Events of historical significance-like the radical restructuring of Easterm
Europe; the decomposition of communism in the Soviet Union; and even the rapid adoption of
Internet as a mechanism for communication-serve to underline the increasing importance the of
logistics to all aspects of society. In many ways, these events highlight just how demanding
logistical requirements are and how challenging they are capable of becoming. The reality is that a
great deal of work remains to make the füll potential of the logistics renaissance an everyday
reality.
Ever present in future society will be the continued
problems and pressures
The dependence of the logistical system on a ready supply of energy
of energy and ecology-
is and will continue to be a
critical concern. The cost of energy remains significant in the logistical sector and will continue to
be so for the foreseeable future. From an
reduce the negative impact of
ecological viewpoint, continued pressures will exist to
logistics on the environment These pressures reflect socially

ATA 26
un Supply Chain Management Module 1-Supply Chain Management
VIETNAM LOGISTIcS RESEARCH AND DEVELOPMENT INSTITUTE (VLI)
4th FI Vietnam Maritime Building. No.89, Pasteur Str., Ben Nghe Ward, Dist.1, HCMC.
a ou aistartk dveynert
worthwhile goals, although compliance will be costly. It can be anticipated that ecological
considerations will eliminate some current logistical practices such as specific types of packaging
material. Finally, it is clear that selected raw materials will from time to time be in relatively short
supply.
1.14 Value Proposition
Before we end the chapter, it is necessary to look at the value proposition of supply chains.
Enables customers to concentrate on core competencies
Gets customers out of the carrier management business
Global Deployment - Regional Ownership
Provides for single point of contact for customer's regional logistics activities
Transportation leverage pendulum is swinging towards comprehensive logistics partners
Facilitates global visibility and communication
Transition from fixed to variable cost structure
Provides standardized metrics to manage the supply chain
Focuses on customer solutions
Standardized logistics solutions globally in customer's organization

Tutorial Question
. Use the Reebok as an example of postponement for the outcome of final NBL matches.
2. How does Benetton which uses its only DC in Cestrette, Italy to serve over 120 countries?
3. Explain how Amazon.com works with vendors and parcel deliverers in e-commerce.
4. How does Gillette collaborate with its supply chain partner to push its products into the
supply chain?
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VIETNAM LOGISTICS

RESEARCH AND DEVELOPMENT

1.1 New Market Realities. ************************* roet****i******* ************

1.2 Supply Chain vs. Logistics Management. *********°*'***'*°**********'**"**************d********************

1.3 Roles of Supply Chain Management in an Organization. *************************'*******************

1.4 The Strategic Importance of Supply Chain Management...

1.6 SCOR Model . *******°****°**********"1**********************°"********************* ************** * **** . 13

1.7 Supply Chain: Making the Vision a Reality... ****************** ***********************° 13

1.9 Barriers to Effective Supply Chain Relationships..

1.11 The Future ofSupply Chains. .dessssssnsitsssstnr************************************************-*** 19

1.14 Value Proposition.

**rt****°°*°*°***********'****"********'*****'***** ******'************** .31

Chain Component... e************"*************

3.3 Inventory Functionality

PIATA Higher Diploma Module-Supply Chain Management

3.4 Inventory Functionality.. * **************************************** *******.*** *********** .59

3.7 Planning Inventory and Inventory Management Practices..**********°************°**********... 06

3.11 Lead-time Issues of Inventory..**************

4.6. Inter-organizational Information Systems. *************** 88

4.9. Bar Coding..

4.12. Warehouse Management System (WMS)..**************************************************°****** 103

STRATEGIC ALLIANCES IN SUPPLY CHAIN.. *********

5.1 Introduction.. ***************°** *** ******** 114

5.2 Strategic Alliance.. *******" 116

5.3 Conceptual Model of Alliance Development. ******** 118

5.4 Developing a Trusting Relationship ******** .119

5.5 Challenges to Strategic Alliance. ******e********** ********** **** ****"******* .121

5.6 Third Party Logistics (3PL).******************"***** ******** °******** . 122

5.7 Market Trends. ******* ************** ***° °*************** 125

FIATA Higher Diploma

5.8 3PL Development.

5.15 Benefits of 4PL Concept.. ***************************** ************ ********sr. 138

6.2 Transport Functionality, Principles, and Participants..

6.5 Carrier Pricing Strategies.. ********* *************************** ********************** *

FIATA Higher Diploma iii

8.7 The Balanced Scorecard. **************************************************************. 197

8.9 The Logistics Scoreboard..e******************************************** ****.****************.

8.11 Economic Value Added. *********°*******°*******.*****************s*** ********°****°**

8.12 Selecting of Measurements.. ****************. 206

8.16 Strategic Logistics Plan..********°°******°********* *******************

8.17 Corporate Strategic Planning Process.. ********* **********************************°** 218

FIATA Higher Diploma

1.1 New Market Realities

witnessed a period of change unparalleled in the history

OI have made the global

Today than ever, businesses

E-business, and B2C integration significantly improves

Lower production costs

Lower inventory costs

FIATA Higber Diploma

3PLs are assuming more of their customers

likely to build shareholders' value. Wal-

1.2 Supply Chain vs. Logistics Management

FLATA Higher Diploma Module 1- Supply Chain Management

ModuleSupply Chain Management

Werehousing Transportation Vendor/plants/ports

Customer service standards

Information flows and order processing

b. Order information transmittal

vel of service. Setting very high

Physical supply Physical distribution

Figure 1-3: The Critical Customer Service Loop

Its costs minor compared to transportation or

1.1 New Market Realities. ********************* roeti* **********

1.2 Supply Chain vs. Logistics Management. *********°*'***'*°'"d**********

1.3 Roles of Supply Chain Management in an Organization. *******'*

1.6 SCOR Model . *°°"1********°"* **** * **** . 13

1.7 Supply Chain: Making the Vision a Reality... *****° 13

1.11 The Future ofSupply Chains. .dessssssnsitsssstnr**********************************************-* 19

rt**°°°°*****'"'' '********** .31

Chain Component... e"*

3.4 Inventory Functionality.. * ************************************ . *********** .59

3.7 Planning Inventory and Inventory Management Practices..°°... 06

4.12. Warehouse Management System (WMS)..********************************************° 103

5.1 Introduction.. *************° * ****** 114

5.5 Challenges to Strategic Alliance. e "* .121

5.6 Third Party Logistics (3PL).****************"* °** . 122

5.7 Market Trends. * ****** *° °*************** 125

5.15 Benefits of 4PL Concept.. ********************* sr. 138

6.5 Carrier Pricing Strategies.. * * **** *

8.9 The Logistics Scoreboard..e**************************** ..

8.11 Economic Value Added. *****°°.***********s* ******°°

8.16 Strategic Logistics Plan..**°°°* ***************

8.17 Corporate Strategic Planning Process.. * ************************° 218