Supply Chain Institute Book

Supply Chain Institute Book
Edition 2020
Copyright © 2020 by Supply Chain Institute
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Copyright © 2020 by Supply Chain Institute
All rights reserved. No part of this book may be reproduced, stored in a retrieval system or
transmitted in any form or by any means: electronic, electrostatic, magnetic, tape, mechanical
photocopying, recording or otherwise without the written permission of the Supply Chain Institute.
This book is based on the Supply Chain Institute Exam Content Manual developed by Supply Chain
Institute. Therefore, reading the text does guarantee a passing score.
The references in this manual have been selected solely on the basis of their educational value to the
Supply Chain Institute certification programs and on the content of the material. Supply Chain
Institute does not endorse any services or other materials that may be offered or recommended by
other authors or publishers of books and publications listed in this book to pass Supply Chain
Institute certification programs.
Every effort has been made to ensure that all information is current and correct. However, laws and
regulations are constantly changing. Therefore, this book is distributed with the understanding that
the references and authors listed are not offering legal or professional services for Supply Chain
Institute.
Copyright Supply Chain Institute™ | Supply Chain Management Book 3

Contents
I. Preface…………………………………….……..……………………………………………………………………………………………. 7
II. Completing your certification …..…………………………………………………………………………………………………. 8
III. Supply Chain Management……………………………………………………………………………………………………..…. 10

1) Introduction to the Supply Chain Management………………………………………………………………....... 10
2) Identifying Supply Chains……………………………………………………………………………………………………... 11
3) Basic Supply Chain: Three Entities………………………………………………………………………………………… 12
4) Manufacturing Supply Chain Model……………………………………………………………………………………... 13
5) Key Supply Chain Management Processes……………………………………………………………………………. 15
6) Evolution of Supply Chain Management………………………………………………………………………….…... 18
7) Two types of Supply Chain Management……………………………………………………………………………… 19
8) Stages of SCM Evolution………………………………………………………………………………………………………. 20
9) Creating Value through SC Management……………………………………………………………………………… 22
IV. Supply Chain and Globalization………………………………………………………………………………………………….. 24

1) Supply Chain and Global SCM Excellence……………………………………………………………………………… 24
2) Define your Finished Goods Strategy and Segmentation………………………………………………………. 27
V. Supply Chain Strategy…………………………………………………………………………………………………………………. 29

1) Supply Chain Strategy Overview…………………………………………………………………………………………… 29
2) Six Steps to Align Supply Chain with Corporate Strategy………………………………………………………. 29
3) Aligning SC Strategy with Corporate Strategy……………………………………………………………………….. 34
4) The Importance of Aligning Supply Chain Strategy with Business Strategy……………………………. 35
VI. Supply Chain Risk Management…………………………………………………………………………………………………. 40

1) Supply Chain Risk Management Strategies…………………………………………………………………………… 40
2) Type of SC Risks and Strategies…………………………………………………………………………………………….. 41
3) Risk Prevention…………………………………………………………………………………………………………………….. 42
VII. Corporate and Supply Chain Strategy………………………………………………………………………………………… 43

1) Using Corporate and Supply Chain Strategies to Set Priorities and Make Decisions……………… 43
2) The 7 Basic Quality Tools for Process Improvement……………………………………………………………… 46
VIII. Supply Chain Performance Metrics………………………………………………………………………………………….. 48

1) Supply Chain Performance Metrics Overview…………………………………………………………………….. 48
2) Characteristics of a Good Performance Metric…………………………………………………………………… 48
3) Categories of Performance Metrics……………………………………………………………………………………. 49
IX. Supply Chain and Financial Performance……………………………………………………………………………………. 53

1) Managing the Supply Chain for Financial Performance………………………………………………………. 53
2) Financial Statements………………………………………………………………………………………………………….. 53
3) Income Statement……………………………………………………………………………………………………………… 53
4) Balance Sheet…………………………………………………………………………………………………………………….. 54

Contents
X. Supply Chain Leadership and Management………………………………………………………………………………… 56

1) Effective Supply Chain Leadership……………………………………………………………………………………… 56
2) Collaborative Supply Chain Leadership………………………………………………………………………………. 57
XI. Supply Chain Security and Compliance………………………………………………………………………………………. 61

1) Supply Chain Security…………………………………………………………………………………………………………. 61
2) Supply Chain Compliance……………………………………………………………………………………………………. 63
3) Supplier Management Challenges………………………………………………………………………………………. 66
XII. Continuous Improvement…………………………………………………………………………………………………………. 68

1) What Is Continuous Improvement?......................................................................................... 68
2) CI Techniques and Tools……………………………………………………………………………………………………… 70
3) Why the Paradigm Shift?......................................................................................................... 72
4) Continuous Improvement Principles…………………………………………………………………………………… 74
5) How They Do It – Some Real Life Continuous Improvement Examples……………………………….. 75
XIII. Demand Planning and Forecasting…………………………………………………………………………………………… 77

1) Demand Planning – Overview……………………………………………………………………………………………. 77
2) Aspects of Demand Planning……………………………………………………………………………………………… 78
3) What is the bullwhip effect?................................................................................................... 83
4) Demand forecasting…………………………………………………………………………………………………………… 85
5) Selecting a Forecasting Method…………………………………………………………………………………………. 87
6) Quantitative Forecasting Methods…………………………………………………………………………………….. 88
7) Qualitative Forecasting Methods……………………………………………………………………………………….. 89
8) Intrinsic extrinsic forecasting methods………………………………………………………………………………. 90
9) Types of Collaboration………………………………………………………………………………………………………. 96
10) Collaborative Planning, Forecasting and Replenishment (CPFR)…………………………………………. 97
XIV. Collaborative Product Design…………………………………………………………………………………………………… 99

1) Role of Marketing in Demand Planning………………………………………………………………………………. 99
2) Collaborative Product Design for the SC……………………………………………………………………………… 99
XV. Sales and Operations Planning………………………………………………………………………………………………… 105

1) Operations Planning and Control……………………………………………………………………………………… 105
2) Sales and Operations Planning (S&OP)……………………………………………………………………………… 106
3) The 6 Steps of the S&OP Processes………………………………………………………………………………….. 113
4) Common Myths about Sales and Operations Planning (S&OP)…………………………………………. 115
5) S&OP Best Practices…………………………………………………………………………………………………………. 116
XVI. Production Planning………………………………………………………………………………………………………………. 119

1) Master Production Scheduling…………………………………………………………………………………………. 119
2) Five Key Benefits of Master Production Scheduling………………………………………………………….. 119
3) Master Scheduling Grid……………………………………………………………………………………………………. 121

Contents
XVII. Material Requirements Planning…………………………………………………………………………………………… 124

1) Material Requirements Planning – Overview……………………………………………………………………. 124
2) Bill of Material (BOM)………………………………………………………………………………………………………. 124
3) Distribution Requirements Planning…………………………………………………………………………………. 128
XVIII. Capacity Requirements Planning………………………………………………………………………………………….. 131

1) Capacity Planning – Overview…………………………………………………………………………………………… 131
2) Production Activity Control (PAC)…………………………………………………………………………………….. 134
XIX. Inventory Management…………………………………………………………………………………………………………. 136

1) Inventory Management – Overview…………………………………………………………………………………. 136
2) 11 Benefits of Effective Inventory Management………………………………………………………………. 136
3) Inventory management techniques………………………………………………………………………………….. 140
4) Inventory Management System……………………………………………………………………………………….. 146
5) Common Inventory Management Techniques and KPIs……………………………………………………. 154
XX. Logistics Management…………………………………………………………………………………………………………….. 159

1) Introduction to the Logistics…………………………………………………………………………………………….. 159
2) Role of Logistics in Supply Chain Management…………………………………………………………………. 161
3) Segmentation of Domestic Logistics…………………………………………………………………………………. 163
XXI. Transportation Management…………………………………………………………………………………………………. 175

1) Introduction to the Transportation Management…………………………………………………………….. 175
2) Modes of transportation………………………………………………………………………………………………….. 179
XXII. Logistics Service Providers and Reverse Logistics………………………………………………………………….. 185

1) Introduction to the Logistics Service Providers………………………………………………………………… 185
2) Different Kinds of Logistics Service Providers…………………………………………………………………… 185
3) Reverse Logistics……………………………………………………………………………………………………………… 188
XXIII. Global Logistics and International Business…………………………………………………………………………. 193

1) What is global logistics?........................................................................................................ 193
2) Export-import participants………………………………………………………………………………………………. 194
3) Process Mapping……………………………………………………………………………………………………………… 195
4) What are Incoterms?............................................................................................................. 196
5) Export-import documents………………………………………………………………………………………………… 197
XXIV. Customer Relationship Management and Supplier Relationship Management……………………. 199

1) Customer Relationship Management………………………………………………………………………………. 199
2) The Role of Customer Relationship Management……………………………………………………………. 201
3) Supplier Relationship Management?.................................................................................... 202
4) Supplier Relationship Management (SRM) Scorecards…………………………………………………….. 204
XXV. Learning check……………………………………………………………………………………………………………………… 206

I Preface
Supply Chain Institute (SCI) is an independent Institute which helps Organizations and Professionals
worldwide prove their competence and knowhow in Supply Chain Management and get them
certified with our SCI Certification Programs.
Our Certification Programs have proven their worldwide Acceptance and Reputation by being the
choice of more than 23'000 Supply Chain Practitioners in 120 Countries. Supply Chain certifications
used to be no reasonable way for Supply Chain Professionals to obtain international Certifications
and to prove their competence in Supply Chain domain. Professionals had to pay expensive fees of
other Certification Entities.
Supply Chain Institute aims to remove the barriers set in front of the Supply Chain Professionals in
developed and emerging markets by saving them from paying unreasonable fees for Classroom
Trainings and Certification Examinations before they certify their knowhow. Supply Chain Institute
provides seventeen major Online Supply Chain Certification Programs which are designed by our
consortium of renowned Supply Chain Experts and Coaches participated from all major Industries.
These certification programs are listed in two levels.
Level 1:
- Certified Supply Chain Fundamentals (CSCF™)
- Certified Customer Service & Operations (CCSO™)
- Certified Transportation & Operations Expert (CTOE™)
- Certified Warehousing Operations Expert (CWOE™)
- Certified Demand Planning Expert (CDPE™)
- Certified Manufacturing Operations Expert (CMOE™)
- Certified Supply & Procurement Expert (CSPE™)
- Certified Procurement Management Expert Fundamentals Level (CPME™)*
Level 2:
- Certified Supply Chain Expert (CSCE™)
- Certified Inventory Management Expert (CIME™)
- Certified Logistics & Transportation Expert (CLTE™)
- Certified Sales & Operation Planning (CSOP™)
- Certified Procurement Management Expert Advanced Level (CPME™)*
- Certified Procurement Management Expert Professional Level (CPME™)*
- Certified Lean Six Sigma Green Belt (CLSSGB™)*
- Certified Lean Six Sigma Black Belt (CLSSBB™)*
- Certified Project Management Expert (CPRME™)*
*Certification content is not covered by this book (On Demand Content)
Our one-of-a-kind industry leading registration, examination and certification process is very simple,
quick and completely online. You can find all details under the following link:
https://www.supplychaininstitute.org
All the Best and Happy Reading!

II Completing your certification
The Supply Chain Institute™ (SCI) Learning System is based on this Supply Chain book and on Exams
Content Manual (ECM) developed by the Supply Chain Institute. Although the text is based on the
body of knowledge tested by the Supply Chain Institute Certifications, Therefore, reading the text
guarantee a passing score of 97%.
The references in this manual have been selected solely on the basis of their educational value to the
Supply Chain Certifications program and on the content of the material. Supply Chain Institute does
not endorse any services or other materials that may be offered or recommended by the authors or
publishers of books and publications.
Every effort has been made to ensure that all information is current and correct. However, concepts,
processes, laws and regulations are constantly changing. Therefore, this book is distributed with the
understanding that new editions will be posted every 4 years. 97% passing score! We guarantee that
this free book will make you pass your Supply Chain Certification Exam!
You may complete your certification in any order. The following links describe the recommended,
step-by-step method.
- Log on or register to activate your account.

- Buy your Exam.
- Prepare your exam by reading this book (Applicable for self-study and exam certification).
- Pass your certification when and where you want. Your exam is valid for 1 year!

- Once your exam is successfully completed, download your certificate from your account.
- You have 5 attempts to succeed your certification.

- The exam is open book.

III Supply Chain Management
1) Introduction to the Supply Chain Management
Supply chain management (SCM) may be perceived as part of a strategic approach taken for
planning, implementing, and controlling the stream of materials, services, and information
throughout the manufacturing process as raw materials are developed into a finished product and
eventually delivered to the end user. This practice plays an integral part in ensuring operational
efficiency within an organization. SCM looks to limit inefficiencies and miscommunications both
within, and outside, the organization. The primary objective of supply chain management is taking a
systems approach.
This includes all interaction with outsourcing resources, vendors, separate departments and office
locations, and the customer. Providing these components with an understanding for what they can
expect from you, but more importantly, what is expected from them, is vital in terms of the quality
and efficiency with which the products are delivered. Cutting the unnecessary operations that occur
throughout these relationships will directly reduce cost, save time, and limit the need for certain
resources, allowing an organization to focus their efforts toward honing other aspects of the
business.
So why is the management of these processes so important? The constant regulation of supply chain
operations within an organization has the ability to maximize customer value and sustain a
competitive advantage over those who supply similar goods and services. In optimizing their
approach to supply chain, an organization can create a domino effect that not only limits any
wasteful expenses, but also increases the quality seen by their customer and, in turn, heightening the
value that their customers can enjoy when purchasing their product. Coordinating the organizational
operations into a systematic approach in order to create value and profit is the ultimate goal.
The systematic integration and monitoring of organizational processes such as planning, product
demand, procedure design, quality control, logistics, customer responsiveness, and others, have a
huge impact on the final product delivered and the way in which it is presented to the customer.
Pushed based supply chain is characterized by difficulty in responding to rapidly changing demand
patterns.

SCM takes on the task of harmonizing all of these processes as well as limiting the risks involved. In
all supply chain decisions, there are risks, and mitigating those risks can go a long way in maximizing
the organization‘s success. For example, trust is key to an effective and efficient supply chain
operation and any organization that allows other to participate in its chain must understand that
they will be sharing valued information.
2) Identifying Supply Chains
The demand for firms to respond quickly to dynamic market needs in recent years has led many firms
to collaborate with other companies in order to ensure efficient and responsive supply chains. The
concept of supply chain collaboration (SCC) is important in any business, big or small, as
management needs to understand how beneficial collaboration can be for each participant involved.
When evaluating several possible supply chain options, a firm considering the minimal total cost
should consider the costs of acquiring, holding, and transporting inventory, and of servicing
customers.
In general, number of research efforts have illustrated that both customer and supplier firms seek
collaborative relationships with each other as a way of improving performance (Maintaining a long-
term collaborative relationship with a trading partner requires formal and informal communication).
Not only should SCC provide firms with cost savings and protect them from risks involved in certain
investments, collaboration allows companies to obtain supplies and resources that may never be
available to them while working on their own. By working together organizations better themselves
and the companies around them, making it seem unrealistic that any firm can survive in the current
market without multiple collaborations between suppliers and buyers.
Although collaborative relationships between firms can help share risks, access complementary
resources, reduce transaction costs, and enhance productivity, many firms have yet to truly capitalize
on the potential of SCC.
Optimizing or finding the best fit for a firm‘s supply chain should have a positive impact on a firm‘s
performance and overall cost structure. Supply chains can be optimized in variety of different ways
depending on the business model, business strategy, and respective product or product lines within
an organization. Moreover, it will depend on the firm‘s priorities. For example, does the firm
compete on price, quality, delivery or innovation? Depending on the strategic priority of the firm,
optimizing one’s supply chain will be different. Compared to a global strategy, a multi-country
strategy would be characterized by products adapted to local needs.

3) Basic Supply Chain: Three Entities
In the absence of significant empirical work on the impact of SCC on collaborative advantage and firm
performance, companies have little tested foundation proving how beneficial supply chain
collaboration can be to their organizations.
SCC aspects that are typically measured include degree of information sharing, goal congruence,
decision synchronization, incentive alignment, resources sharing, collaborative communication, and
joint knowledge creation.
In terms of collaborative advantage, typical metrics inspected include process efficiency, offering
flexibility, business synergy, quality, and innovation. Effectiveness of SCC on firm performance was
measured in the study through sales growth, profit margin on sales, return on investment (ROI), and
growth in return on investment.
Collaborative advantage has a significant positive effect on firm performance as SCC can be beneficial
to all partners, especially in reducing risks and costs, and has a significant positive effect on firm
performance. However, it was not clear whether these hypotheses will hold true across small,
medium, and large firms. It was found that large firms are more effective in jointly creating value
with their partners than small and medium firms, and smaller firms get more abnormal results from
alliances than larger firms.

4) Manufacturing Supply Chain Model
Supply chain fit (i.e., strategic consistency between product/service‘s supply and demand and supply
chain design characteristics) deals with supply and demand uncertainty and supply chain
responsiveness, and competitive intensity. Variety of industries throughout the U.S. and Western
Europe indicated that firms with negative misfits or misalignments (i.e., 180 out of the 259 firms) had
an average return on assets (ROA) of 5.80%. Firms with positive misfits (i.e., 70 out of 259 firms) had
an average ROA of 7.73%. Lastly, firms with zero misfits showed the strongest financial performance
with an average ROA of 10.57%. Hence, the occurrence of supply chain misfits reduces the financial
performance of a firm.

Services also have supply chains:
Proper supply chains alignments are very important aspects of any successful business and can often
be a downfall for a company that does not take the time to consider how to successfully
management them. They can be even more impactful with companies that are involved in more than
one aspect of goods or services. The best way to manage a business relationship is to measure
performance to agreed-upon metrics.
Partnerships cannot only play a significant role in a company‘s supply chain, but how a company does
business in general. A partnership on the production level can help to shorten the supply chain and
lower costs on the entire production process of a company. And partnerships on the sales level can
help a company to shorten their supply chain and further reduce costs a company will have to deal
with when it comes to selling their products.

5) Key Supply Chain Management Processes
Functions in a company that add value to goods or services
The concept of value-added selling has been a popular one for a number of years. The real issue,
though, is that in today's market place where so many products and services are viewed as a
commodity, the ability to add value to your product or service is an absolute necessity. There is no
doubt that in the absence of value-added components virtually any product or service can be driven
down to the most bottom line - price. When you are only selling price, you'll never be able to sell any
degree of high margin sales and that is where profitability, long term growth and sales success
resides.
Let's take a look at 10 ways that you can add value to your product or service no matter what it is
you sell. Lots of times people argue by saying you don't understand, my product is different, or my
service is different. The truth is that everything can have value-added. So, let's go ahead and take a
look at 10 specific ways that you can do it.
1. Providing expert advice and a tremendously high level of professionalism. Lots of consulting
organizations, accounting firms and even medical professionals are paid a tidy sum for the level of
advice that they provide. However, for you as a sales professional, in order for you to be able to
provide value, what you need to do is to understand that you have to provide a level of advice that is
significantly higher, more sophisticated and a lot more valuable than that of your competition. What
this means is a higher level of sophistication, wisdom and understanding about what it is that you do.
2. Bundling and packaging. We are not only talking here about the way your product or service
actually looks, we are also talking about being able to put together desirable packages, purchasing
levels and a series of added benefits that are significant in value and are, themselves, a whole lot
more valuable than simply the product is by itself.

3. Service levels. It is possible for you to differentiate yourself not only by providing a higher level of
service but by adding different levels of service based upon someone's size, frequency or amount of
purchase. For example, you may want to have gold or platinum or silver levels of service that people
qualify for, are willing to pay for, and receive when they do business with you.
Example: A company has prioritized A, B, and C, filling orders in that sequence. The impact to
customer service levels is that Customer B has higher service level.
Item Identification Stock Customer A Customer B Order Customer C Order

Order Qty Qty Qty
339 11 3 6 3
703 9 6 2 5
173 3 5 11 4
4. Frequent buyer programs. This is tied into the concept that the more someone buys from you the
more valuable service, pricing, benefits and related items they receive. It is somewhat like frequent
flyer miles with an airline. People who actually fly thousands of miles out of their way to stay on one
particular airline only because they want to build up the miles!
5. Transition and education. As new customers come on stream with your organization you may
want to provide action or transition teams to help them to be better able to utilize the products or
services that you sell them. By the same token, the more education they have related to those
products or services the more capable they'll be at utilizing them.
6. Recognition and reward levels. This is somewhat different from frequent buyer programs in that
with this particular concept behind value-added you actually provide recognition to clients or
customers based upon their ability to utilize your product or service, maximize its potential, buy
certain levels from you, etc. What this means is that they themselves are recognized for being
outstanding customers.
7. Qualitative preference. Based upon someone's level of purchase, involvement or interaction, you
provide higher quality of products, perhaps a more sophisticated level of service, dedicated
personnel, dedicated phone lines, fax lines, or the like, that gives them a greater opportunity to be
treated better than the run of the mill customer happens to be. You may even be able to use this for
introductory customers as a value-added component.
Groups of customers can be identified or categorized based on Market segmentation and specific
characteristics the customers desire from products and services the firm can provide. Characteristics
include lead times, pricing tiers, and service levels.

8. Dedicated personnel. This works particularly well if you have a technical product or service or one
that requires support. It is not difficult to understand that the more someone is familiar with another
person's account, products, machinery, equipment or way of doing business, it is far easier to do
business with that organization. In this scenario, you simply assign dedicated account people to
handle your customer's accounts personally.
9. Speed of service or delivery. One of the ways to differentiate yourself is to guarantee some sort of
on-time or faster delivery. It is very well known and accepted that on time delivery is a key
component for charging full or maximum pricing. It is also a component as it relates to providing
value-added services and products.
10. Insider information. This is very common when people are selling information as it relates to
stocks, bonds, financial information or anything related to information or time specific data. Utilizing
this process, you may want to consider a regular newsletter (electronic or printed) that updates
customers on a regular basis as it relates to very key and important information that they have to
have.
The Five processes (ASCM)
By describing supply chains using process modeling building blocks, the model can be used to
describe supply chains that are very simple or very complex using a common set of definitions.
As a result, disparate industries can be linked to describe the depth and breadth of virtually any
supply chain.
The Process Modeling Pillar is based on five distinct management processes: Plan, Source, Make,
Deliver, and Return.

Plan - Processes that balance aggregate demand and supply to develop a course of action which best
meets sourcing, production, and delivery requirements. The greatest risk of aggregating product
families at too high of a level for sales and operations planning is that imbalances between the
demand plan and resources may not be visible.
Source - Processes that procure goods and services to meet planned or actual demand.
Make - Processes that transform product to a finished state to meet planned or actual demand.
Deliver - Processes that provide finished goods and services to meet planned or actual demand,
typically including order management, transportation management, and distribution management.
Return - Processes associated with returning or receiving returned products for any reason. These
processes extend into post-delivery customer support.
6) Evolution of Supply Chain Management
The evolution of supply chain management has been characterized by an increasing degree of
integration of separate tasks, a trend that was underlined in the 1960s as a key area for future
productivity improvements since the system was highly fragmented. Although the tasks composing
logistics have remained relatively similar, they initially consolidated into two distinct functions
related to materials management and physical distribution during the 1970s and 1980s. This process
moved further in the 1990s as globalization incited a functional integration and the emergence of
logistics in a true sense, all the elements of the supply chain became part of a single management
perspective. The overall objective of an integrated supply chain can best be described as the
achievement of an efficient flow of materials and information.
However, only with the implementation of modern information and communication technologies did
a more complete integration became possible with the emergence of supply chain management. It
allows for the integrated management and control of information, finance and goods flows and
made possible a new range of production and distribution systems (Order fill rate is the most
meaningful measure when evaluating the effectiveness of distribution systems in fulfilling customer
needs). Supply chain management has become a complex sequence of activities aiming at value
capture and competitiveness. More recently, the growing level of automation of supply chains has
been a dominant element of the evolution of both physical distribution and materials management.
This digitalization is particularly notable within distribution centers that have experienced a
remarkable push towards automation such as storage, materials handling, and packaging.
Automation may eventually lead to automated delivery vehicles.

Stepwise and according to improvements in information and communication technologies, the two
ends of the assembly line became integrated into the logistics of the supply chain: the timely supply
of raw materials and components from outside, and the effective organization of distribution and
marketing. High rack storage, which later became automatically driven, or the internal movements of
packages by flat robots were early expressions of logistical engineering.
Initially, logistics was an activity divided around the supplying, warehousing, production, and
distribution functions, most of them being fairly independent of the other. With the new
organization and management principles, firms were following a more integrated approach, thus
responding to the upcoming demand for flexibility without raising costs. At the same time, many
firms took advantage of new manufacturing opportunities in developing economies through
outsourcing and off shoring. As production became increasingly fragmented, activities related to its
management were consolidated (Preventive maintenance approach provides the reliability necessary
to support a tightly integrated manufacturing operation). Spatial fragmentation became a by-product
of economies of scale in distribution.
7) Two types of supply chain management
Horizontal and vertical integration are the two ways businesses can expand. But which one makes
the most sense for your business? Or can your company venture into doing both?
The fundamental questions companies should ask before setting a growth strategy is whether they
should pursue it through horizontal and vertical integration.
Horizontal integration is when a business grows by acquiring a similar company in their industry at
the same point of the supply chain. Vertical integration is when a business expands by acquiring
another company that operates before or after them in the supply chain.
Deciding on which strategic direction a company should pursue is very important before starting any
initiative. They need to decide if acquiring a company in an effort to achieve horizontal and vertical
integration will provide the best growth leverage for the company. The factors to consider in the
make-or-buy decision include costs, proprietary knowledge, and available capacity.

8) Stages of SCM Evolution (ASCM)
Advances made in supply chain over the past several decades have been reproduced in the models
improving them over time. The evolutionary trend has been as follows:
Stage 1: Multiple Dysfunction
The potential nucleus organization lacks internal definition and goals. Other than a few transactional
links there are no external connections.
These organizations tend to act impulsively rather than according to a plan. Management provides
only the most general sense of a mission. Forecasting is mostly guesswork and often over inflated by
unwarranted market optimism. Product design may be myopic and of a few internal designers.
Product and payments flow irregularly. Material Resource Planning (MRP) is at the most basic level
having the Bill of Materials (BOM) and short-term production planning. A manufacturer must
consider the long-term effects of its product design impact on the environment by considering the
packaging options. Coordinating with product engineering helps product design and development
pursue a strategy of first-to-market.

Stage 2: Semi-functional Enterprise
The nucleus organization begins to improve effectiveness, efficiency, and quality within functional
areas. While some or all functions engage in initiatives designed to increase efficiencies within
departments, there is little to no overlap in decision making from one department to another.
Partnerships with customers and supplier have not yet formed. However, the departments begin
seeking efficiencies that reduce handling, reduce inventories, procurement and
logistical processes improve, marketing forecast become reliable, and production planning systems
begin to emerge. The efficiencies come at a cost though since they have not been achieved through
cross communication. For example, reduced inventories could result in shortages and lower cost
logistics may take longer or be unreliable.
Stage 3: Integrated Enterprise
Silos or stovepipes are broken down pulling functional areas together. Focus shifts from individual
functions to a companywide process focus.
These organizations are fully integrated between departments using Enterprise Resource Planning,
ERP. This is a prelude to end-to-end supply chain management. Focusing on interdepartmental
processes does not depend on technology. Although smartly leveraging technology can act as a force
multiplier. MRP was created in the 1950s then expanded to MRP II which wrapped together
manufacturing and finance. ERP then expanded upon MRP II tying in the entire organization.
Additional, advances pushed across the corporate boundaries and linked to supply chain partners.
Cross-collaboration among departmental lines has been experimental and tentative at first.
However, cross functional approaches such as collaborative planning, forecasting, and replenishment
have emerged. Departmental representatives, teams, now meet to develop demand forecasts,
production planning, and other functions.
Inventory receives a strategic consideration as markets are astutely segmented improving customer
service. The nucleus firm begins to move towards integration of the external members of the supply
chain.

Stage 4: Extended Enterprise
The firm integrates its internal network with the internal networks of supply chain partners in order
to improve efficiencies, product/service quality, or both. The approach assumes a significant
breakthrough at this juncture that extends at least one business process past the boundary of the
corporation. The process that leads to an extended enterprise typically begins with an exploratory
collaboration between a channel master and one component supplier. This relationship will become
a model for future partnerships and multi-firm collaboration.
9) Creating Value through SC Management
Supply Chain remains an integral part of any business, driving growth through efficient end-to-end
(E2E) management of the key business processes, ranging from procurement, production, inventory,
transportation till final cash realization. With simulation of the supply chain requirements, a business
learns about in-depth demand patterns and its capabilities to remain ahead of the competitive curve.
An efficient Supply Chain Management (SCM) translates into lower Cost of Goods sold (COGS) and/or
establishes a unique leadership position through an iterative process of continuous improvements,
driving growth eventually. The case in point being companies like Zara, Dell, Uber, Walmart,
McDonalds that have managed to create a whole new line of business through process
improvements around existing supply chains.
On the other hand, SCM remains inherently unstable for most companies. Two imperative
parameters that feed supply chain stability and create value are ‘process integration’ and ‘timely
exchange of information’.

Many institutional platforms and technologies have improved the information flow between supply
chain stakeholders using collaborative tools. However, there still exists a noted gap with geographical
remoteness of global marketplace and “bullwhip” effect caused by demand and supply mismatch. In
view of the above, we have endeavored to evaluate an integrated working model for SCM
convergence by looking at various process level innovations.

IV Supply Chain and Globalization
1) Supply Chain and Global SCM Excellence
The globalization of business is the best thing to happen to supply chain management (SCM) in the
last 30 years. Driven by overwhelming market forces, globalization has forced countries and
companies to become more efficient, creating the infrastructure and competitive advantage
necessary to survive. The globalization of a supply chain typically increases uncertainty and
documentation complexity.
10 keys to Global SCM Excellence
As more businesses grow concerned over meeting the expectations of investors and regulations of
the shipping and production industry as it pertains to supply chain processes, business owners need
to know how to ensure optimum functionality of the supply chain. More businesses have taken
advantage of emerging market production and capabilities to reduce costs. Additionally, the existing
market is expected to double to more than 4 billion consumers by 2025. Unfortunately, this leads to
the inherent problem of more opportunities for problems to arise. As a result, obtaining Global
Supply Chain Excellence status remains a daunting and near-impossible task for many businesses.
Your business can work towards achieving this goal by following these ten unique keys to Global
Supply Chain Excellence.
Improve Supply Chain Visibility: Public perception of a company has the potential to impact a
company in a positive or negative way. Unfortunately, past business failures and bank bail-outs have
left a distrust of companies with the public. As such, businesses that do not reveal aspects of their
operational procedures to the public will face intense scrutiny and public criticism. To improve supply
chain processes and reach the point of Global Supply Chain Excellence, companies must ensure their
business processes are easily visible to the public, especially processes which could have dramatic
impacts on local workforces and markets.
Protect Gross Margins: Businesses rely on an intricate web of expenses and income. However,
business expenses must not exceed a comfortable margin of error. Otherwise, the net income of the
business could falter. Businesses need to be more conscious of how the expense-income equation
functions and ensure that the net result does not fall outside of the comfortable zone for expenses if
a 3PL is used in the course of supply chain management.
Increase Logistics Agility: When a business uses a 3PL provider for supply chain processes, the
business has a greater degree of flexibility to ensure parts reach the end customer in a timely, cost-
effective manner. Many businesses continue to utilize in-house supply chain processes, which result
in rigidity for the business. As a result, the business could lose a significant amount of capital if in-
house processes experience technical or man-made problems, such as data entry error or incorrect
order fulfillment selection. Effective order management system is a prerequisite for an ability to plan
and build loads.

Improve Compliance With US Customs and Border Protection Regulations: Since 1993, US Customs
and Border Protection (CBP) officials have carefully watched businesses to ensure adherence to
recordkeeping and shipping requirements as outlined within the Modernization Act. CBP is also the
government agency responsible for protecting agriculture from harmful pests and diseases.
Adopt Supply Chain Finance Options: Business credibility exists as companies work with other
companies to ensure payment of goods and services rendered. However, some companies may not
have the available capital to pay for services in advance, and supply chain finance options can help
companies build their creditworthiness. This shows other companies and consumers that a business
has an obligation and duty to ensure their business meets customer and industry standards for
supply chain processes.
• Letter of Credit: A letter of credit or "credit letter" is a letter from a bank guaranteeing that a
buyer's payment to a seller will be received on time and for the correct amount. In the event
that the buyer is unable to make a payment on the purchase, the bank will be required to
cover the full or remaining amount of the purchase. It may be offered as a facility.
Due to the nature of international dealings, including factors such as distance, differing laws
in each country, and difficulty in knowing each party personally, the use of letters of credit
has become a very important aspect of international trade.
A letter of credit is a document sent from a bank or financial institute that guarantees that a
seller will receive a buyer's payment on time and for the full amount. Letters of credit are
often used within the international trade industry. There are many different letters of credit
including one called a revolving letter of credit. Banks collect a fee for issuing a letter of
credit.
• Open Account: An open account transaction is a sale where the goods are shipped and
delivered before payment is due. Obviously, this option is the most advantageous for the
customer/importer in terms of cash flow and cost, but it is consequently the highest risk
option for a supplier/exporter.
• Sight draft: is a type of bill of exchange, in which the exporter holds the title to the
transported goods until the importer receives and pays for them. Sight drafts are used with
both air shipments and ocean shipments for financing transactions on goods in international
trade. Unlike a time draft, which allows for a short-term delay in payment after the importer
receives the goods, a sight draft is payable immediately.
A sight draft is a payment document used in international trade whereby a buyer accepts
shipped goods and agrees to pay the seller immediately upon delivery. As a type of bill of
exchange, sight drafts are utilized in international trade to facilitate short-term financing
between importers and exporters.
Because there is no time delay or waiting period with a sight draft, these usually must be
accompanied by an official letter of credit issued by a commercial bank.

• Cash in Advance (CIA): Cash in advance refers to a condition in the international trade
providing that the importer must pay cash to the owner of the goods before shipping the
goods.
Cash in advance method of payment is used in the international trade bay the traders to
minimize the problems associated with credit risks or failure to pay for the goods after
shipment. This method of payment implies that when the exporter ships the goods to the
importer, he is confident on the payment. It reduces the situation that the importer may fail
to pay for the products thereby creating discourse to the exporter. This method is most
commonly used for export/import business. However, it can also be used in other types of
business other than export/import business.
Before the importer receives a shipment of a product from a foreign trader, they are
required to pay cash in advance for the products. This method of payment makes foreign
producer more secured against failure on the side of the importer to pay. In some cases, this
deal may be applicable when the exporter ships the goods in advance before the importer
make payment, but the ownership of the good remain to exporter until the importer make
payments of the goods. The payment is made through credit card or wireless service. Despite
the benefits of this method to the exporter, this method is not commonly used in the
international trade. This is because they create problems regarding buyer`s cash flows thus
making it inconvenient means of payment. This may also have adverse effects on the
exporter in the case of a competitive market since the importer will move to another
exporter who does not use the method. Cash in advance is used to guarantee that the
shipment is made and the shipper gets paid for their product.
Cash in advance describes the purchase term whereby the cash is paid prior to the shipment.
This minimizes the risks to the seller and increases the risks to the buyer. This type of
agreement is associated with other terms such as Free on Board and constraint. The free-on-
board terms-present that the importer becomes in charge of the product once they are
discharged by the exporter and become liable to all risks associated with the product such as
financial risks, damages of the products and any other risks. However, these risks are rare
unless the product in the deal is fragile and has phenomenal value. Constraints refer to a
condition that limits the efficiency and effectiveness of carrying out the business operation.
For example, when a company has $3000 cash at hand, and an income of $2000, it is
considered to have a constraint of $5000. This means that when the business transaction
requires the use of cash in advance method, then the company can only obtain a limit of
$5000.
Improve Management Processes: Management encompasses all aspects of a business, which

includes supply chain activities. However, managers may be working with outdated information and
not know where processes could be improved upon. By updating management processes to modern
demands, a business can show alignment with industry specifications and have a positive return on
investment for outsourced supply chain processes.

Deploy Commercial Global Supply Chain Technology: The Internet of Things (IoT) and increases in
technological-applications in supply chain processes demands that any new business must use
technology throughout the supply chain in order to be effective. When a business does not use
technology in the course of supply chain processes, inefficiencies will exist and order fulfillment
processes will become disrupted.
Differentiate Supply Chain and Corporate Strategies: Businesses must create two different
categories of strategies for the successful implementation and management of supply chain
processes: supply chain and corporate strategies. Supply chain strategies include strategies used to
selecting a site manufacturer, storage of merchandise, and shipping of such merchandise.
Additionally, corporate strategies should involve methods of attracting new customers, research and
development of additional products, and customer service. However, these differing strategies may
overlap in some cases, and businesses must understand that collaboration between the corporate
and supply chain sides is necessary for optimum functionality.
Take Advantage of Big Data: Modern society has become a compendium of extensive data collection
and advanced marketing techniques. However, this data will go to waste if not analyzed, reviewed,
and used in the development and management of supply chain practices. Business owners must
create a team of data analysts and assign a single person for the oversight of this team and IT
departments. When properly analyzed, big data will identify inefficiencies within supply chain
processes and improve existing customer bases through transparency in analysis.
Set Performance Standards For Your Business or Organization: When supply chain processes have
been outsourced, employees may feel that their positions could be at stake. However, business
owners can alleviate this concern through leading by example. Supply chain processes should have a
performance standard equal to that of the business, and these performance standards must exist
throughout all aspects of the business. When a business owner follows these standards, subsequent
employees will be more apt to embrace the use of outsourced supply chain processes, and return on
investment will rise.
2) Define your Finished Goods Strategy/Segmentation
• Engineer-to-order: Products whose customer specifications require unique engineering

design, significant customization, or new purchased materials. Each customer order results in
a unique set of part numbers, bills of material, and routings. If a company that sells
engineered-to-order products is planning implementation of a supplier relationship
management system (SRM) for direct materials, complexity of the purchasing process is most
likely will make the implementation difficult. Engineer-to-Order is the manufacturing strategy
that typically generates the lowest supply chain inventory.

• Make-to-order: A production environment where a good or service can be made after

receipt of a customer’s order. The final product is usually a combination of standard items
and items custom-designed to meet the special needs of the customer. Where options or
accessories are stocked before customer orders arrive, the term assemble-to-order is
frequently used. In a make-to-stock environment, service level is a key determinant of
inventory levels necessary to support customer demand. In a make-to-order environment, if
cumulative production exceeds cumulative demand, the backlog will decrease.
• Assemble-to-order: A production environment where a good or service can be assembled

after receipt of a customer’s order. The key components (bulk, semi-finished, intermediate,
subassembly, fabricated, purchased, packing, and so on) used in the assembly or finishing
process are planned and usually stocked in anticipation of a customer order. Receipt of an
order initiates assembly of the customized product. This strategy is useful where a large
number of end products (based on the selection of options and accessories) can be
assembled from common components. In an assemble-to-order production environment, the
master production schedule contains subassemblies. Shifting its business from assemble-to-
order to make-to-order, the customer order decoupling point will shift from WIP to raw
material.
• Make-to-stock: A production environment where products can be and usually are finished
before receipt of a customer order. Customer orders are typically filled from existing stocks,
and production orders are used to replenish those stocks (The heijunka philosophy can best
be described as level production). The master schedule is characteristic of a make-to-stock
environment and stated at the finished product level. In Make-to-stock, order-fill rate of
primary importance to customer delivery expectations.

V Supply Chain Strategy
1) Supply Chain Strategy Overview
The primary reason for a firm to pursue strategic supply chain activities is to gain competitive
advantage. Don't let your supply chain strategy develop in isolation from the rest of the business.
“Push” strategy is the appropriate supply chain strategy for a product with low demand uncertainty
and high economies of scale.
“Pull” strategy typically would be the most appropriate strategy when customer demand uncertainty
is high, and supplier lead time is short.
2) Six Steps to Align Supply Chain with Corporate Strategy
Some managers believe that there are universal definitions of good or bad supply chains. We often
see companies attempt to build the most efficient supply chain, regardless of whether their market
strategy is to compete on price.

Optimizing cost and inventory may come at the expense of lead-times, flexibility and risk. Your supply
chain needs to compete the same way your company does. Supply chains cannot be measured in
absolutes or designed in isolation of the corporate strategy. Providing the highest-quality service is
the most consistent corporate strategy with a flexible supply chain strategy. Here are six steps to
align your supply chain with your corporate strategy:
Define and communicate a clear corporate strategy: One of the biggest failure points in aligning
strategy is when the supply chain organization does not know what to align with. Strategies cannot
be too limited and fail to consider and prioritize all the market requirements and factors on which
participants compete (features, price, delivery, etc). And strategies cannot be platitudes promising all
things to all people.
Corporate strategy needs to define how you are going to be different and better than your
competitors, and it needs to set specific, measurable goals. Then the strategy needs to be
communicated to the organization thoroughly and repeatedly.
Building blocks of collaborative relationships
Identify the areas of your corporate strategy that are enabled by the supply chain: You need to
connect the dots between your strategic goals and how those get delivered by the company. This
process defines what your supply chain needs to be good at, and it allows you to prioritize supply
chain objectives. Ask the question, "What part of my core competence and competitive
differentiation falls within or derives from my supply chain activity?" This step is especially critical in
making in-house/outsource decisions.

Strategy: Demand-Driven Enterprise
Align supply chain performance metrics with the corporate strategy: One of the most common
issues we see is the belief that there are standard supply chain performance measures, and the
company should strive to maximize them all. This belief fails to account for the fact that there are
tradeoffs in optimizing different goals. There are also no absolutes in competitive strategy. Goals
should be set based on your performance relative to your competitors.
When revising the organization’s supply chain strategy with a greater emphasis on collaborative
supply chain relationships you should consider Vendor language and time zone differences as to
implementing the new strategy.
We have a client who had operated their supply chain with the goal of shipping product within one
day after an order. But their mature market no longer needed that level of performance. Relaxing
that delivery requirement opened up a significant opportunity for inventory improvement. It is
important to note that they didn't stop delivering in a timely manner or stop measuring delivery
performance, they just re-prioritized their goals to optimize a different objective.
Strategy: Number of Supply Chains

Structure your supply chain to optimize the strategic goals: This step is where you address the
elements of supply chain design: Supply chain network, locations, supplier selection and business
terms, inventory and planning policy, organizational structure. Supply chains that are optimized for
cost efficiency will look different than supply chains that are optimized for flexibility and
responsiveness. Your organization and the skill set of your people will be different, too. Selecting
supporting information systems is an important supply chain design decision.
Supply chain versus supply chain
Align incentives end to end: Internal performance evaluations and bonus structures need to match
the aligned metrics that have been set. Supplier performance management and business models
should align the suppliers' incentives with yours. Don't forget that channel and demand management
are part of the supply chain, too. Build a robust S&OP process and drive your sales and marketing
teams with objectives that aren't at odds with your supply chain objectives. One common failure is
when sales and marketing have no incentive to control inventory. They will overdrive the forecast to
guarantee availability and then the supply chain organization is left with the excess inventory.
Keep refreshing the strategy and alignment process: Most companies have strategic planning cycles
of one to three years, but we have seen companies that literally go decades without re-aligning their
supply chain strategy. Put your supply chain strategy on the same schedule as the rest of your
planning.
Management tasks

Barriers to collaboration

3) Aligning SC Strategy with Corporate Strategy
The purpose of business has always been to create goods and services for everyday people, and
despite how much we are seeing the business landscape evolve, 2020 corporations are no different.
All corners of an enterprise serve the customer. With the advent of better data, newer technology,
and an elevated way of thinking about problems, the challenge has quickly become a game of
achieving this more efficiently than ever before.
Corporate strategy is chasing consumer preferences
At the heart of every long-term and short-term business trend is the consumer. Consumer
preferences are always changing, but the heightened level of disruption to both business and
personal life is accelerating that trends.
According to a 2020 report by Ernst & Young, less than 10 percent of food sales were executed online
before the COVID-19 pandemic hit. That number has since skyrocketed to 45 percent. That same
report indicates 43 percent of American consumers admit they expect to shop online for items they
previously preferred purchasing in-store. E-commerce prevalence has grown steadily for at least a
decade, and jumped by 37 percent from Q1 2020 to Q2 2020, as reported by the U.S. Department of
Commerce.
In addition to how they buy finished goods, consumers are changing what they spend their money on
in a pretty significant way. As of August 8, 2020, Deloitte shows that U.S. consumers are saving an
average of 15 percent on all spending, and that cost has shifted dramatically away from discretionary
items and towards essentials.
Consumers are dramatically changing where they purchase goods which are influencing how
organizations think about the physical distribution of their supply chains. This shift has long signaled
the need to adapt the way we think about how we move goods to market—and more importantly
directly to consumers.

Logistics strategy and corporate strategy are one and the same as consumer preferences evolve, an
equivalent level of change needs to occur in the supply chain to adapt. When marketing makes
promises to customers—like next-day or timely delivery, supply chain transparency, high customer
service levels, or sustainable manufacturing practices—the supply chain needs to deliver. Adding new
features and facilitating new product development to meet customer satisfaction hinges on the
ability to move raw material.
To guard against potential shortage in the company’s manufacturing capacity you must pay most
attention to the technical area and the environment is the most disruptive supply chain risk to be
considered. Consolidating manufacturing locations is most likely to increase total supply chain risk.
No matter how superior your products’ competitive advantage is over your peers, if the supply chain
is not central to your organizational goals, consumers will never experience your manufactured
products. The sales and operations planning process must be in sync. This makes the importance of
supply chain strategy alignment with business strategy not only beneficial but necessary to success in
2020 and far beyond it.
4) The importance of Aligning Supply Chain Strategy with Business Strategy
From widely sweeping sustainability initiatives to highly operational procurement practices, the
supply chain’s scope of impact is vast. This makes its potential to drive change in all areas of your
business even more influential, and significantly more lucrative than many initiatives.
When you elevate the value of an optimally functioning supply chain in the eyes of the wider
organization, you unlock new possibilities to delight your customers. The supply chain and
corporations are one and the same. One cannot function without the other, and if supply chain
alignment isn’t sitting at the center of board-room conversations, no other goals can be met.
Supply chain management as a concept is over 100 years old, it has the ability to elevate the quality
of healthcare, create jobs, protect us from natural disasters, and improve the way we all live. It has
long been a tool to elevate other key performance indicators across businesses.
But the year 2020, full of disruptions like the world could never anticipate, has proven that it is no
longer a tool, it is a key to the future success of your organization.

Strategic Planning: Organizational Design
Strategic planning helps integrate the plans of marketing and production. The most appropriate
approach for developing forecasts for strategic business planning is to adopt economic growth
models. Purpose of the forecast has the greatest effect on the length of the forecast horizon.
Strategic Planning: Supply Chain Processes

Strategic Planning: Systems and Technology
Strategic planning for Information Technology (IT) is increasingly regarded as both a key component
of corporate planning and a critical focus area for sound governance of IT. For practitioners the
primary concern is ensuring that IT positively and effectively supports and is supported by corporate
strategic objectives, so it provides the necessary capability to deliver business value. This is reflected
in IT strategy being identified as a top issue for American firms and as a Critical Success Factor. The
benefit of achieving strategic fit is that it should ensure that IT is positioned to assist in adding value
to products and/or services, which in turn assists with competitive position and management
efficiency through cost control and more accurate reporting.
Similarly, in an academic context, prior research into strategic planning of IT supports the need to
ensure fit between IT and business strategy, and delineation of key IT capabilities, future IT
requirements and operational IT resourcing in order to meet business needs.
Whilst this shows consensus between practitioners and academics about the desired results from IT
strategic planning, what is not as clear are the key indicators of an effective Strategic Information
Systems Planning (SISP) process. Although indicators like ROI can be indicative, evidence of effective
outcomes can be hard to extrapolate from the myriad of related business initiatives.
Strategic Planning: People

Strategic Planning: Supply Chain Metrics
In a supply chain environment, you have four elements:
• Physical Materials and Services

• Cash
• Information
• Returns for Repairs, Recycling or Disposal
Below are the five Vs that can impact this process, positively and negatively.

Visibility: This is exactly as you might expect – the ability to view all the materials and individuals
within the facility. When you have a good source of monitored visibility, you can become aware of
minor, incremental changes from intake to output. Better visibility helps improve the next step:
velocity.
Velocity: This part of the management cycle is meant to enhance the process by:
• Determining faster modes of transportation to and from the site

• Moving to Just-in-Time processes
• Eliminating steps that don’t add value
• Identifying bottlenecks through process analysis
• Speeding up the flow to allow faster invoice processing
Implemented effectively, this process allows faster product turnover thus saving your organization
time and money.
Variability: This is a measurement system that looks at fluctuations dealing with monthly averages
on:
• Time to complete orders

• Number of defects
• Daily sales
• Production yields
The goal is to decrease monthly variability, so the above items are relatively constant month-after-
month. If you have a great degree of variability, your organization will need to invest in safety stock
as an insurance policy to handle order spikes and returns. This works against velocity and may leave
your organization with excess inventory that creates a risk for stolen or never used inventory.
In addition, if any of the processes from the supplier to your factory to the distributor breaks down
(either slows down or speeds up), your variability index will increase, creating the bullwhip effect.
Blockchain technology, which is not fully implemented at this point, will dramatically impact this
effect in a positive vain and minimize variability.
Variety: This is the product and services portfolio that need to change to meet customers’ demands.
Volume: This is the amount of product being produced in a given time. The perfect supply chain is
flexible enough to expand and contract volume based on demand.
Once you get these five Vs in line, your organization should have better cash flow, information and
the right level of materials in the supply chain at any given moment. Your organization will be truly
agile (Lack of materials will cause a decrease in a work center's utilization).

VI Supply Chain Risk Management
1) Supply Chain Risk Management Strategies
The majority of companies see supply chain risk management as important to their business, but only
seven percent are generating returns of over 100 percent on their supply chain risk management
investments, according to a new study by Accenture that revealed the distinct approaches followed
by leaders in risk management.
Seventy-six percent of companies participating in the "Accenture Global Operations Megatrends

Study – Focus on Risk Management," describe supply chain risk management as important or very
important. Of the more than 1000 companies represented across 10 industries, 25 percent plan
increased investments of at least 20 percent in supply chain risk management in the next two years.
The analysis reveals that while nearly all of the companies represented in the study receive a return
on their investment (ROI) in risk management, the leaders — those that generated returns exceeding
100 percent — had three practices in common that distinguished them from others.
Make risk management a priority: Sixty-one percent of the leaders as compared to 37 percent of
other companies make risk management a strategic imperative and recognize the importance of
capabilities that help them gain greater visibility and predictability across their supply chains.
Centralize their responsibility for risk management: Forty-three percent of leaders versus 32
percent of others had a central risk management function led by an executive in the C-suite or a vice
president who oversees all of their risk management activities.
Invest aggressively in risk management with a specific focus on end-to-end supply chain visibility
and analytics: Leaders were nearly three times as likely to say they planned to boost their
investment in risk management by 20 percent or more in the next two years. Furthermore, nearly 70
percent of leaders said their investments will generate a return of at least 100 percent in the next
two years as opposed to 4 percent of others.

"As demonstrated by the leaders in our study, a centralized, top-down approach to supply chain risk
management tends to generate the highest ROI on risk management," said Mark H. Pearson, senior
managing director, Accenture Strategy, Operations. "Such a commitment to risk management also
can help managers guard against business disruptions in the wake of natural disasters, geo political
events, shifts in commodity or shipping prices, or any number of circumstances that can endanger a
company's operations."
Pearson also noted that such a strong commitment to risk management "can contribute to
stakeholder confidence in the fundamentals underpinning a company's business."
According to the study, the top three sources of risks identified by senior operations executives are
information technology (39 percent), cost and pricing factors (39 percent) and the global economy
(37 percent). Natural disasters or unforeseen events, such as the Thai floods or the tsunami in Japan,
were only cited by 17 percent of the respondents, making that the least frequently flagged risk.
The area’s most frequently exposed to those and other risks in the corporate supply chains are
quality (45 percent), planning (39 percent), supply chain skills and talent (38 percent) and sourcing
and procurement (37 percent), according to the executives.
"Although unforeseen events or natural disasters lead some to give up on risk management, most
risks can be managed to not only minimize the downside but also to gain a competitive advantage as
a result of being prepared to respond to circumstances when they arise," said Pearson. "Scenario
planning and robust analytics can play a key role in developing effective risk mitigation strategies."
2) Type of SC Risks and Strategies
Change is inevitable in modern supply chain management, and risk management is essential to
success. Risks evolve and become more prevalent with time. Risk management strategies of
yesteryear are ineffective in the changing landscape.

3) Risk Prevention
Risk prevention methods include all techniques and management practices that help to prevent
unnecessary or foreseeable risks. Essentially, they generally include all of the methods that increase
the quality (and thus reduce financial and other risks), planning methods, forecasting, and the use
of best practices. By using best practices and reference models, negative phenomena are being
prevented. The steps of risk prevention process are:

VII Corporate and Supply Chain Strategy
1) Using Corporate and SC Strategies to Set Priorities and Make Decisions
Supply chain management operates at three levels: strategic, tactical, and operational. At the
strategic level, company management makes high-level strategic supply chain decisions that are
relevant to whole organizations.
The decisions that are made with regards to the supply chain should reflect the overall corporate
strategy that the organization is following.
The strategic supply chain processes that management has to decide upon will cover the breadth of
the supply chain. These include product development, customers, manufacturing, vendors, and
logistics.
Product Development
Senior management has to define a strategic direction when considering the products that the
company should manufacture and offer to their customers.

As product cycles mature or product sales decline, management has to make strategic decisions to
develop and introduce new versions of existing products into the marketplace, rationalize the current
product offering, or developing a new range of products and services.
These strategic decisions may include the need to acquire another company or sell existing
businesses. When making these strategic product development decisions, the overall objectives of
the firm should be the determining factor.
Customers
At the strategic level, a company has to identify the customers for its products and services. When
company management makes strategic decisions on the products to manufacture, they need to then
identify the key customer segments where company marketing and advertising will be targeted.
Feasible master schedule is required for making realistic customer promises. The primary role of
marketing in supporting supply chain management is developing efficient customer channels.
Manufacturing
At the strategic level, manufacturing decisions define the manufacturing infrastructure and
technology that is required. Based on high-level forecasting and sales estimates, company
management has to make strategic decisions on how products will be manufactured.
The decisions can require new manufacturing facilities to be built or to increase production at
existing facilities. However, if the overall company objectives include moving the manufacturing
overseas, then the decisions may lean towards using subcontracting and third-party logistics.

As environmental issues influence corporate policy to a greater extent, this may influence strategic
supply chain decisions with regards to manufacturing.
Suppliers
The company management has to decide on the strategic supply chain policies with regards to
suppliers. Reducing the purchasing spends for a company can directly relate to an increase in profit
and strategically there are a number of decisions that can be made to obtain that result. Long-term
commitments for capacity approaches should improve a supplier's quality, price, and delivery
performance. Replenishment (lead times) is related most closely to a supplier performance measure.
Leveraging the total company’s purchases over many businesses can allow company management to
select strategic global suppliers who offer the greatest discounts. But these decisions have to
correspond with the overall company objectives.
When profit impact is high and supply risk is low for an item, leveraging purchasing power is the
procurement strategy that most likely to be effective and successful.
If a company has adopted policies on quality, then strategic decisions on suppliers will have to fall
within the overall company objective.

2) The 7 Basic Quality Tools for Process Improvement:
Quality has many names for these seven basic tools of quality, first emphasized by Kaoru Ishikawa, a
professor of engineering at Tokyo University and the father of "quality circles." Start your quality
journey by mastering these tools, and you'll have a name for them too: indispensable.
- Cause-and-effect diagram (also called Ishikawa or fishbone diagrams): Identifies many

possible causes for an effect or problem and sorts ideas into useful categories.
- Check sheet: A structured, prepared form for collecting and analyzing data, a generic tool
that can be adapted for a wide variety of purposes.
- Control chart: Graph used to study how a process changes over time. Comparing current
data to historical control limits leads to conclusions about whether the process variation is
consistent (in control) or is unpredictable (out of control, affected by special causes of
variation).
- Histogram: The most commonly used graph for showing frequency distributions, or how
often each different value in a set of data occurs.
- Pareto chart: A bar graph that shows which factors are more significant.
- Scatter diagram: Graphs pairs of numerical data, one variable on each axis, to look for a
relationship.
- Stratification: A technique that separates data gathered from a variety of sources so that
patterns can be seen (some lists replace stratification with flowchart or run chart).
As well as strategic decisions on manufacturing locations, the logistics function is key to the success
of the supply chain. Order fulfillment is an important part of the supply chain and company
management needs to make strategic decisions on the logistics network.
The design and operation of the network have a significant influence on the performance of the
supply chain.
Strategic decisions are required in warehouses, distribution centers, and determining which
transportation modes should be used. If the overall company objectives identify the use of more
third-party subcontracting, the company may strategically decide to use third-party logistics
companies in the supply chain.
Strategic decisions determine the overall direction of the company’s supply chain. They should be
made in conjunction with the company’s overall objectives and not biased towards any particular
product or regional location.
These high-level decisions can be refined, as required, to the specific needs of the company at the
lower levels which allow for tactical and operational supply chain decisions to be made.

Summary
The primary and overriding goal of any supply chain is to make sure a company is delivering the
orders its customers want when its customers want those orders—and accomplish this by spending
as little money as possible. Only by lowering costs and improving performance can a supply chain be
truly optimized.
When a supply chain is managed at the operational, tactical and strategic levels—it has the best
chance of helping its company reach its goals.
When the strategic supply chain is optimized, a company is delivering what its customers want, when
its customers want it—and spending as little money as possible getting that done. Starbucks' method
of supply chain management is a great example of this.

VIII Supply Chain Performance Metrics
1) Supply Chain Performance Metrics Overview
When a company wants to look at the performance of its supply chain, there are a great many
metrics that can be used. Each supply chain performance metric gives a slightly different view of a
piece of the supply chain. The important decision for any company is to prioritize which supply chain
metrics are important and how they will be used. Many companies use supply chain performance
metrics that are easy to calculate but may not necessarily give a true indication of how the supply
chain is performing.
Some companies use a range of metrics that they require their logistics department to adhere to, but
do not realize that in doing so, other parts of the supply chain may be negatively impacted.
2) Characteristics of a Good Performance Metric
When companies look at the various performance metrics that are available, there are a number of
characteristics that they should look for when selecting metrics that will help with their business
decisions. For that, companies:
- Won’t achieve what can’t be measured

- Can’t measure all possible objectives
- Choose reasonable number of KPIs
- Easy To Understand - A good metric is one that can easily be understood by anyone that
looks at it. It should be clear as to what the metric is actually measuring and how it is actually
derived.
- Quantitative - An important characteristic for a supply chain performance metric is that it is
expressed by a value that is objective, i.e. derived from real data and not subjective.
- Measures What is Important - Some metrics can look to be important, but when the data is
analyzed, the relevance of the metric can be tenuous. It is vital that a performance metric on
which business decisions are made should measure important data.

- Causes Correct Behavior - A good performance metric should be one that makes the user
take the correct action. For example, if metric shows a number of orders processed per day,
then the correct action increases the number processed. However, sometimes the metric by
itself can cause the user to take action but at the determent of other areas. For example, if
the metric is to measure the warehouse staff by the number of movements per day, they can
increase the number of movements at the determent of the number of trucks loaded and a
number of orders processed.
- Metrics Should be Easy To Collect - Sometimes companies select complex performance
metrics that are very time-consuming to collect and may require time to be taken away from
line staff to prepare. This is counterproductive and these types of metrics should be avoided.
3) Categories of Performance Metrics
There are three main categories of supply chain performance metrics, time, cost and quality.
Time - When companies look at selecting supply chain performance metrics, they usually will
examine those metrics that relate to time, as they are easily calculated, easily understood, and
clearly show operational effectiveness. For example, companies will look at metrics that show the
level of on-time deliveries, on-time receipts, time to process purchase orders, and time to fulfill an
order.
Cost - This is an important performance metric as it shows how efficient part of the company is.
Businesses need to make a profit and by focusing on cost metrics, they can identify where in the
business the improvements can be made. Inventory carrying costs is a popular performance metric
that companies look at to see how much it costs them to carry items in the warehouse. Companies
are always trying to identify where they can make changes to improve cash flow and making the
business more profitable.
Quality - For companies that want to improve customer satisfaction, the performance metrics
focused on quality are vitally important (Orders received on customer-requested date is the
performance metrics best measures customer satisfaction). Although the metrics around delivery
times are important to customer service (Greatest concern for a company choosing to reduce its
finished goods inventory is customer service expectations), improvements in the quality of the
product can significantly improve customer satisfaction. When an organization is concentrating its
efforts on meeting the internal performance standards related to availability, operational
performance, and reliability has to spotlight on customer satisfaction.
A company would use order agility measure in attempting to improve its customer service dimension
of dependability.

Balanced scorecard
Metrics and Performance Attributes

Supply Chain Reliability
Supply chain responsiveness
Supply Chain Flexibility

Supply Chain Costs
Supply chain asset management

IX Supply Chain and Financial Performance
1) Managing the Supply Chain for Financial Performance
Most businesses measure success through a high-level set of financial metrics that are reported on a
quarterly or annual basis, such as operating or net income, return on investment, and earnings per
share. Financial performance metrics are valuable because they capture the economic consequences
of business decisions. They are the “language of business,” used by internal and external
stakeholders to evaluate the results of business operations.
Supply chain managers make decisions and use organizational resources that eventually impact the
financial outcomes of the firm. To do so effectively, they need to link the results of supply chain
decisions to the financial goals and related metrics of the company.
By creating a set of linkages between the work that is being performed and the financial outcomes of
the firm, the organization’s supply chain function can gain organizational visibility and demonstrate
the impact of supply chain decisions and resource utilization on the firm’s financial performance.
2) Financial Statements
The financial statements of an organization consist of the following primary statements:
- Income Statement – a report of the firm’s earnings over a specific period of time, calculated
as sales activities (revenues) minus product costs (cost of goods sold) and selling, general,
and administrative costs
- Balance Sheet – a report of what the firm owns (assets) and owes to either debtors
(liabilities) or owners (shareholders’ equity)
- Statement of Cash Flows – a report detailing the sources and uses of cash from three
perspectives: operational, investment, and financial
- Statement of Stockholders’ Equity – a report that traces the generation and distribution of
stockholders’ equity through capital stock transactions, retained earnings, and other related
transactions
Each of these statements report financial information that is important to management, analysts,
and investors. How do decisions made by supply chain managers impact the results shown on each of
these statements?
3) Income Statement
Most managers readily understand the basic income statement components of revenues, product
costs, and administrative overhead costs. The net income figure is arguably the most focused-upon
performance metric in the business community. Firms may also focus on components of net income,
such as gross margin (revenues minus product costs), earnings before interest and taxes (gross
margin minus administrative overhead costs), or EBITDA (earnings before interest and taxes minus
depreciations and amortization expense). Supply chain decisions and performance have direct
impacts on income through each of the three primary components of the income statement, as
shown below:

4) Balance Sheet
Within the balance sheet, a key component of organizational success (or failure) is the control of
working capital. Working capital is defined as current assets less current liabilities, think of working
capital as the "lifeblood" of an organization, as it is essential to keeping the organization healthy and
viable.
The primary components of current assets are cash (and cash-like investments), accounts
receivables, and inventories, the primary component of current liabilities for most firms is accounts
payables.
Not only do supply chain decisions have a direct impact on working capital, but working capital flows
and balances have a direct impact on the financial viability and performance of a firm. A firm that
lacks adequate working capital will have not have the funds available to pay its employees, suppliers,
or government taxes – any of which have the potential to quickly shut the firm down. The firm will
then have to borrow funds to meet working capital needs. A firm with excess working capital will
have the ability to fund expansion without increasing borrowings.

One useful supply chain performance measure to evaluate working capital performance is the cash
conversion cycle, calculated as Inventory Days plus Accounts Receivable Days minus Accounts
Payable Days.
- Inventory Days = 365 / (cost of goods sold / average inventory balance)

- Accounts Receivable Days = 365 / (sales / average accounts receivables balance)
- Accounts Payable Days = 365 / (cost of goods sold / average accounts payables balance)
One goal of cash conversion is to balance the investments a company makes in inventory and
extending credit to customers with payments that a company makes for purchases. The supply chain
function influences working capital, as shown below:
In addition to working capital, the balance sheet helps firms measure utilization of the firm’s physical
assets. Plant, Property and Equipment (PP&E) productivity is measured by dividing sales revenues by
the amount recorded for net PP&E. This measure gives an indicator of how productive the physical
assets of the organization are.
Statement of Cash Flows and Statement of Shareholders’ Equity
The Statement of Cash Flows contains information generated through the Income Statement and
Balance Sheet, but formatted so that managers and investors can see the sources and uses of cash in
three primary areas of the firm: operations, investing, and financing. The information on this
statement is key to analyzing the health of an organization, because a company requires positive
operational cash flows to endure over time. The supply chain organization impacts this statement
through actions that influence the income statement or balance sheet of the firm.
The Statement of Shareholders’ Equity summarizes the ownership portion of the firm – capital stock
sales and purchases, income generation and payment of dividends, and other related items. The
supply chain management function most directly impacts the net income generated for the firm.

X Supply Chain Leadership and Management
1) Effective Supply Chain Leadership
The importance of effective supply chain leadership in the success of a business is clearly more
defined nowadays. Whether you run a small, medium or multi-national/conglomerate across the
globe, you need a supply chain leadership style that will effectively cover the end to end supply chain
and motivate people.
A supply chain leader who can demonstrate both soft skills and technical knowledge is required to
lead supply chain teams.
Supply chain leadership roles have evolved over the past years, today it is more than having practical
knowledge, but to be able to process a situation and manage a team from start to finish, to improve
productivity, and makes a profit for the company.
Supply Chain is getting more and more complex. The requirement of increased visibility, agility,
flexibility, risk mitigation, technological innovation and ever-growing expectation from customers for
excellence is a huge challenge for supply chain managers and leaders. This challenging environment
requires supply chain managers and leaders to adopt certain effective habits and leadership skills.
According to Professor Richard Wilding OBE, leadership is about people or managers that are aiming
to create a definite path, alignment, and commitment within a team or the team they are
responsible for.
Being an effective supply chain leadership is very challenging as a company’s supply chain works in
two directions both of which has to complement each other to function properly.

For example, Mode One supply chain allows supply chain leaders to focus on predictability, being
moderate is essential to cost reduction, managing further prediction and ability to reduce the risks
involved in a supply chain.
In Mode two supply chain, leaders focus on speed and fast track strategies to be able to solve
unforeseen problems or incorporating new ideas and technologies. To say you have the qualities of a
supply chain leadership, leaders must understand these two modes and how to manage them both
effectively.
For these reasons, companies need leaders to lead differently but to also adapt supply chain
leadership styles that can combine both modes. With that said, there are 4 styles which must be
adopted.
Command and Control
We are taking these two styles together as it is difficult to separate control from command and vice
versa.
In this supply chain leadership style, leaders work with a defined order where everything is well
structured and arranged, but this style fails in a complex organization where innovation is important.
Supply chain leadership skills can help leaders reduce the loses on a supply chain as they are able to:
- Effectively manage every team on the supply chain like the manufacturers, contractors,
vendors, suppliers, etc.
- Are able to share information and resources
- Rely on predictive analytics to see the direction the supply chain is heading
- Can make an impromptu decision with the aid of innovation
Consensus
Consensus on the other hand work in an organization where the staff is grouped into small teams
that manage a particular task before the final result is drafted.
This style of supply chain leadership, however, doesn’t seem to do so well where speed is of
paramount importance due to the different work speed in the teams.
2) Collaborative Supply Chain Leadership
When diverse teams come together to solve a problem, collaborative leadership style is more
suitable, for a supply chain leader, the ability to manage effectively different departments across an
organization also requires a collaborative supply chain leadership skill.
Collaborative leadership works excellently well when leaders have to deal with a large number of
teams across different sections in a company, and most especially when technology and creativity
are necessary to push an idea forward.

Although this is hard, a good leader should be able to manage the teams/group to create better
alignment and make the team more committed to the process at hand.
Competency
Leaders are naturally expected to be competent; it is demanding skill set that most companies and
establishment desire but what does it really mean for a supply chain leader to be competent.
Competency in supply chain means continually learning and remonstrating relevant knowledge and
expertise, mostly in these technical competencies.
When a supply chain leadership is defined as competent or is said to exhibit a level of competency, it
means they are not measured by what they rather what he/she can do can accomplish by what they
do. Hence, in a nutshell, competency is never settling for good or average but pushing for the best
and also been able to produce outstanding results from situations that are otherwise termed
impossible.
Consistency
This one is the hardest to master over a long period of time, as multiple intervening factors affect the
consistent performance over the long period of time.
“In simple terms consistency means, doing what you say you will do over time.”
In the supply chain leadership skill, the ability for a leader to develop a habit that provokes success in
him or his team is consistency.
For a supply chain leader who wants to master consistency should be able to:
- Builds trust and credibility along with the peers, suppliers, and customers.
- With consistency, you are able to predict the results and behaviors
- Consistency achieves goals and delivers on expectations
- Consistency builds the reputation and brand you are!
Although consistency takes dedication, it is an important skill every supply chain leader must practice
to endure results are delivered on target.
Commitment
Commitment is persevering to achieve goals despite obstacles and setbacks. Great leaders come and
go every day in organizations around the world, but committed leaders become a household name
and an idol who others follow to become excellent supply chain leaders.

When we talk of commitment for a supply chain leadership, it signifies that the leader possesses all
the Cs mentioned above. Commitment breeds productivity and efficiency in a team and boosts the
staff morale to deliver results regardless of the storm ahead. Some attributes of a committed supply
chain leaders are:
- They are communicators and are able to communicate a message, idea or thought clearly
without any ambiguities to the rest of the employees
- They are accountable in all their dealings with staffs in the office or outside the office
- They are solution providers and are able to take effective decision in the wake of any issues
without shifting blames to other team members
- They are able to efficiently organize and manage the supply chain keeping every step under
control and delivering an excellent end result
- They are charismatic, disciplined and have a firm hold on their supply chain leadership role
showing exceptional resilience and excellent leadership skill
When a supply chain leadership shows commitment in their job, they rank in all areas including
operation and innovation but also show excellent leadership ability in handling social responsibility
and social affairs. From a health and safety perspective, the set of parameters must be taken into
account when considering manual material handling is Task, load, working environment, and
individual capacity.
Concern for the People
Emotional Intelligence is discussed a lot these days in the leadership domain and empathy or concern
of people is a big part of the time.
A concern in leadership is genuinely demonstrating sensitivity to the thoughts, feelings, and
experience of others.
In the supply chain, we mostly manage ‘information flow’ to manage ‘material flow’. This information
flow is mostly managed by people. So, for most supply chain teams, the investment in people
represents a significant proportion of all investments.
Showing empty and concern takes a genuine effort, when done properly it has a lever that has the
potential of any supply chain team to acquire excellence and maintain it.
Supply chain leadership plays a crucial and essential role in the maximizing the abilities of their
employees for the benefit of all – company and staff. In a supply chain operation, every single
decision you make impact everyone on that chain either directly or indirectly.
To truly exhibit the qualities of a supply chain leader is to be able to leverage on the potentials of all
sectors in developing a program or medium where everybody is happy.

Creativity
Supply chain leader must master being creative. Today’s supply chain challenges force us to think
outside the box on the feet. Creativity was always an integral part of any business even though it was
never given the necessary importance in companies.
Creativity is an essential part of is entrepreneurship or intrapreneurship and more important for a

supply chain leadership personnel as it enables them to get new businesses, sustain old ones and
device mean to take the company to greater heights.
Although creativity has never been core topic in supply chain domain, perhaps due to the inability to
pinpoint what it is at a particular time, it is the ability to think up ideas that will improve the general
working environment but also generate profitability for the company.
The roles of a supply chain leadership are to be able to incorporate the effective management of
people and logistics through utilizing appropriate information, market trends, data and systems to
produce results.
Supply chain leadership strategies are the backbone for the success of any business operation hence
the need to breed supply chain leadership structures that will effectively create proper market
coverage, make available the products and be the key to generating revenue.

XI Supply Chain Security and Compliance
1) Supply Chain Security
Supply chain security is the part of supply chain management (SCM) that focuses on minimizing risk
for supply chain, logistics and transportation management systems (TMS). The goal of supply chain
security is to identify, assess and prioritize efforts to manage risk by layered defenses in an agile
manner. This requires a multifaceted approach to protecting the checkpoints, assets and
infrastructures involved with the production of a product. Supply chain security also takes into
account the protocols set by government agencies, like homeland security or customs regulations for
international supply chains.
The first step in supply chain security is to identify any potential weaknesses in a system. Overall
organizational risk management practices should then be adjusted to accommodate and address
those weaknesses. Collaboration with a 3PL provider can also help organizations find vulnerabilities
and make improvements within a supply chain.
Examples of supply chain security activities
A few examples of security procedures that can be put into place to make supply chains more secure
include:
- Verifying proper credentials for all participants within a supply chain.

- Screening all of the contents within a cargo that is being shipped.
- Notifying recipients of shipments in advance.
- Securing the cargo in transit or storage with the use of access controls, alarms, locks, and
surveillance or tamper-proof seals.
- Inspecting cargo at each stage of the supply chain or shipment process.
- Completing background checks on all employees.
- Meeting all compliance and security standards.
- Conducting regular risk assessments of supply chain segments, vendors and partners.
- Training employees to identify and resolve supply chain security risks.

Importance of supply chain security
Supply chain security should be a high priority for organizations as a breach within the system could
damage or disrupt operations. Vulnerabilities within a supply chain could lead to unnecessary costs,
inefficient delivery schedules and a loss of intellectual property. Additionally, delivering products that
have been tampered with or unauthorized could be harmful to customers and lead to unwanted
lawsuits.
Security management systems can help protect supply chains from physical and cyber threats.
Physical threats encompass risks with internal and external sources, such as theft,
sabotage and terrorism, while cyber threats refer to vulnerabilities in IT and software systems,
like malware attacks, piracy and unauthorized ERP access. While threats cannot be completely
erased, supply chain security can work towards a more secure, efficient movement of goods that can
recover rapidly from disruptions.

2) Supply Chain Compliance
Most companies sit in the middle of a supply chain. You provide a service or product to your
customers, but you also use third-parties who enable your business operations. To secure data, you
need to engage in increasingly stringent due diligence to mitigate supply chain risk.
What is Supply Chain Compliance & How to Achieve It
Traditional supply chain risk management focuses on strategy, market, implementation, and
performance risks. For example, a procurement organization might look at labor laws and working
conditions when determining strategy and performance risks inherent in choosing a manufacturing
company. Procurement professionals are focused on the total cost of ownership (TCO) in their
vendor selection strategies which implies that procurement is decreasing its emphasis on the
importance of vendor certification and audit programs. An effective procurement strategy for
commodity products should focus on driving down cost and reducing risk.
However, with the increased use of Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS),

and Platform-as-a-Service (PaaS) information technology use, the risk management strategies more
recently focus on cyber security controls and data breach risk mitigation.
Thus, creating an effective vendor risk management program becomes a way to mitigate supply
chain risk in an integrated IT environment.

Where supply chain compliance sits as part of compliance risk
- Compliance risk is the potential financial loss arising out of legal penalties, financial
forfeiture, or material loss arising from noncompliance with regulatory requirements,
industry standards, or internal policies.
- Supply chain risk sits at the intersection of organizational compliance risk for two reasons.
- Organizations increasingly use third-party technologies as part of critical business operations.
- Regulations and industry standards increasingly hold organizations accountable for data
breaches arising from vendor security weaknesses.
Thus, your company’s vendor risk management oversight is not only related to your own
cybersecurity posture but also your compliance risk.
What are the standards and regulations governing supply chain management?
While most standards and regulations incorporate supply chain compliance management directly or
indirectly, some carry more weight than others. A few major regulations that incorporate supply
chain management as part of compliance management include the Healthcare Portability and
Availability Act (HIPAA) and European Union General Data Protection Regulation (GDPR)
- HIPAA: Failure to enter into a business associate agreement that covers the way third-parties
manage Personal Health Information (PHI) or electronic PHI (ePHI) can lead to fines for both
entities.
- GDPR: The GDPR incorporates a 72-hour breach notification requirement for all data
controllers, even for breaches arising from their data processors. In non-GDPR language, this
means that you are responsible for notifying your customers if a vendor has a data breach.
You also need to ensure that you only work with vendors who comply with GDPR or you risk
penalties.

- ISO 14000 is a set of rules and standards created to help companies reduce industrial waste
and environmental damage. It's a framework for better environmental impact management,
but it's not required. Companies can get ISO 14000 certified, but it's an optional certification.
- The Global Reporting Initiative (GRI) Standards help organizations' understand their outward
impacts: on the economy, environment, and society. This increases accountability and
enhances transparency on their contribution to sustainable development. Global Reporting
Initiative is the independent, international organization that helps businesses and other
organizations take responsibility for their impacts, by providing them with the global
common language to communicate those impacts.
- ISO 26000 is defined as the international standard developed to help organizations
effectively assess and address social responsibilities that are relevant and significant to their
mission and vision, operations and processes, customers, employees, communities, and
other stakeholders, and environmental impact.
- ISO 9001 is defined as the international standard that specifies requirements for a quality
management system (QMS). Organizations use the standard to demonstrate the ability to
consistently provide products and services that meet customer and regulatory requirements.
- ISO / IEC 27000 - Information Security Management Systems: Information security is at the
fore of global attention, with rapid increases in cyber threats. The 27000 category of
standards ensures the safety of information assets. These standards help organizations
manage the security of assets such as intellectual property, financial and employee data, and
information held in trust for third parties. ISO/IEC 27001 is the most popular standard in this
category, and stipulates the specifications for the implementation of an Information Security
Management System (ISMS).
- ISO 31000: 2018 - Risk Management: Today’s business world is riddled with uncertainty.
Risks facing companies have a direct impact on the economic performance, reputation, as
well as safety and environmental outcomes. ISO 31000 cannot be used for certification
purposes, but it provides a framework for managing risks. It offers guidance to organizations
for internal and external audit programs, and enables organizations to achieve objectives in
an uncertain environment by facilitating the identification of opportunities and threats.
Organizations are able to benchmark with internationally recognized practices for effective
management and corporate governance.
- ISO 50001 2018 - Energy Management: provides guidance for companies in implementing an
Energy Management System (EnMS) that aims at improving efficiency in the use of energy.
This aims to reduce an organization’s energy footprint by minimizing greenhouse gas
emissions. ISO 50001 is not obligatory, and many organizations implement it solely to comply
with stakeholder expectations.
- ISO 28000 - 2007 Specifications for Security Management Systems for the Supply Chain:
This standard stipulates the requirements for a security management system in respect to a
supply chain. It is applicable to all types of organizations and provides guidance on all
activities controlled by companies that affect supply chain security. It is crucial in the
management of supply chains in manufacturing, service, storage, and transportation.

- ISO 37001 2016 - Anti-Bribery Management Systems: Bribery is a menace in today’s business
world. This standard stipulates the requirements and provides guidance in establishing,
implementing and continuous improvement of an anti-bribery management system. It can be
a stand-alone system or can be implemented into the overall management system. This
standard is applicable to all types of organizations with respect to bribery and helps prevent,
detect and respond to bribery and comply with anti-bribery laws.
- ISO 45001 - Occupational Health and Safety: Occupational injuries and diseases impact the
economy negatively due to poor health, early retirement and high insurance premiums. To
manage this problem, ISO has developed ISO 45001. That has replaced or taken into account
international standards like OHSAs 18001 and IL-OSH guidelines. It provides a framework for
employee safety, reducing workplace hazards and provide safer working environments.
- ISO 22000 - Food Management Systems: This standard facilitates the development and
implementation of a food safety management system. It incorporates a wide array of
standards, including 22002 for food manufacturing and 22001 for food and drink. This
standard is widely used by food manufacturers, restaurants, and food transportation
services.
3) Supplier Management Challenges
Supplier management, also called vendor management, often proves challenging because you cannot
control your third-party business partners. You engage in due diligence, but the ability to
continuously monitor them lies outside your purview. The long list of challenges aligns with many of
the challenges you face within your organization. However, some supply chain risks are particularly
invisible.
- Cybersecurity Monitoring: Regardless of an audit’s outcome, that point-in-time review

can be nullified at any moment. Cybercriminals continuously update their threat
methodologies which means that yesterday’s effective control can be moot tomorrow.
- Patch Management: Single vendor device lacking the appropriate security update can
put everyone at risk. If your supplier isn’t maintaining a strict patch management
program, then one device on their network that accesses your data can lead to financially
fatal data breach.
- Password Hygiene: Your supplier may have password policies in place, but a single
employee using “123456” can give malicious actors unauthorized access to systems,
networks, software, and data. Equally concerning, a single vendor employee using the
same password for their social media accounts or accessing their social media accounts
using their work email and password can impact your data and systems.
- Employee Training Effectiveness: You can review your supplier training documentation.
However, just as within your own organization, those scores may be meaningless.
Phishing still remains a primary attack vector, meaning that pieces of training aren’t
always effective.

How to create an effective supply chain risk management program
As your organization incorporates more technology suppliers, you need to integrate vendor
management as part of your overarching compliance program. Quality management systems (QMS)
document the processes, procedures, and responsibilities over quality and control objectives,
including managing vendor relationships. Focusing on the most business critical vendors first allows
you to maintain business continuity and further protect your customers.
The principal objective of total quality management in manufacturing is to meet the expectations of
the customer.
Establish Control Requirements in Service Level Agreements
Your service level agreements (SLAs) legally require your suppliers to align with your security stance.
By clearly defining the controls you expect, you can more effectively manage the vendor’s
compliance with your risk tolerance. Using these requirements, you can determine whether to
maintain or terminate vendor relationships. For example, you may want to incorporate a level of at-
rest or in-transit data encryption to ensure appropriate data protection.
Create Key Performance Indicators
As part of your continuous monitoring over your supplier information security controls, you need to
set key performance indicators within the SLAs. For example, you may want to incorporate a baseline
for restoring critical business operations in the event of a service outage. This allows you to
determine the vendor’s resiliency as well as their monitoring and incident response program.
Establish Communications
Without real-time insight, supplier relationships need to incorporate ongoing communication

between stakeholders. Thus, you need to ensure that you internally assign responsibility for
managing the relationship. For example, the annual SOC audit only measures a period in time. Thus,
monthly or quarterly communications may enable you to maintain greater oversight.

XII Continuous Improvement
1) What Is Continuous Improvement?
Businesses use a variety of methodologies to bring structure to how they identify and act upon
improvement opportunities. Satisfying customer requirements is the primary driver in the design and
implementation of lean process management.
Some of the most common methodologies or principles include the Toyota Production System,
Lean, Kaizen, and Six Sigma. While they all differ in terms of execution, they aim to achieve the same
thing – continuous improvement (Continuous improvement is the most distinctive of lean
manufacturing characteristics). Lean supply chains strive to achieve their objectives by using waste
reduction approaches.
Six Sigma is the continuous improvement methodology that focuses on reduction of defects by
reducing process variation.
Example: A consumer goods manufacturer has introduced a new frozen product and encountered
problems applying package labels consistently. Six sigma methodology would be most appropriate to
use to identify the root cause of the problem.
The continuous improvement model does a very important job. It reflects the idea that businesses
need to concentrate on bringing incremental improvements to processes, products, and services if
they wish to continue to move in the right direction.

Continuous improvement also referred to as continual improvement can be defined as a practice of

constantly re-examining how you work to bring ongoing incremental improvements to work
processes. This methodology is important to scale processes and do so with greater efficiency and
profit.
It is all about ‘doing’ but it isn’t something that you do. It is how a company operates. Continuously
improving means two things:
Creating a Culture that Promoted Improvement: As odd as it may sound, employees might be more
aware of company processes than the management. Hence, it’s important to take everyone on board
when it comes to improvement. The concept is simple, the process should include employees.

Focusing on Growth: Focus on small incremental growth and do not neglect the importance of
process improvement. The aim should be to bring improvement to things on-the-go instead of
concentrating on one-off change initiatives.
Whether you are studying Kaizen’s principles or Lean management, you will come across the concept
of continuous improvement. Remember that it is a process that never stops. A business never truly
achieves perfection and it has to continue to work to improve how it operates.
2) CI Techniques and Tools
The first step in applying the model is to understand the theory behind it. It is the job of the
management to create a positive and encouraging business environment that supports the idea of
continuous improvement. Whether you work in a team or individually, you must work to achieve
continuous improvement.
Plan-Do-Check-Act (PDCA)
Introduced by William Edwards Deming, this is the most popular technique businesses use to achieve
continuous improvement.
The PDCA process can be defined as a never-ending cycle that suggests changes based on what you
have achieved so far.
The technique was originally developed for quality control purposes but it’s now an integral part of
the continuous improvement model.

The first step includes establishing processes and objectives necessary to get the desired results in
accordance with your goals or target. You will not be able to find good results if you do not properly
set output expectations.
Businesses should ideally start small to test the approach and then go big if everything looks perfect.
The next stage is called ‘Do’. This is pretty straightforward and involves executing your plan. In the
end, compare your results (achievement) to your expected goal and figure out what went wrong in
case the final result is not what you expected.
Gather data and think about what else you can change to grow. In case you achieved your goals,
think about what more you can do to get even better results. DO NOT STOP improving.
Root Cause Analysis (RCA)
This Kaizen technique highlights the root causes of a problem. It is one of the most important parts of
the Kaizen process and is designed to identify ‘what’s stopping you from achieving your goals.’
According to Kaizen principles, a cause is considered the root of a problem only if its removal results
in the ‘prevention of the negative effect for good’.
This Kaizen process requires the management to work with the employees to better understand a
problem. The process can be very long but it’s quite effective in achieving continuous improvement.
Mostly, five whys are used as practice to focus on root cause analysis.
Applying Lean Kanban
After Kaizen, let’s concentrate on Kanban. It says to have a clear understanding of what you need to
improve to get your desired results.

A lack of visibility will prevent you from reaching your goals. Remember that no business can grow
without realizing what’s causing it to stop growing.
Toyota developed this system to make the production process more efficient. Just like Kaizen,
Kanban has also been adopted by a number of businesses today. It involves six main practices:
- Visualize your workflow

- Manage flow
- Eliminate interruptions
- Make policies explicit
- Improve collaboratively
- Create feedback loops
Just like Lean and Kaizen, this technique also brings incremental improvements and improves work
processes.
3) Why the Paradigm Shift?
Continuous improvement processes provide the same benefits as Kaizen and other principles. The
aim is to uncover and fix business issues. Here’s how continuous improvement can benefit your
business:
Increased Productivity
Since continuous improvement works on processes, it can make your business and employees more
productive. This is of huge importance because reduced productivity is one of the major problems
businesses have to deal with.
The continuous improvement process, like Kaizen, identifies wastes to increase profitability and
reduce the risk of injuries and accidents.

More Profits
The purpose of every small change is to make the business more profitable. This is what all principles,
be it Kaizen or Lean, are designed to achieve but not by concentrating on the bottom line.
The model improves different aspects of a business, i.e.: how employees work in a team, how
products are purchased, etc. These small steps impact profit and eventually help a business make
more money.
Greater Teamwork
Continuous improvement improves how employees work with each other. It enhances teamwork
and can be great for collaborative efforts.
Whether you run a small business or a big multinational firm, you will, at some point, require to
create a team to work on one goal. This is not always easy since different individuals look at things
differently, which often kills the purpose of having a team.
By improving the team-building process, you can bring improvement to how teams work together.
Employee Morale
Your employees may have some great suggestions on how to improve products or processes, but a
rigid organizational structure might be preventing them from sharing their ideas with the
management.
The continuous improvement model pays special attention to this factor and works on improving
employee morale. It pushes employees to put in their best foot forward and actively contribute to
the business to make it better.
Greater Agility
A business that fails to change fails to find success. Look at Nokia, the company failed because it
could not change with time.
Competition, new technology, and political changes are some of the reasons why a business may
have to change or evolve. The continuous improvement model prepares employees for change so
that they are not against the idea of using new products or processes.
In simple words, the continual improvement process prepares your business for the future.
Streamline Workflows
The continuous improvement technique helps management save time by streamlining workflows. It
plays an important role in reducing operating overhead and making the business more profitable.

Prevent Overages
A project manager must know the resources (time, money, etc.) required to complete a task. Having
a clear understanding of the resources needed to get a job done reduces the risk of overages and
prevents wastes.
1) Continuous Improvement Principles
The process involves six main principles.
Concentrate on Small Changes: This point is of huge importance because we tend to dislike change,
especially major change that does not only put us out of our comfort zone but also puts a lot of
pressure on us.
The concept of improvement takes this into consideration and puts great emphasis on small
adjustments that can cause major changes over time.
Listen to Your Employees: The continuous improvement model takes into consideration all parts of a
business including the management and employees. It realizes that employees are typically closest to
the problems, and thus better equipped to solve them.
Consider getting your staff engaged and do not hesitate in asking for their suggestions. They might
have some very good ideas. Instead of telling employees what to do to get better, ask what they
think can be done to get better.
You do not have to do what they say but hear them out. This will not only help you come up with
new ideas but also encourage employees.
Incremental Improvements Do Not Cost a Lot: A smart entrepreneur is one who spends less and
achieves more. Kaizen, continuous improvement and other similar ideologies realize this, which is
why they suggest to get rid of processes and not add them.
By reducing processes, you save time and money. Plus, you also use fewer resources, which
eventually benefit the company.
Employees Get Involved and Take Ownership: As mentioned earlier, it can be hard to get people to
change. Something as simple as asking an employee to work in a new team can create havoc for the
department. People are less likely to complain if they are the ones behind the idea of change.
Kaizen, Lean and other principles suggest making employees accountable for their actions by getting
them involved in the improvement process. This trick can help prepare leaders for the future while
also reducing the risk of disagreements.

Improvement is Reflective: The continuous improvement model heavily relies on timely feedback
and open communication. This might sound simple on paper, but it can be difficult to pull off in a
traditional environment.
Coaches or managers can’t always keep an eye on everyone involved in a process. Organizations
often use continuous improvement software to keep everything under control. Such tools can be
quite beneficial, so have a look at how they work.
Improvement is Repeatable and Measurable: Changing something does not equal improvement.
Remember that not every change will improve processes. You have to keep an eye on the ‘impact’ of
each adjustment.
This is where analytics comes into play. Measure results in terms of the number of buyers, time spent
on completing a job, etc. This will help you determine if the same idea can be applied to other
processes.
2) How They Do It – Some Real Life Continuous Improvement Examples
Let’s have a look at some real-life examples to understand stand how you can continuously improve
processes to enjoy better results.
Command Medical Products Improves Efficiency by 50 Percent
Based in Florida, Command Medical Products is a medical device manufacturer that produces
disposable medical devices, including IV tubing, IV bags, catheters, and blood bags. The company
takes care of the entire product lifecycle and hence full control overproduction.
It decided to use the Kaizen Method to improve the tube production processes. The process initially
consisted of several steps that included extended waiting times. They focused on saving time by
reducing batching cycles without increasing resources. The plan proved to be a success and provided
positive results:
- 50% reduction in personnel

- 50% reduction in WIP
- 50% reduction in lead time
- 50% reduction in cure time
This was possible due to following the continuous improvement principles that brought process
improvement and helped the company produce more in fewer resources.

Multisite Bottling Line Brings 117 Percent Improvement to Work Efficiency
Multisite Bottling Line is a household goods manufacturer that changed processes to improve their
operational efficiency. It took the company about four years to reach its goals. It recorded 117
percent improvement on its 53 production lines by using techniques like parallel implementation and
multilingual support. This simple continuous improvement trick improved coordination and reduced
the risk of errors by bringing all production lines under one visual platform.
According to the management, the company concentrated on process improvement and team
building to get the desired results. They also used different continuous improvement tools to achieve
their goals.
When implementing improvements
- Choose KPIs (workable number) and set baselines,

- Have master plan and project plans
- Communicate plans to all participants
- Conduct a pilot to build confidence
- Address change management issues
- Monitor and adjust
Conclusion on CI – Continual Improvement
Continuous improvement is a process that never stops. All departments should work as a team to get
the desired results. Experts believe that it is the duty of the management to explain the concept of
‘improvement continuous’ to workers to ensure everyone’s on the same page.

XIII Demand Planning and Forecasting
1) Demand Planning – Overview
Demand planning is a multi-step process to forecast demand, improve accuracy of forecasts, and
align inventory with peaks and troughs of demand. In other words, demand planning is the process of
forecasting demand for a product or service. Collaborative planning, forecasting, and replenishment
are used primarily for demand planning.
Successful demand planning is defined by having the right balance of inventory levels to meet
customer needs while minimizing inventory surplus or deficiency. Here are the four crucial aspects of
demand planning in order of importance:
- Product Portfolio Management – Product portfolio management oversees the entire

product lifecycle. It starts with the introduction of a new product to the eventual end
of its product life cycle. Upkeep and maintenance of product data is key to statistical
forecasting.
- Statistical Forecasting – Build a forecast with past inventory data, sales data, and
appropriate product history to predict future data or trends.
- Trends (Internal and External) – Build into your forecast an estimate of casual
influences from internal and external trends. Internal trends include seasonality of
your products and hiring talent to scale. External trends include unexpected
economic crisis, competition, socio-cultural, legal, and political forces. A long period
increase or decline in demand most closely represents trend as a type of forecast
patterns.
- Events and Promotions – Once a forecast is generated with the above factors in
mind, events and promotions can be used to help hit your S&OP targets.

The aspects of demand planning go beyond the statistical components of a demand forecast.
Demand planning leverages accurate demand forecasts to create action plans for the organization
while being privy to internal and external factors that affect supply at all steps of the chain and
consumer demand. Sharing a common understanding of demand and consumption patterns among
supply chain participants can lead to better synchronization of planning and operations.
Implementation of demand planning is using analytics of product data and trade promotions to hit
sales and inventory targets. Organizations must be quick to pivot and adapt to changing market
conditions even after starting a demand plan.
Demand planning is an ongoing effort to ensure peak profitability management. Demand

management process includes sales history, current customer orders, forecasted demand and
scheduled marketing activities.
2) Aspects of Demand Planning
Understanding the work required within each element of demand planning will allow you to create
the most accurate, up-to-date forecasts that will better inform your Sales and Operations Planning
(S&OP).
Product Portfolio Management: Many times, past sales performance can be used to forecast future
sales performance. It is important to regularly upkeep product data. Relevant data might include
inventory, stock outs as they occur, seasonality, sales, and consumer demand through peaks and
troughs. The difficulty here usually is the number of systems keeping these data sets as isolated
transactions.
Statistical forecast: Forecasts need a reference point, historical data in sales, inventory, and demand.
Basically, what was actualized in the past can be a good indication of future sales. But not all data is
useful, old data is typically not as useful as more current data as it might not correlate with future
demand. The same bad situation happens when you do not use enough data to create a forecast. The
right amount is typically trailing 24 months of most recent data.

Internal Trends: Internal trends relate to staffing issues at a level in the supply chain, seasonal
demand due to product type, frozen capital, slow turnover, stock outs and general unpredictable
sales volatility. Internal trends affect even the best steered businesses which make it imperative to
factor these causal influences into the forecast.
External trends: External trends are another form of causal influence, but less predictable and
usually harder to build into the demand planning forecast. External trends usually force a business to
reforecast whereas internal trends are less likely to lead to a new forecast. Businesses that do
reforecast and act on changing external trends like an economic recession or changing political
climate are best positioned to succeed.
COVID-19 has disrupted the majority of supply chains around the world in unprecedented scale.
Amazon is probably one of the most recognizable organizations that has put tremendous effort in
shifting their supply chain to prioritize shipping of essential items.
In light of COVID19, Amazon quickly refocused shipping priorities and product fulfillment to
consumer essential goods. They have been quick to scale, pulling personnel and distribution
resources from nonessential consumer goods and hiring 175k new workers in two months.
Demand planners must be quick to identify factors that can impact demand such as natural disasters,
news events, internal and external unanticipated issues. To do so, an organization needs to be armed
with a central repository of all their information to generate an accurate forecast and adapt to
changing market conditions to meet customer demand.
Events and promotions: A time bound product promotion might lead to more sales in that time
interval at a lesser margin. Holidays like Black Friday and Christmas can generate more sales in those
few days than a whole month.
Once a forecast is set, there needs to be a consensus on the actionable plan that comes out of the
forecast. Part of this actionable plan is using events and promotions to hit sales and inventory
targets. You want the right balance of inventory turnover, sales, while reducing COGS, and reducing
waste in resources. Promotions and external sales initiatives can help you get there.
The Future of Demand Planning
Demand planning is becoming increasingly digital with advances in technology and machine
learning. Demand planning software is being developed to better position businesses to adapt and
update forecasts real time. Increasing number of businesses are now using Corporate Performance
Management tools integrated with their ERP system to create multi version forecasts that are
constantly updated and refined to estimate future sales. Ability to forecast over multiple planning
horizons is most important when selecting forecasting software.

A successful demand planning action will lead to countless benefits including:
- Lower inventory costs

- Decrease in stock outs
- Waste reduction (obsolete inventory)
- Increase in on-time, in full deliveries
- Decrease in expedited shipping costs
- Better pricing negotiation with suppliers
What are the challenges of demand management?
Demand management implementation often faces a few common challenges. One of them is a poor
understanding of automated algorithms, effectively how the parameters have been set on the
replenishment systems. Demand management involves understanding events and managing
activities that could influence future demand.
Another is the balancing act for sales and working with retailers to create demand modeling to
determine the timing, level and location of promotions.
There third is ‘elusive signals’ whereby manufacturers do not have a data structure or an established
process for receiving, storing and using point of sale data from retailers.
Most importantly is to identify the flow of demand information from customer to supplier.
Potential advantages of good demand management?
Demand management relies on accurate data and there is a need for collaborative demand
forecasting, where firms reach a consensus, both internally and with their value chain partners on
the expected level, timing, mix and location of demand. This data should form a common foundation
for merchandising, logistics and budgeting processes.

In return the following advantages of demand management should be experienced:
- Successfully anticipating and planning demand can provide a competitive advantage

- Improvement of demand forecasting is a key factor for improving supply chain operations
- Demand management can generate revenues by behaving proactively and driving the market
through
How can you forecast demand?
Before an effective system of inventory control can be implemented it is essential to analyze, from
records of usage, what has been the trend of demand for a given item of stock over an approximate
period of time with a view to forecasting future requirements.
The two most common approaches are:

- Moving averages
- The exponentially weighted average method (EWAM)
What is the difference between dependent and independent demand?
Demand may be either independent or dependent.
Independent demand for an item is influenced by market conditions and not related to production
decisions for any other item held in stock and the requirements for items are usually forecasted. In
manufacturing, only end items, i.e. the final product sold to the customer, have exclusively
independent demand. Customer orders for finished products are a source of independent demand.
Dependent demand for an item derives from the product decisions for its ‘parents’. The term
‘parent’ is an item manufactured from one or more component items. A table, for example, is a
parent product made from a top, legs and fasteners which are all components.
Demand management relies on accurate data and there is a need for collaborative demand
forecasting, where firms reach a consensus, both internally and with their value chain partners on
the expected level, timing, mix and location of demand. This data should form a common foundation
for merchandising, logistics and budgeting processes.
Which tools or techniques could support demand planning?
A Materials Resource Planning (MRP) system can support the demand planning process, MRP can be
described as a system for supplying the number of components required to produce a known
quantity of finished assemblies.
Economic Order Quantity formula (EOQ) attempts to reconcile the problem of storage cost and
ordering cost and to ascertain the order quantity which will minimize both (An order winner is a
competitive characteristic that a company must exhibit to gain new sales).

Economic aspects of stock management may be determined through an analysis of the costs incurred
in obtaining and carrying inventories
What is a demand driven supply network?
Demand driven supply chain (DDSC), also known as demand-driven supply network (DDSN), is a
system of technologies and processes that sense and react to real-time demand across a network of
customers, suppliers and employees, this has been significantly enabled due to the rise in the use of
e-commerce systems and new technologies due to the onset of the Internet of Things (IoT).
In a traditional supply chain, inventory or services are provided based on a forecasted demand and
historical sales patterns, however, in a demand driven supply chain companies that form part of the
supply chain work closely to shape market demand by sharing and collaborating information so
avoiding time lags in information flow, with a view to avoiding the bullwhip effect occurring across
the supply chain.
A demand driven supply chain focuses on the demand from the consumer data and feeds this data
through to the supply base so driving greater efficiency into inventory availability giving a demand-
pull technique.
What are the drivers of a demand driven supply chain?
Consumers and technology are main drivers of a demand driven supply chain, consumer expectation
of speed of supply is becoming more significant and companies that are enabling themselves with
technologies that can deliver speed to market from stock availability are gaining competitive
advantage. Therefore, ensuring anticipation of demand is being driven by good data management
and the responsive abilities of the supply chain.
Tech is playing a significant part in demand driven supply chains, imagine data-driven from weather
predictions that your organization can leverage to ensure you have sufficient inventory levels of
wellington boots, umbrellas or sunscreen at the right time that a consumer has a demand, and the
ability to ensure that you do not carry high levels of inventory that tie up cash when demand drops.
Good data and the ability to leverage that data to drive efficiencies down the supply chain will
support good practices and efficiencies across the supply chain.
New technologies such as drones and 3D printing will also play their part in a demand driven supply
chain with the ability to increase the speed of manufacture and delivery, with a reduction on
resources and an increase on meeting consumers’ expectations and service level.
What are the challenges of a demand driven supply chain?
Technology investment possibly remains the largest inhibitor of operating an efficient demand driven
supply chain, companies that have failed to invest in technology or have fragmented systems will lack
the ability to transfer data at the most efficient speed, and in return, this restricts the speed at which
the five rights of procurement can become maximized.

Organizations that focus on cost reduction and operating costs rather than customer experience will
inhibit their ability to implement the most effective operating system.
The benefits of cost reduction and reduction in operating costs is leveraged from the implementation
of a successful demand driven supply chain but should not be the main driver, whilst the desire to
operate a demand driven supply chain should be a leadership decision that supports the company’s
strategy.
Potential advantages of a demand driven supply chain?
- Increases in sales
- Improved market position
- Improvements in demand forecasting
- A reduction in inventory levels therefore and decrease in working capital
- An increase in order fulfillment
- Operating a demand driven supply chain brings the elimination of inefficiencies and
constraints.
3) What is the bullwhip effect?
The bullwhip effect (also known as the Forrester effect) is defined as the demand distortion that
travels upstream in the supply chain from the retailer through to the wholesaler and manufacturer
due to the variance of orders which may be larger than that of sales.
An extreme change in demand in the supply position upstream generated by a small change in
demand downstream in the supply chain is called the bullwhip effect. Variation in upstream
requirements can be reduced by increasing demand visibility.
What causes the bullwhip effect in supply chain?
- Demand forecast updating: Members of the supply chain updating their demand forecasting
- Order batching: Members of the supply chain rounding up or down the quantity of orders
- Price fluctuations: Usually driven by discounting resulting in larger quantities of purchases
- Rationing and gaming: Buyers and sellers delivering over or under their order quantities

An example of the bullwhip effect
Let’s consider a retailer sells on average 10 ice creams per day in the summer season. Following a
heatwave, the retailer's sales increase to 30 units per day, in order to meet this new demand, the
retailer increases their demand forecast and places an increased order on the wholesaler to 40 units
per day in order to meet the new customer demand levels and to buffer any potential further
increase in demand, this creates the first wave in the exaggerated demand being driven down the
supply chain.
The wholesaler noticing this increase in demand from the retailer may then also build an incremental
increase into their forecast so generating a larger order on the ice cream manufacturer, rather than
ordering 40 units to be manufactured, the wholesaler may order 60 units from the manufacturer,
this will further exaggerate the demand down the supply chain and so creates a second wave of
demand increase.
The manufacturer also feeling the increase in demand from the wholesalers may also react to the
increase by increasing their manufacturing run to 80 units, this creates a third wave in the
exaggeration of demand.
The retailer may run out of stock during the heatwave whilst the manufacturer is producing new
stock and may take the option of switching to an alternative brand to meet customer demand, this
will then create a false demand situation as sales appear to slump to next to nothing so the retailer
may then not place further demand for the original ice cream brand even though the manufacturer
has increased their production runs. Alternatively, if the weather changes and the end consumers
slow down on purchasing ice creams, this could result in an overstock situation across the supply
chain as each tier of the supply chain has reacted to the heatwave sales and increased their demand.
This is an example of the waves and troughs in the bullwhip effect.
How can the supply chain reduce the bullwhip effect?
The bullwhip effect in the supply chain can be reduced through shared knowledge with suppliers and
customers. If members of the supply chain can determine what information is causing the
overreactions this can be resolved. Communications and response times can be improved using
modern technology.
The bullwhip effect can also be mitigated through these areas:
- Reduced lead times (Reducing set up time will affect item lead time and throughput, lead
time will decrease, throughput will increase). A reduction in the lead time results from
decrease in work-in-process, increase in throughput
- Revision of reordering procedures/better forecasting methods
- Limitations of price fluctuations
- Integration of planning and performance measurement

4) Demand forecasting
Demand forecasting in the supply chain is a process used by organizations to determine potential
future requirements of customers. Forecasting figures are usually determined by analyzing historical
sales data and trends, being aware of market variations such as new trends, seasonal variations,
economic conditions and new products that are brought into the market by potential competitors all
of which can impact consumer demand. Study customer needs are the first step in developing a
product differentiation strategy.
Why does an organization forecast future demand?
In the supply chain, forecasting can help to deal with the 'bullwhip effect' caused by the distorted
flows of information up and down the supply chain. Excessive inventory quantities, poor customer
service, cash flow problems, stock outs, high material costs, overtime expenses and transport costs,
which cause the 'bullwhip effect' can be avoided by accurate forecasting.

Does sales forecasting play an important part?
The sales team is a key stakeholder in the forecasting process as is the marketing team and must be
consulted before any forecasting figures are generated. The sales team will often be in discussion
with end-users to understand customer order patterns, future requirements and potential timelines
to orders being placed on the organization. Sales forecasting will feed into the demand forecasting
for horizon scanning and historical sales figures will also play a key part in determining potential
accuracy of future projections on demand.
Marketing also plays a critical role in the forecasting process as they will have awareness of
upcoming promotions and marketing campaigns that will deliver a potential “rush” on inventory
levels and details of the timeframes that this increase in demand could occur.
How does demand forecasting link to the production process?
Once all of the historical sales data, trends, seasonal variances, market activity and future forecast of
demand have all been quantified, a demand figure is determined per inventory SKU, this figure is
validated by the forecasting team then populated into a planning system, which is often an MRP or
ERP system or it can be as simple as an excel spreadsheet in some instances, the production planners
will then work to this figure to determine when and how much inventory to manufacture through the
production plant.
What are some forecasting techniques?
An important issue in forecasting is choosing the most appropriate techniques. Examples of

qualitative techniques include expert opinion, market surveys and Delphi method. Quantitative
approaches include time series modeling and rely on ‘hard’ information that eliminates most
personal bias attributed to qualitative techniques (Lysons and Farrington, 2016). Management
generally considers utilizing qualitative forecasting techniques when historic data is both clear and
relatively stable. An advantage of the focus forecasting technique it evaluates multiple forecasting
methods.
Although the quantitative methods of business can be studied as independent modules, it is

appropriate that the text places the forecasting material right after decision analysis. Recall in our
decision analysis problems, the states of nature generally referred to varying levels of demand or
some other unknown variable in the future. Predicting, with some measure of accuracy or reliability,
what those levels of demand will be is our next subject. Quantitative data are being evaluated, a very
small bias in a forecast can best be explained by positive forecast errors approximately offset
negative forecast errors.
Forecasts are more than simple extrapolations of past data into the future using mathematical
formulas, or gathering trends from experts…. Forecasts are mechanisms of arriving at measures for
planning the future. When done correctly, they provide an audit trail and a measure of their
accuracy. When not done correctly, they remind us of Tom Brown's clever breakdown of the term
repeated at the opening of these notes.

Not only do forecasts help us plan, they help us save money!
When we use the term "forecasting" in a quantitative methods course, we are generally referring to
quantitative time series forecasting methods. These models are appropriate when: 1) past
information about the variable being forecast is available, 2) the information can be quantified, and
3) it is assumed that patterns in the historical data will continue into the future. If the historical data
is restricted to past values of the response variable of interest, the forecasting procedure is called a
time series method.
For example, many sales forecasts rely on the classic time series methods that we will cover in this
module. When the forecast is based on past sales, we have a time series forecast. A side note:
although "sales" above, whenever possible, we try to forecast sales based on past demand rather
than sales… why? Suppose you own a T-shirt shop at the beach. You stock 100 "Spring Break 2000" T-
shirts getting ready for Spring Break. Further suppose that 110 Spring Breakers enter your store to
buy Spring Break 2000 T-shirts. What are your sales? That's right, 100. But what is your demand?
Right again, 110. You would want to use the demand figure, rather than the sales figure, in preparing
for next year as the sales figures do not capture your stock outs.
So why do many companies make sales forecasts based on past sales and not demand? The chief
reason is cost - sales are easily captured at the checkout station, but you need some additional
feature on your management information system to capture demand.
The other major category of forecasting methods that rely on past data are regression models, often
referred to as "causal" models as in our text. These models base their prediction of future values of
the response variable, sales for example, on related variables such as disposable personal income,
gender, and maybe age of the consumer.
The final major category of forecasting models includes qualitative methods which generally involve
the use of expert judgment to develop the forecast. These methods are useful when we do not have
historical data, such as the case when we are launching a new product line without past experience.
These methods are also useful when we are making projections into the far distant future. A
forecasting method that responds slowly to changes in demand would be most appropriate when the
historical demand pattern shows a major random component.
First, let’s examine a simple classification scheme for general guidelines in selecting a forecasting
method, and then cover some basic principles of forecasting.
5) Selecting a Forecasting Method
The following table illustrates general guidelines for selecting a forecasting method based on time
span and purpose criteria.

Time Span Purpose Forecasting Method

Long Range (3 or more years) Capital Budgets Delphi
Product Selection Expert Judgment
Plant Location Sales Force Composite
Intermediate (1 to 3 years) Capacity Planning Regression
Sales Planning Time Series Decomposition
Short Range (1 year or less) Sales Forecasting Trend Projection
Scheduling Moving Average
Inventory Control Exponential Smoothing
Please understand that these are general guidelines. You may find a company using trend projection
to make reliable forecasts for product sales 3 years into the future. It should also be noted that since
companies use computer software time series forecasting packages rather than hand computations,
they may try several different techniques and select the technique which has the best measure of
accuracy (lowest error).
6) Quantitative Forecasting Methods
Moving Average: This is a time series method which involves a calculation to examine data points by
creating an average series of various subsets from complete data. The formula involves a series of
number and fixed subset size. The forecaster takes the average of the formerly fixed subset and then
modifies it by taking out the first number of the series and adding the value that follows in the subset
series. This method is statistical and it is usually adopted to deal with fluctuations only continuing for
a short-term, technical analysis of financial data, evaluation of GDP, among others.
Exponential Smoothing: This is a simple method adopted to measure some determinations using
existing assumptions by the user, such as seasonality. Using an algorithm that uses past data, the
future is predicted. When compared to some other smoothing methods, it produces an easy result
without requiring any minimum number of observations. This forecasting technique eliminates the
need to keep months of historical data.
Regression Analysis: This covers a group of methods for forecasting that is dependent on
information gathered from other variables (dependent and independent). Largely, it depends on the
ability to use data generating process. There is simple linear regression which involves comparing an
independent variable with a dependent variable and there are multiple linear regressions in which
two or more independent variables are compared with one dependent variable.
Adaptive Smoothing: This method allows a business firm to key into different variables in order to
arrive at every likely result from a particular business action or resolution. Statistical data and
variable analysis are involved as well. It is common in firms without obvious quantities.
Graphical methods: This involves a statistical method but it is simple and useful for the sales
forecast. With this method, periodic sales data for various years can be illustrated graphically with
meeting points established by drawing free-hand lines. Based on the graph, the distance between
points and line determines the minimum.

Econometric modeling: This is an improvement on regression analysis. It involves the calculation of

independent regression under equation, variables and data. Meanwhile, it is economic theories that
are adopted in the statistical method to determine the influence of one economic variable on
another.
Life-cycle modeling: This method analyses and forecast the growth and development rates of a new
product. The model brings together data that have been subjected to acceptance or rejection by
different market groups such as creators, early and late adopters, early and late majority. It is the
result that is used in forecasting sales for a new product.
7) Qualitative Forecasting Methods
Expert opinion: Here, the opinions of experts in the area where the forecast is to be made are
weighed in order to make meaningful projections. It does not depend on statistical data hence it can
be done where measurable data is lacking. This method is easy and quick and the team usually
adjusts the result of the projection to their anticipation.
Market Research: It is possible for a business firm to carry out market research that will enable its
sales forecast. This method may be executed by the staff members of the firm or another
organization, research firm, which it has been outsourced to. Whichever way, market research could
involve strategies which include telephone, opinion poll or personal interviews and questionnaires.
Example: A manufacturer of plastic components that are sold either directly or through distributors
wants to identify the requirements of the end customers for each market segment. Conducting a
market research project approaches would be most appropriate.
Focus groups: This is a popular qualitative forecasting method. It involves engaging about five to ten
people from a business firm’s target customers in an open-ended discussion. Usually, there is a
moderator who sees to turn-taking among the participants and also asks questions related to their
perception of the brand, products, slogans, design and related concepts. It is expected that
participants will provide insightful responses which represent the opinion of a larger market it
targets. Focus group discussions may involve incentives like a financial reward or any equivalent
measure in terms of free good items.
Historical analogy: This is a forecasting method in which a sales history of a product having a parallel
relationship with a present product is studied to predict future sales. It can be utilized to predict the
market reception for a new product or group of products. This is done by using the historical data
gathered over a period of time from a similar existing product either by the company or a formidable
competitor.
Delphi method: This is a forecasting method in which market orientation and judgments of a small
group of experts are combined using a function of iteration. The results of these iterated
combinations help to develop the next parallel meeting points in order to discover an accurate
forecast. Mind you, the opinions of the experts are gathered individually in order to avoid the
influence of the opinion of a dominating personality if it were to be a group discussion method.

Rather, an outsourced party handles opinions gathering, summarizes and brings them before the
same experts. New questions may be attached to it and the circle continues until a meeting point is
arrived at. This method has proved effective and dependable for long-term forecasting.
Panel consensus: This method brings together members of a business firm across all levels to
establish its forecast. It is an open process that allows all the participants to express themselves.
Since it usually includes participants from the low level of the organization’s hierarchy to superiors,
there may be feelings of intimidation and suppression of opinions on the part of the former. For
example, a sales manager who actually understands the market well may feel reluctant to contradict
the opinions expresses by top managers like president and vice-president. In the end, the process of
a panel consensus may not be truly open, fair and reliable.
The Delphi method, a combined qualitative and quantitative technique, is a useful forecasting
technique when there is no historical information on which to base more objective forecasts is
available (Lysons and Farrington, 2016).
8) Intrinsic extrinsic forecasting methods
Extrinsic forecasting is useful in forecasting the total demand for a product or for a group of products
(Economic indicator is a major component that is used with extrinsic forecasting). Intrinsic
forecasting techniques are based on historical data. This means that an organization is using its own,
previous data, to compare and improve.

Intrinsic forecasting methods compared
Historical data is used in intrinsic technique for forecasting. The historical data is normally available
within the company. Intrinsic forecasting techniques depend upon the assumption that, 'what took
place in the past will occur in the future'.
Seasonal index
Many products have a seasonal or periodic demand pattern: skis, lawnmowers, bathing suits, and
Christmas tree lights are examples. Less obvious are products whose demand varies by the time of
day, week, or month. Examples of these might be electric power usage during the day or grocery
shopping during the week. Power usage peaks between 4 and 7 p.m., and supermarkets are most
busy toward the end of the week or before certain holidays. The use of a seasonal index as a
forecasting technique measures the ratio of the average seasonal demand to the average demand
for all periods.

Mean absolute deviation (MAD) with smoothing
Mean Absolute Deviation The method for evaluating forecasting methods uses the sum of simple
mistakes. Mean Absolute Deviation (MAD) measures the accuracy of the prediction by averaging the
alleged error (the absolute value of each error).
Standard deviation
The standard deviation is a concept from statistics and is a measure of the amount of variation (or
deviation) that might be expected between the actual indicator value and the forecast value. The
standard deviation is given in the same units as the indicator. As an example, the retail sales
forecasts are given in U.S. dollars and, thus, the standard deviation is also in U.S. dollars.
Given a forecast value and a standard deviation, the possible range of actual values can be found.
From statistics, there is a 68% chance that the actual value will be either one standard deviation
above OR one standard deviation below the forecast value, or +/- 1 standard deviation. It also works
out that there is a 95% chance the actual value will be within +/- 2 standard deviations and there is a
99.7% chance the actual value will be within +/- 3 standard deviations. Statistics also says there is
always some small chance the actual value can be any number of standard deviations from the
forecast value, but usually the actual value will be within +/- 4 standard deviations of the forecasted
value.
Thus, the standard deviation is a very concise and powerful way of conveying the amount of
uncertainty in a forecast. The smaller the standard deviation, the less the uncertainty.

As an example, let’s say the Dow Jones Industrial Average is forecast at 10000 points and the
standard deviation is 200 points. From this the following can be found:
- There is a 68% chance the Dow will fall between 9800 and 10200.
- There is a 95% chance the Dow will fall between 9600 and 10400, and
- There is a 99.7% chance the Dow will fall between 9400 and 10600.
- There is some very small chance (about 3 in one million) the Dow will fall between
8800 and 11200
Extrinsic forecasting techniques
Extrinsic forecasting techniques are based on external benchmarks, meaning that an organization is
comparing its results with the competitors. Extrinsic forecasting is useful in forecasting the total
demand for a product or for a group of products.
Service sector forecasting
Forecasting in the service sector presents some unusual challenges. A major technique in the retail
sector is tracking demand by maintaining good short-term records. For instance, a barbershop
catering to men expects peak flows on Fridays and Saturdays. Indeed, most barbershops are closed
on Sunday and Monday, and many call in extra help on Friday and Saturday. A downtown restaurant,
on the other hand, may need to track conventions and holidays for effective short-term forecasting.

Smoothing Constant in Forecasting
You need forecasts for your small business. These forecasts can predict sales, revenue or customer
demand. No matter how carefully you examine past periods, your forecast for the next period will
vary from your estimates. You can make your estimates much closer to reality by using a smoothing
constant in your calculations.
Removing Seasonal Differences: As you look at past periods, you should remove seasonal
differences in your figures. For example, if you are forecasting sales and you know that the holiday
season provides you with approximately 25 percent higher sales than usual, subtract that percentage
from you holiday sales months. If you keep that extra percentage in your figures, it won’t help you
plan for months that don’t have a holiday boost.
Choosing a Moving Average as a Smoothing Value: You can use a 3-month moving average to
predict your sales, demand or revenue for an upcoming month. Write down the previous five
months' figures. Pick three successive months and add the figures together and divide by three. This
number is the moving average for those three months. Use that figure as your forecast for Month 6.
An Example
Month Demand 3-month Moving 3-month Wt. Moving Average Exponential
Average (weights: 0.2, 0.3, 0.5) Smoothing
(alpha = 0.1)
1 650
2 700 0.1*650+0.9*650 =
650
3 810 0.1*700+0.9*650 =
655
4 800 (650+700+810)/3 0.2*650+0.3*700+0.5*810 = 0.1*810+0.9*655 =
= 720 745 670.5
5 900 (700+810+800)/3 0.2*700+0.3*810+0.5*800 = 0.1*800+0.9*670.5 =
= 770 783 683.5
6 700 (810+800+900)/3 0.2*810+0.3*800+0.5*900 = 0.1*900+0.9*683.5 =
= 837 852 705.2
7 (800+900+700)/3 0.2*800+0.3*900+0.5*700 = 0.1*700+0.9*705.2 =
= 800 780 704.7

Month Demand 3-month Moving 3-month Wt. Moving Exponential

Average Average Smoothing
(weights: 0.2, 0.3, 0.5) (alpha = 0.1)
1 650
2 700 0.1*650+0.9*650
=
650
3 810 0.1*700+0.9*650 =
655
4 800 (650+700+810)/3 0.2*650+0.3*700+0.5*810 0.1*810+0.9*655
= 720 = =
745 670.5
5 900 (700+810+800)/3 0.2*700+0.3*810+0.5*800 0.1*800+0.9*670.5
= 770 = =
783 683.5
6 700 (810+800+900)/3 0.2*810+0.3*800+0.5*900 0.1*900+0.9*683.5
= 837 = = 705.2
852
7 (800+900+700)/3 0.2*800+0.3*900+0.5*700 0.1*700+0.9*705.2
= 800 = =
780 704.7
Forecasting errors
Mean Absolute Deviation (MAD)
An Example
Demand 3-month Moving Average Deviation Absolute Deviation
800 720 800-720 = 80 80

900 770 900-770 = 130 130
700 837 700-837 = -137 137
Sum of Absolute Deviation = 80+130+137 = 347

MAD = 347/3 = 115.7

9) Types of Collaboration
Information sharing (quick response program, or QRP)
Quick response in supply chain is both a management paradigm and a methodology that allows
supply systems to react quickly to changes while improving their performance. QR aims to help
organize a business in the face of problems associated with the vast array of goods and services now
to be found in consumer markets.
- Retailer provides POS data to supplier.

- Customer (retailer) enters orders.
- Supplier synchronizes supply with demand but may still do own forecasting.
Continuous replenishment (CR)
Continuous Replenishment is a process by which a supplier is notified daily of actual sales or

warehouse shipments and commits to replenishing these sales (by size, color, and so on) without
stock outs and without receiving replenishment orders. The benefits of supplier relationship
management typically result from collaboration with a few critical suppliers with reduction in
customer and supplier inventories.
The steps in the supplier relationship process are Source, procure, fulfill, and manage.
- Retailer provides POS data to supplier.

- Supplier and customer collaborate on ship dates.
- Forecasts become more accurate, resulting in reduced inventory.
Vendor-managed inventory (VMI)
Vendor Managed Inventory (VMI) is a business model where the buyer of a product provides
information to a vendor of that product and the vendor takes full responsibility for maintaining an
agreed inventory of the material, usually at the buyer's consumption location.

Retailer and its suppliers are responsible for implementation of vendor-managed inventory (VMI)
and for setting target inventory levels and making restocking decisions. When a company finds itself
constantly expanding its customer’s retail store deliveries in order to prevent stock-outs, the best
solution to this problem is to increase inventory turns to the highest possible value.
Measuring VMI success
10) Collaborative Planning, Forecasting and Replenishment (CPFR)
CPFR is a business practice that combines the intelligence of multiple trading partners in the planning
and fulfillment of customer demand.
CPFR links sales and marketing best practices to supply chain planning and execution processes. It
represents a sequence of business processes between consumers and retailers.
Objective is to increase availability to the customer while reducing inventory, transportation and
logistics costs. Increased inventory turns effects is likely to occur in a successful Collaborative
Planning Forecasting and Replenishment implementation

While we are talking about various types of collaborations among supply chain partners, CPFR is one
of the types to facilitate Demand Planning. Its full form is Collaborative planning, forecasting, and
replenishment.
CPFR scenarios
CPFR has its origins in Efficient Consumer Response (ECR). ECR was a conscious attempt to better
coordinate marketing, production, and replenishment activities in a way that simultaneously
increased value to the consumer while improving supply chain performance for producers and
retailers.
Core elements of ECR
Efficient assortment – Product offerings should be rationalized to better meet customer needs and
improve supply chain performance (ex. – Why 100 different SKUs that confuse consumers when 30
SKUs would meet their needs?)
Efficient product introductions – New products should be introduced in response to real customer
needs, and only after the impact on supply chain performance has been considered.
Efficient promotions – Prices should be kept as stable as possible. The supply chain impact of
promotions and market specials should be carefully considered.
*Efficient replenishment *– All physical and information flows that link producers to the consumer
should be streamlined to cut costs and increase value.
How CPFR differs from ECR
ECR’s core elements still apply under CPFR, but CPFR extends the business processes to include:
- Information systems for capturing and transferring POS, inventory, and other demand &
supply information between trading partners
- Formalized sales forecasting and order forecasting processes
- Formalized exception handling processes
- Feedback systems to monitor and improve supply chain performance

XIV Collaborative Product Design
1) Role of Marketing in Demand Planning
The marketing function can enhance the demand planning activity by providing insight into key
industry drivers for the company. As example, they may provide general industry growth rates to
incorporate into the long-term forecast.
Marketers also may give input on specific product lines. Their industry research may reveal a specific
product feature is gaining market acceptance. They may suggest that upcoming sales forecasts
include this impact. Competition is the most impactful demand factor for a firm's products or
services (Characteristics that cause customers to consider a company's products or services are
called order qualifiers).
Finally, the marketing function provides critical information about the product portfolio, the product
to be supplied and the customers to be served. They know which products are likely to be retired
from the product portfolio, and which will be introduced or modified. This information is critical to
development of a reliable supply plan, so it is critical the marketers agree with the forecast.
2) Collaborative Product Design for the SC
Ever wondered what impact your product design decision has on the supply chain? Collaboration
between marketing, product development, finance, procurement and supply chain teams saves costs
along the value chain and gives your brand a competitive advantage. Incorporating supplier and
customer inputs into product and process design helps to reduce time to market.

The main benefit of a mass customization product design strategy is to offer more product variety
while keeping inventories low.
A product might be attractive for customers but drive unnecessary supply chain costs because of the
impact the product design has on sourcing, packaging, production, warehousing and transportation.
70-80% of the cost of goods of a product is decided at the development and design stage by factors
such as the number of materials and components, country of supply, lead time of materials,
standardization of parts across the product portfolio, physical characteristics, and the complexity of
the product.
How can product design impact challenges and costs along the main elements of the supply chain?
- Sourcing: The number of materials in a product and from where these materials are sourced
has big impacts on the supply chain costs. Packaging from China might be very price
competitive, but the lead times are long, require large minimum order quantities, can be
complex to source, and quality is more difficult to control than when sourced more locally. If
the products contain unique ingredients that can only be sourced from one supplier in a
remote part of the world, transportation can get costly and the dependability on the supplier
can be risky. Involving supply chain and other cross-functional teams during the design
process helps answer design and materials questions that solve problems long before they
happen and ultimately improve timeline efficiency.
- Production: Production costs are often driven by the complexity of the materials and the
ability to produce in high volumes. Product standardization and common components that
are used in many different products reduce the requirements for changeovers on the
production lines and for high inventory. The right design decisions can help to standardize
core manufacturing processes and minimize customization and differentiation until late in
the production process. Product design is an important factor in determining the level of
standardization during the production process.
- Storage: Most warehouses have standardized rack dimensions and store products on pallets.
Ideally, the packaging of products allows optimization of the tie (number of cartons on one
layer) and tier (number of layers of cartons) of a pallet pattern. This not only maximizes the
space on a pallet, but it also provides better stability and protection of the products. Some
POS product displays may not fit into standard racking and are therefore more expensive to
store. POS displayers and other packaging material can be stored flat and assembled shortly
before shipping. Retailers also prefer products that take up less storage space and can be
stacked easily.
- Transportation: Volume and weight of products drive some of the main costs in
transportation. This applies to road transportation as well as sea and air freight. Sometimes
more expensive, lighter materials are more cost effective to transport and have a positive
overall impact on the cost of goods. For ecommerce, the design of the products can
determine how much packaging is needed to protect and ship the products.

Evolution of design for the supply chain
So how do we prevent development and design decisions from having a negative impact on the
supply chain? In many companies, supply chain and procurement teams don’t get involved in the
product design processes and only learn about a new product when they are asked to order the
materials.
Product development and design teams don’t always have the ideal materials and processes in mind
while designing a new product, whereas supply chain generally has a better understanding of the
process, material, and component availability required to produce a product efficiently and
effectively.
A study in 2017 by management consultancy Bain & Company showed that a cross-functional design
process lowers costs by 38 per cent compared to a silo approach. It is essential that supply chain
teams are involved at an early stage of the product design phase and that marketing, product
development, procurement, finance, and supply chain teams closely collaborate during the entire
process.
Varieties of design collaboration

Benefits of design collaboration
Collaborative design brings team members together, focuses them on a shared goal instead of
wasting time in disagreement. This collaborative culture motivates the team, and further increases
the probability of a fruitful outcome.
Component commonality
Component commonality refers to a situation in which one component is common to more than one
end item. The presence of commonality makes it difficult to determine safety stocks accurately. The
existing theory, examines the effects of commonality on the component's safety factor. However,
commonality destroys the relationship between safety factor and service level.
Component commonality in manufacturing primarily allows a company to optimize production runs

for the components.

Modular design
Modular design refers to designing products by organizing sub-assemblies and components as

distinct building blocks (i.e., modules) that can be integrated through configuration to fulfill various
customer and engineering requirements. The primary benefit of using modular rather than integral
designs is to ensure greater responsiveness in marketing and production.
Universality (also called standardization)

Mass customization (also called delayed differentiation)
Design for remanufacture

XV Sales and Operations Planning
1) Operations Planning and Control
Business Planning
Business planning is a group of business processes that includes the following activities: demand
management which includes forecasting and order servicing, production, resource planning and
master scheduling (Includes the master schedule and the rough-cut capacity plan).
Below exhibit provides an overview of how master planning is based on strategic planning and
business planning, a consensus demand plan and a production plan from S&OP, and inputs from the
demand and supply sides of the organization: the forecast, production planning, and resource
planning.
The center column below S&OP shows the supply-side outputs: The production plan, based on a
consensus demand plan, is developed to guide master scheduling, which produces a master
production schedule and plans for the necessary raw materials in material requirements planning
and for controlling production and scheduling assembly (production activity control and final
assembly scheduling). The exhibit shows how both the demand and supply organizations have
continuing input as plans grow more and more detailed and time horizons grow shorter and shorter.
The elements in bold and shaded in gray are all part of master planning.

The high-level demand-side activities of forecasting and demand management involve demand
sensing and creation activities and result in a demand plan. The distribution requirements planning
process involves determining the inventory replenishment needs at branch warehouses/distribution
centers. Inventory turns is an appropriate performance measure for Material control. To maintain a
high level of customer service at the lowest inventory carrying cost companies should place safety
stock in a central warehouse.
The supply-side activities start with resource planning, which determines the need for capital
investments or capacity modifications. The remaining activities in the right-hand column of the above
exhibit address whether evolving plans are feasible from an operations capacity standpoint (Capable-
to-promise commits orders against available capacity as well as inventory).
The basic steps in operations planning and control can be summarized as follows:
- Demand history data are gathered and cleansed. A statistical forecast is run and analyzed for
events or outliers that are not expected to repeat in the future.
- The statistical forecast with associated errors is reviewed with the product and brand
management, marketing, and sales teams. The teams add information to the demand plan
that will improve forecast accuracy.
- The demand plan is finalized with the demand-side teams and passed on to supply.
- The supply team reviews the demand plan and constrains it based on capacity availability.
- Both supply and demand review the constrained plan with the finance team and executive
management.
- When the executive S&OP meeting is held, the result is the communication of a single plan:
Sales sells to the plan and supply produces to the plan.
- One of the outputs of S&OP is the production plan, which provides the rate of production at
the family level. Resource requirements are evaluated with the resource plan. Resource
planning is a capacity management technique used to support the production plan.
- The production plan is the input to master scheduling, and its output is the master
production schedule (MPS). The MPS is typically a weekly plan at the item level with an
evaluation of capacity through rough-cut capacity planning (Rough-cut capacity planning is
best used to evaluate the master production schedule).
- Then material requirements planning uses bill-of-material data, inventory data, and the MPS
to calculate requirements for materials, resulting in planned production and purchase orders.
- Production activity control receives the output of material requirements planning and detail
planning, and final assembly scheduling is done.
2) Sales and Operations Planning (S&OP)
Sales & operations planning (S&OP), is a monthly integrated business management process that
empowers leadership to focus on key supply chain drivers, including sales, marketing, demand
management, production, inventory management, and new product introduction.

The primary purpose of sales and operations planning is to link strategic and tactical plans across the
organization and align operations with the business plan. Effective (S&OP) is most likely to result in
better customer service. Implementing a unified cross-functional plan and process is critical to
successfully using a sales and operations planning process.
Business is translated into synchronized functional plans through the sales and operations planning
process. Key benefit of an effective sales and operations planning (S&OP) process is that it provides a
direct and consistent dialogue between operations and senior management and the most
appropriate approach to balance supply and demand over the medium term is Sales and operations
planning (S&OP)
With an eye on financial and business impact, the goal of S&OP is to enable executives to make
better-informed decisions through a dynamic connection of plans and strategies across the business.
Resource planning converts the sales and operations plan into gross labor hours, floor space, and
machine hours.
Often repeated on a monthly basis, S&OP enables effective supply chain management and focuses
the resources of an organization on delivering what their customers need while staying profitable.
Sales and operations planning is also used evaluate the risk profile for end- of-life planning for a
product family.
Implementation of S&OP should be undertaken in phases. Most businesses start with a pilot program
in one business unit in one country, for example. S&OP has been around for over 20 years now, and
many firms have implemented it at the country or region level. However, in today’s globalized
economy, firms must evolve to using S&OP at the global level. Involvement and accountability at
senior management level is most important in successfully implementing sales and operations
planning (S&OP).

The Global S&OP Process
Globalization has occurred at such a rapid pace that many firms today find themselves thinking
“globally” but acting “locally.” It is only natural that priority has been given to establishing a presence
in new and emerging markets. However, it is time for firms to begin the journey to global planning
and execution in supply chain.
The first step in implementing Global S&OP is to understand the configuration of the firm’s demand
and supply planning, and execution processes. For example, do plants only serve their region and if
so, is this the best approach? What region-specific product requirements exist? For example, do
different packaging and labeling have to be used in each region? Global S&OP is applicable regardless
of existing constraints within regions. However, it must be customized based on that situation.
Obviously, one goal is to eliminate self-imposed constraints that make global planning more difficult.
This part will present details for two scenarios. In the first, most products can be produced at all
plants globally. Products are assigned to plants based on profitability. In the second, most products
are sold and produced at a regional level. Both scenarios can benefit from Global S&OP.
S&OP Scenario 1: Most Products Can Be Produced At All Plants Globally
Let us assume a global business has five producing plants located on four different continents. All five
plants can individually produce approximately 80% of the total products offered. The other 20% of
the products must be produced at a particular plant. This constraint is programmed into the toolset
used to optimize the production schedules.

In this environment, regional demand is consolidated to arrive at a figure for global demand. Then,
demand is allocated to the producing plants based on projected gross margins. The overall objective
of the Global S&OP process is to maximize operating results within the service level and inventory
constraints. Highlights of the process include the following:
- Demand planning is performed on a regional basis as regional marketing and sales are
closest to their market and are held accountable for meeting the sales plan.
- The regional demand plans are consolidated into a global demand plan, which is
compared against the global business plan. Global marketing can and does make
adjustments to the overall demand plan.
- The Global Master Production Scheduler develops the supply plan and assigns products
and volumes to individual plants using the optimizer tool. The results are shared with the
regions.
- A Global S&OP meeting is conducted to review and discuss the supply plan. Open issues
or individual regional concerns are addressed in this meeting.
- The Regional Master Production Schedulers develop more detailed plans for plants in
their region. They are constrained by decisions made in the Executive S&OP meeting.
- The Region conducts an S&OP meeting to finalize and communicate the plan.
The size of the business, the complexity of the network, replenishment lead times, etc., are used to
determine whether the Global S&OP plan should be revised quarterly or monthly. Exceptions that
arise during execution of the plan are resolved through the coordination of the Global Master
Production Scheduler. Pre-established policies and procedures are used to control changes during
the plan period and ensure focus is on total economics. The Global Master Production Scheduler
routinely monitors performance to plan.
Source: Institute of Business Forecasting & Planning

S&OP is a multi-step collaborative process with inputs from various stakeholders to develop an
operational plan.
In this scenario, key inputs in development of the plan include:
- Total Delivered Cost (Source-to-Customer)

- Current Prices
- Inventory Constraints
- Production Capacities
Emphasis in measuring performance must be total profitability and the plan must result in higher
utilization of assets and lower costs.
S&OP Scenario 2: Most Products Are Sold And Produced At A Regional Level
In the second scenario, the business offers many products in small quantities across a dispersed
market. Some product-to-machine links must be maintained to ensure satisfied customers, and lead
times do not allow for global sourcing. In this case, the Global Business Plan is allocated and
maintained at a regional level.
The primary purpose of the Global S&OP process is again to ensure maximum profitability within
service and inventory constraints. However, the supply plan is maintained at the regional level and
no Global Master Scheduler exists. The aggregate S&OP Plan is reviewed by the Global S&OP team,
which consists of marketing, supply chain, and finance personnel from each region as well as the
global leader and members of their staff.

In most organizations, regional teams develop forecasts and demand plans which are then reviewed
by a centralized team.
In this scenario, the supply plan is not determined globally and allocated to the regions, rather, the
supply plan is determined at the regional level and then aggregated for final review via the
Global S&OP process. Balancing of service-cost-inventory occurs within the regional planning
processes based on globally agreed-upon targets. In this approach, less emphasis is placed on cross-
regional interaction and more on regional levels with the idea that the good regional performance
will lead to good global performance.
Global S&OP Organization
To enable the global approach to planning, the organization must change, which requires vision
and plan for change management. Responsibility for the process, the scorecard, and the technology
become global. Regions participate in the selection of metrics, the design of the process, the
development of the policies and procedures, etc. Also, both the demand planning and supply
planning processes involve interaction between regional and global personnel. However, the
ownership for the global processes is with the global personnel. The structure of the Global S&OP
team is outlined below.
With a global approach, the firm can expect the number of persons involved in the S&OP meeting to
increase. More and more emphasis will be placed on resolving most of the issues and doing most of
the planning before the meeting. Only those issues and imbalances that were not resolved in the pre-
S&OP meeting processes will be placed on the global meeting agenda.
Global S&OP Policies & Procedures
Given the complexity and number of stakeholders in such a global process, the business must
develop and use policies and procedures to ensure overall goals are the focus, and make every effort
to avoid disruptions due to differences in opinions.

For example, rules are needed to control tradeoffs between production plans at regions. Policies are
required for handling unplanned demands or production disruptions. The figure below describes key
planning rules/policies to be established for a successful Global S&OP process.
Global S&OP policies are required for all regional teams to follow the same procedures and best
practices.
The Global S&OP team must periodically review and revise rules/policies and procedures as required.
The team must reach consensus on the policies and procedures as all key stakeholders must support
the planning outcome.
Keys to Successful Global S&OP
The primary difference in performance management is that metrics need to focus on global
performance as appropriate, and must be cross-functional in nature. Some typical metrics used in
Global S&OP include:
- Total Operating Result, or Gross Margin vs. Plan

- Total System Inventory vs. Plan
- Actual vs. Planned Demand by Product Group
- Actual vs. Planned Production by Product Group
- Overall Forecast Accuracy

There are several challenges that are inherent when establishing a global planning process. These
include:
- Timely and accurate communications across regions and functions. To make certain this
happens, adopt easy-to-use tools that can be accessed globally. Develop a meeting
schedule on a rolling 12-month basis to ensure participation. Use a planning calendar and
measure adherence to agreed-upon dates.
- Align goals and objectives across regions and functions to ensure participants are not
punished for shifting their focus on overall performance.
- Design and implement global IT support with the goal of minimizing overall cost while
providing key participants the data views and data aggregations they need.
- Change management needs. This may require educating the Global S&OP participants in
the process, and provide implementation and facilitation support for the first few
months of the process.
At first, participants will not be focused on the global good. This takes time. The leadership will need
to set the example. Clear roles and responsibilities must be developed, and documented procedures
are needed to help remove emotion from the process. Performance against the business scorecard
metrics will be the ultimate measure of success.
Benefits of Global S&OP
There are many benefits gained from implementing a Global S&OP process. Of course, with that, the
firm improves overall financial performance. The typical benefits include:
- Shift in focus on value added from local or regional to global (The contribution made by
an operation to the final usefulness of a product is known as value-added).
- Increased visibility across the entire supply chain enabling better business decisions and
quicker reaction to issues.
- Improved communications and teamwork across regions and functions leading to more
balanced tradeoffs in decisions resulting in improved bottom line.
The regions and countries of a global firm will not optimize plans from a global perspective in the
absence of a global process. Instead, they will maximize benefits to their region or country without
regard for the overall business results. Leveraging S&OP by shifting the focus to the global bottom
line will yield significant financial, customer, and internal benefits.
3) The 6 Steps of the S&OP Processes
Product Review: In this first phase, planners involved in R&D, product development, and new
product introduction analyze the health of products in the market, examine product pipelines, and
arrive at decisions about product planning. These decisions might include setting dates for new
production or sunsetting to determine project prioritization and resource allocation. Other topics
discussed in this phase may include the impact on existing products when a new product is
introduced, also known as cannibalization, or supersession.
Demand Review: The goal of this phase is an unconstrained forecast or consensus demand planning,
incorporating a holistic picture of independent and dependent demand. Factors influencing
independent and dependent demand may include marketing, new product introduction, consumer
trends, product hierarchy, customers plan and interplant part demand. The consensus demand plan
is based on a combination of sales, marketing, and product plans. The demand plan is measured
either in units or revenue.
Statistical forecasting is combined with input from customers and marketing plans to estimate,
refine, and arrive at a consensus plan. Historic performance will be factored into the plan, and
eventually the demand plan will be compared to the results of the finance review to find any revenue
or demand gaps. Sales force input about customer plans typically is most important for a product line
that is made to customer order.
Supply Review: The goal of this phase is a supply plan that syncs with the consensus demand plan
(Capacity planning occurs at this stage). Ideally, these two plans work in unison. The supply plan
should balance customer service and minimize inventory as well as operating costs. A baseline
production plan and rough-cut capacity plan are developed, along with alternate supply plans that
factor in capacity, demand variations and identify future cash needs.
“What-if” scenarios play a key role in this phase of the process, so it’s essential to have a technology
platform with the capability to run them using real-time data. These scenarios vary from more
tactical “what-if” questions to longer-term scenarios, but the function of both is the same: to reduce
risk and understand the up and downsides of a wide range of adjustments. Examples of more
straightforward scenarios include inventory or workforce re-balancing, and more complex scenarios
such as on-boarding a new supplier, new capacity, or workforce training. Ideally, as these scenarios
develop, they’re automatically connected to budgetary needs so financial risk projections can be
made.
Finance Review: There’s some debate around the position of this stage in the process. Some insist
that it falls after the first three phases are complete, and others preach that it should be “always on.”
Either way, the mission remains the same: to produce a set of baselines that then become
adjustments to product, demand, and supply review, along with input used in pre-S&OP and
executive S&OP reviews.
In this phase, financial performance for the previous month is consolidated to provide inputs for
analyzing the current month’s S&OP cycle. Finance owns this process and it can include different
categories or views, including product, geography, customer, and channel.
Actual costs are compared with budgets and forecasts to analyze forecast accuracy over a rolling
time frame. A connected approach to S&OP means that no matter where this step in the process
falls, financial analysis plays a key role in producing inputs into pre-S&OP and executive S&OP.

Pre-S&OP: Pre-S&OP is a series of meetings conducted with leaders at various levels that showcase
the connectivity of plans across product, demand, supply, and financial view of the business. The
primary purpose of a pre-sales and operations planning meeting between representatives from
different business functions is to reconcile differences in recommendations.
Ideally, these meetings center around a cloud-based platform that houses all the plans in a single
place. The purpose of pre-S&OP is to identify key gaps and disconnects and create strategies to
handle those issues. The plans are reviewed in shared dashboards and actual vs. variance is analyzed,
keeping targets and budgets in mind.
Metrics like revenue, profit, and inventory are analyzed by both rolling up to the corporate level and
down to the product-line level to gain an understanding of the financial and operational implications
of decisions. Adjustments to the product, demand, and supply plans are made in real-time. The
primary outputs of the pre-sales and operations planning (S&OP) meeting are the recommendations
and agenda for the executive S&OP meeting.
Executive S&OP: The finish line is in sight. The final phase of S&OP brings all plans and data together
in a unified, cloud-based platform to be used in executive S&OP meetings. “What-if” scenarios and
the associated risks are reviewed, and decision points are noted so leadership knows when they will
need to make the appropriate choices.
Any key decisions that weren’t resolved in the first five phases are addressed in this phase, the
reasons for escalation are examined, and decision deadlines are set. The management participation
in sales and operations planning involves the resolution of broad trade-offs by top management.
The decisions made in this phase can have far-reaching implications across the business, so when
using the right technology platform, the impacts of those decisions can be analyzed and applied to
key metrics in real-time. In the end, the goal of executive S&OP is to generate a final, aggregated plan
that’s sent to cross-functional owners and distributed downstream to all affected areas.
4) Common myths about Sales and Operations Planning (S&OP)
Myth 1: Companies don’t need a planning solution to drive an effective S&OP process.
It’s actually more a matter of finding the right solution to improve the effectiveness of your
business’s current S&OP process. Organizations are reluctant to adopt long term sales and
operations planning software since they are already comfortable with the current setup of
spreadsheets and enterprise business applications.
Imagine a world in which you have no choice but to track all sales and operations processes manually
in a spreadsheet. But with spreadsheets, how efficient can your business be? How much can it grow?
Now imagine those processes on a global scale—such as managing a supplier in China while you’re in
the U.S., for example. It’s impossible to have full visibility into the supplier’s operations without the
right tool. But with the right solution in place, you can streamline those processes by providing a way
to collaborate with suppliers, distributors, and other trade partners—all in one place.
When a manufacturer and the distributors of its products decide to focus on price and product
availability as strategic priorities, distributors order-fill rates would be the most appropriate measure
of customer service.
Myth 2: S&OP can be effectively modeled using a spreadsheet.
Sure, it can—if data and the market were to remain static. But the market is constantly changing, and
modeling in spreadsheets can compromise your company’s ability to respond to disruptions.
Companies also need to drill down to the most granular level of details during the S&OP process. Yes,
spreadsheets are important to the business and a good starting place, but they simply can’t meet the
challenges to help drive growth and improve profitability as they are unable to run “what-if”
scenarios or provide an ultra-detailed view into data.
On the other hand, with well-chosen planning solution, you can quickly analyze the effects of
unexpected or planned events to determine the optimal response by creating “what-if” scenarios
and comparing them in real time, even for master data changes like new product introductions—
something you can’t do in spreadsheets.
Still believe spreadsheets are the best solution? Here’s some food for thought: According to the
Association of Chartered Certified Accountants (ACCA), more than 90 percent of spreadsheets
contain errors, while more than 90 percent of spreadsheet users are convinced their models are
error-free.
Myth 3: Supply chains are moving so fast that companies don’t have time to plan.
Let’s rephrase that: “Supply chains are moving so fast that companies who don’t have the right
planning platform in place don’t have time to plan.”
The technology to keep up with supply and demand changes exists. Need to plan your supply chain a
week or a month ahead of time? With the right solution, you should be able to quickly analyze the
situation to determine the best response.
5) S&OP Best Practices
Executive support and participation in the S&OP process
The most important S&OP vital sign is whether the executive leader is directly involved in the process
by participating and providing leadership in each executive S&OP meeting. In this context, the
executive leader is the head of the organization in the position of CEO, president, managing director,
general manager, or P&L owner.

S&OP is successful because it aligns planning across functions in order to meet company objectives
and improve performance. Compromise is often required between functional areas and, at times,
functional leaders may disagree on the best approach. The executive S&OP meeting provides a forum
for routine decision-making where the executive leader considers team recommendations and
decides the course of action. When the executive leader is not committed to this decision-making
forum, functional leaders will find other ways to resolve their issues and the result is friction,
confusion, and under performance. As a consequence, the S&OP process is undermined,
participation can drop off, and performance improvement stalls.
Fully cross-functional S&OP scope
The S&OP process drives cross-functional alignment and collaboration. S&OP success depends on
participation by all functional leaders—such as VPs of product, sales, marketing, supply operations,
and finance—to provide a synchronized effort to reach the company’s goals. Just as the
competitiveness of an eight-person rowing crew would be compromised by an empty seat, the
absence of any functional area from the S&OP process handicaps the ability to deliver customer
value and financial performance.
The consequences of an empty S&OP seat show up in many ways depending on the seat’s owner and
can result in poor coordination on new product introductions, unexpected sales, unexpected
promotions, material constraints, or capacity constraints. The result is mismatched product volume,
mix, location, or timing, all of which negatively affect the company’s performance. If a check of your
S&OP process reveals an empty seat in a team that at a minimum should include the leaders of
product, sales, marketing, supply operations, and finance, you have likely found an opportunity to
improve S&OP performance.
Practicing constructive issue resolution
By its very nature, S&OP produces disagreement. After all, it is the process of developing the tactical
plans necessary to achieve the corporate strategy. Functional heads are certain to have different
opinions about the best approach.
The S&OP team needs to be able to have candid and constructive discussions about issues and
challenges, otherwise tactical plans will not align with strategy, compromising the S&OP program and
corporate performance.
Is technology holding you back?
The selection of an S&OP solution typically includes an initial evaluation of functional and technical
criteria to determine what the solution does and whether it fits company requirements. More
difficult to evaluate, but equally important, is the question of how a solution works and how it fits
with a company’s unique business operations.

Does the solution go beyond abstract functional requirements and provide decision support and
information sharing in a way that enables a company’s unique processes? Or would the solution
require unwanted changes in business operations to match the way the solution works? This is a key
point of the evaluation because the success of an S&OP solution depends on its ability to enable
rather than dictate business operations. A forced-fit solution typically results in low adoption and
ultimately jeopardizes S&OP program success.

XVI Production Planning
1) Master Production Scheduling
Master Production Scheduling (MPS) is a manufacturing planning tool that is used to capture a
number of variables from different elements of the organization (customer demand, capacity,
inventory levels, material flows, etc) and then describe which parts the organization will manufacture
and at what frequency. Manufacturing overhead should include the supervision cost.
MPS is a fairly standard tool within manufacturing companies, it’s usually administered through the
operations/planning function and controlled by a team headed by a Master Production Scheduler.
It’s typically administered through the MRP system. The MPS process stops the business being led by
the “he who shouts loudest gets their parts syndrome” and delivers a manufacturing plan that not
only targets meeting the needs of the customer but also the broader capabilities of the
manufacturing organization.
2) Five key benefits of Master Production Scheduling
1/ Can help to smooth the demand signal
Most customer demand signals will contain peaks and troughs of demand – this profile can result in
planning problems and inefficiency for manufacturers. A significant benefit of MPS is that since it
decouples the customer demand from what is manufactured – batch sizes can be tuned to optimize
the production process. Where demand is particularly spiky (i.e. Peaks and troughs of demand) this
can be of enormous assistance producing a steady drum beat of manufacture (taking advantage of
batch sizes and minimal setup times) which can then ripple through the supply chain. The theory of
constraints is most effective when demand environments are stable. The theory of constraints (TOC)
works best in an environment where the constraint persists long enough to be managed effectively.
2/ Protects lead time and helps book future deliveries
A common complaint for many organizations is that demand is loaded within lead time – i.e. if a part
takes 100 days to manufacture it’s no good taking a customer demand for delivery in 50 days where
there is no stock – you are struggling before you’ve even started the manufacturing process.
This can create panic amongst the staff – throwing existing priorities into disarray. Whilst there are a
variety of methods that can be used to stop this – MPS can be a very effective method as it is the
production schedule that drives the manufacturing not the customer demand. This enables the
organization to protect its lead time but also assists planning in looking at when future customer
requirement is best supported by manufacturing output.
3/ Acts as a single communication tool to the business
A major benefit to any organization that adopts MPS is that it acts as a single communication tool for
the business regarding its manufacturing plans. The MPS schedule is typically available via the MRP
system however whatever the method it’s imperative that it’s communicated in an easily
understandable form that can be used throughout the organization.
4/ Helps the Supply chain prioritize requirement
Having a fixed schedule enables the supply chain team – in particular the procurement function to
communicate priorities and requirements effectively. One of the key problems many manufacturing
organizations face where they are led by changing customer requirement is where the supply chain
gets reprioritized depending on the “problem of the week”. It’s no surprise that suppliers work best
to regular smoothed demand – where that demand in unstable it can often lead to missed deliveries
(of what was planned) let alone the detrimental affects to relationships with suppliers that struggle
to keep up with what’s really required.
5/ Helps stabilize production
Master production schedules are best reviewed as part of a formal business process which includes
the relevant stakeholders and often requires senior sign off before it is either loaded into the MRP
system or is passed to production for action. It is common the production schedule to be outputted
from a formal S&OP review.
Typically, master production schedules do not allow “planning in arrears” so where failures have
happened and product has not been manufactured as planned – these items are re-planned to a
relevant point in the future.
Another common attribute of a master production schedule is that there is usually a fixed planning
window whereby plans do not get changed. For example, the first 6 weeks of the plan may be
termed fixed. This enables production to concentrate on what’s ahead of them without worrying
about reprioritizations. Additions may be added to this fixed period but usually such amendments
are tightly controlled.
Whilst, as with any business process, there are challenges associated with deploying a master
production schedule there are some enormous and tangible benefits. Manufacturing plants can get
themselves into chaos by not administering the manufacturing demand signal appropriately and this
can have huge effects on the supply chain – driving reprioritizations, excess inventory and causing
untold grief to the relationships to key suppliers. Used correctly MPS can right many of these
problems generating a stable and considered plan to drive the business.
Purposes of MPS
- Provide sales-operations “contract”

- Assure sales force of product availability
- Assure operations of sales force commitment
- Balance supply with demand for
- Low inventory costs
- Fewer stockouts
- More efficient production
3) Master scheduling grid
Planning horizon
The time horizon of master scheduling depends upon the type of product, volume of production, and
component lead times. It can be weeks, months, or some combination, but the schedule must
normally extend far enough into the future so that the lead times for all purchased and assembled
components are adequately encompassed.

Master schedules frequently have both firm and flexible (or tentative) portions. Table below
illustrates an MPS for a furniture company that has one such schedule-where the firm and flexible
portions have been marked. The firm portion encompasses the minimum lead-time necessary and is
not open to change.
Two-time fence can be identified in MPS: A demand and a planning time fence.
(a) A demand time fence is the firm or ‘frozen’ portion of the master schedule (beginning with the
current period) during which no changes can be made to the schedule without management
approval. Customers receive the least benefit from extending the demand planning time fence in the
master schedule.
(b) A planning time fence is the portion of the master schedule (also beginning with the current
period) during which changes will not automatically be made (i.e., via computer) to accommodate
demand. This gives the master scheduler a manageable base to work from and still allows some
discretion in overriding the constraint.
Projected available balance (PAB)
Projected available balance is an inventory balance projected into the future. It is the running sum of
on-hand inventory minus requirements plus scheduled receipts and planned orders.

It is defined as the balance projected in the future, as the available balance of the on-hand inventory.
It is derived after netting the requirements, and adding the scheduled receipts and planned orders
that are about to arrive.
Once the projected available has been determined, and there is a clear understanding of the
remaining inventory to be utilized, an MPS is released accordingly. If the projected available balance,
- Is more than zero

- Or equal to zero
No net requirement exists, and thus MPS is not released. This is because the available balance is a
substantial amount, and the demands for the next batch could easily be met with it.
If the projected available balance was less than zero, only then would there be a release from the
MPS according to a specified lot size.
Available-to-promise (ATP)
In make-to-order operations, as actual customer orders are received, they essentially take the place
of an equivalent amount in the forecast, or consume the forecast. For this reason, the scheduled
production of a lot is initiated by the larger demand of either the forecast amount or the actual
(booked) customer orders.
As new orders are evaluated (and received), it is important to provide marketing with realistic
promises of when shipments can be made. In well-designed master scheduling systems, this
information is provided by a simple calculation that yields an available-to-promise inventory.
Available-to-promise data facilitates the process of order entry.
Available-to-Promise (ATP) inventory is that portion of the on-hand inventory plus scheduled
production that is not already committed to customer orders. For the first (current) period, the ATP
includes the beginning inventory plus any MPS amount in that period, minus the total of booked
orders up to the time when the next MPS amount is available. In subsequent periods, the ATP
inventory consists of the MPS amount in that period, minus the actual customer orders already
received for that period and all other periods until the next MPS amount is available.

XVII Material Requirements Planning
1) Material Requirements Planning - Overview
MRP refers to the basic calculations used to determine components required from end item
requirements. It also refers to a broader information system that uses the dependence relationship
to plan and control manufacturing operations.
Materials Requirement Planning (MRP) is a technique for determining the quantity and timing for the
acquisition of dependent demand items needed to satisfy master production schedule requirements.
2) Bill of material (BOM)
In essence, the bill of materials is the list of components/parts, materials, and accessories, that make
up the entire product (including its packaging). It will help keep the new product manufacturing
project on track at every stage and will evolve as new product development progresses.

The contents of a bill of materials
A BOM typically includes the following for every component of a product or its packaging:
- Part number, description, unit, criticality

- Unit price, tooling price, sample price
- Payment terms, delivery terms, lead time, MOQ
- Supplier contact information
- Supplier approval status
- Specification and/or drawing status
- Quality standard status (approved sample, checklist…)
- Follow up actions
What does a BOM look like?
A BOM may start out as a spreadsheet, however later on manufacturers often input them into their
ERP system. (The information on the parts is some of the most basic and important ones, and any
mistakes at this point can have expensive consequences.)
A good example of a Bill Of Materials can be seen here:
How does a BOM evolve over time, and when?
Each BOM starts its life as a rudimentary list of components, with their corresponding prices, MOQs,
lead times, and suppliers. This is the “initial BOM”, or “concept BOM”. The idea is to have a rough
idea of the total price and lead time and to grasp the complexity of the product.

Then it becomes more complete, with some deliverables of the design & development process. The
“design BOM” and the “development BOM” list a lot of information that was gathered and confirmed
as the detailed design work, and the prototypes, are brought to life. Once a full work-alike and looks-
alike prototype is approved, the BOM should be able to reliably tell the total price of the
components.
Then, the process engineers prepare for mass production, and it becomes the “initial manufacturing
BOM” and “manufacturing BOM”. It keeps evolving, as Engineering Change Requests come in and as
suppliers that fail to deliver a certain level of performance get replaced.
Confidentiality
The Bill of Materials is a very confidential document! Most Chinese manufacturers do NOT want their
customers to see who they buy components from, how much margin they make, etc. Virtually no
company wants its competitors to know who is involved in making their product, for obvious
reasons. (There has been a clear trend toward transparency in the supply chain, but it is still only the
case with a small minority of importers.)
The routing file
A document that shows the routing of a component, including the work centers and operation times,
tough its production processes.
Routing: A documents specifies how an item is to be manufactured and the processing steps or
stages needed to create a product or to do a job.

Lot-for-lot scheduling
It is called DOQ (Discrete Order Quantity), and is a method for lot sizing, where the net requirements
occurring for each period are the quantity of order. This method is often used mainly for expensive
items and the items whose demand occurs intermittently. In this case the quantity is the same as
that of the case in which one period is specified in the fixed period requirements.
Offsetting
It is a technique used in MRP to set the release date for an order earlier than planned order receipt
by an amount of time equal to the lead time for the item. Example: If planned order receipt time
period is week 8, lead time is 3 weeks, then order release period should be (8 − 3) week 5.

Evolution of MRP software
3) Distribution Requirements Planning
Distribution Requirements Planning (DRP) is the practice of determining the time phased
requirements and replenishment of goods for each location and across multiple locations in a
distribution network and communicates in-transit inventories to a warehouse. Inventory
obsolescence is reduced when direct shipping is used instead of a distribution network.
The primary outcome of distribution requirements planning is to maintain an appropriate inventory

level at all locations.
Compared to a centralized distribution network strategy, an organization using a decentralized

distribution network strategy can usually expect lower cost of transportation and lower warehousing
cost. Where to carry safety stock would typically be a consideration in a distribution requirement
planning (DRP) environment. Improve fill rate but decrease inventory turns by adding safety stock
should be considered to improve the performance of a distribution network. The overall distribution
requirements planning system is structured to achieve a high level of customer service, the outcome
generally will be higher inventory levels and higher total cost.
Increasing the service level is a critical performance measurement in distribution network logistics.
Risk pooling benefits are negated if shipping directly from the point of manufacture to the customer
rather than through a distribution network.
Similar to MRP in a manufacturing plant, DRP calculates the purchases or transfers required to
support customer orders, projected demand and inventory goals to meet Service Levels and
performance goals. Number of customer orders will increase if business is changing from a business-
to-business model to a business to consumer model.
Use Cases
- Distribution Center replenishment planning

- Warehouse-to-warehouse inventory replenishment planning
- Factory-to-warehouse inventory replenishment planning
- Distribution network inventory balancing
- DRP is a subset of Distribution Resources Planning (DRP-II).
DRP components
DRP requirements

DRP grid
Pull vs. push systems
DRP distribution works by either a pull or push method. The pull method has goods move up through
the network by fulfilling customer orders. ... In contrast, the push method sends goods down through
the network. It generally has lower costs because shipments are planned globally and stored
centrally.

XVIII Capacity Requirements Planning
1) Capacity Planning - Overview
Capacity planning is an important element of manufacturing, refers to the process of matching

production capacity with sales demand. Apart from manufacturing, this discipline is applicable to
virtually every endeavor that faces constraints in meeting demand, and it includes service industries,
retail and commercial sales, IT, government agencies and many more.
While the most common use of capacity planning is to schedule production capability to meet short-
and medium-term demand, it's also an important element of long-term strategic and organizational
planning.
In most organizations, formal capacity planning takes place only once a year. While this isn't ideal,
the complex nature of the iterative process that considers sales demand, production capacity and
material sourcing means that a capacity planning exercise may take several weeks. Due to this, and
the need to be able to respond proactively to unexpected events, many businesses are turning to
high-level analytical solutions to discover what capacity planning is and how to optimize capacity
planning decisions.
What Is Capacity Planning?
Capacity planning is determining the ability of a production line, service department or function to
meet a specified demand over a period of time. Inherent in this are actions required to adjust the
capacity of the system to meet demand. This may include working additional shifts, outsourcing and
investment in additional capacity. Reduce required capital investment is the primary reason for
outsourcing production of a new product.
The magnitude and pattern of the demand is first established. This, known as the demand forecast, is
a detailed analysis of expected sales demand on a weekly, monthly and annual basis. Concurrently,
the organization's production capability is established. Starting with theoretical capacity,
management determines an effective capacity that takes into account factors such as downtime,
servicing, legal and other constraints. Thereafter, factors such as available manpower and the
number of shifts to be worked are applied to determine actual capacity.
This process, called rough cut capacity planning, matches overall demand to production capabilities.
In an ideal world, production capacity would equal demand so as to minimize inventory costs.
However, this is rarely possible due to inventory and production lead times, so in practice most
organizations carry a certain level of inventory to act as a buffer between production capacity and
peak sales demand.
The medium-term capacity plan normally aligns with the annual budget. This is typically
supplemented by a short-term capacity plan that concentrates on meeting the immediate production
requirements for the next period of time, which may be a week, month or quarter. Additionally, a
long-term capacity plan focuses on providing future capacity as part of the organization's strategic
planning process.
History of Capacity Planning
When looking at capacity planning, it's useful to learn the background details. It's likely the first
attempts at capacity planning occurred during the Industrial Revolution, and its importance grew as
companies adopted mass production techniques in WWI. Initially, capacity planning was, by
necessity, a clerical function performed by teams of industrial engineers who matched capacity of
individual machinery and production lines to demand. However, the advent of computerized
production planning in the last century opened up the potential for computers to do the number
crunching, reducing the manual load.
It wasn't long before capacity planning became a part of materials resource planning (MRP) and ERP.
Its primary focus was on the practical steps needed to provide a production capability to meet
demand.
Modern Concepts of Capacity Planning
If demand was predictable and stable, then rough cut capacity planning would be all that's needed
when the question of what is capacity planning arises. Unfortunately, that is not the case. There's
intense competition between companies for market share, which sees enterprises continually
searching for ways to reduce costs, at the same time product life cycles are getting shorter. Added to
that, unpredictable global disruption such as pandemics (i.e. COVID-19), weather events and trade
wars threaten supply chains. The effect of this is that plans alter frequently and capacity planning
techniques must adapt to these changing needs.

This means capacity planning needs to be more precise as well as be able to reflect both medium-
and short-term realities. The time to prepare and review capacity plans needs to change from weeks
and months to days if these plans are to be usable in a fast-changing world. Additionally, capacity
planning should not only consider capacity but also production cost and optimization. Most
importantly, capacity plans should be achievable and practical.
Complexity of Capacity Planning in Large Organizations
Capacity planning for a company that has a handful of production lines and relatively few product
types is relatively simple, although even in this case the possible permutations are many. However,
when tackling the question of what is capacity planning, the situation is infinitely more complex in
large organizations making hundreds of different products, especially when production facilities are
not product-specific. In this event, there may be thousands of possible permutations to consider, a
task that's practically impossible with conventional capacity planning tools. Certainly, the time
needed to produce even a reasonably precise capacity plan is likely to be measured in weeks or
months. Added to that is the virtual impossibility of reviewing the capacity plan, except on an annual
basis.
It's almost inevitable that capacity planning using conventional MPR and ERP tools is limited to
achieving a workable arrangement that meets demand. Although the issue of what is capacity
planning is easily answered, it's almost impossible to evaluate the answers to questions such as:
- What's the lowest production cost?

- How can we optimize production?
- What represents the best product combination for each facility and production line?
- How can the organization increase overall profitability while meeting demand?
Optimizing Capacity Planning Using Intelligent Modeling
The core of the problem lies with the difficulty of assessing multiple options to determine a capacity
plan that not only meets demand but which is optimized in terms of certain criteria, such as lowest
overall cost, greatest throughput and on-time delivery. While MRP II and its successor EPR determine
workable solutions, they don't incorporate the ability to optimize complex scenarios involving
multiple production lines and products.

This was the dilemma facing Unilever. Despite having some of the best minds in the business, along
with SAP and supporting supply chain software, the company was spending hundreds of hours trying
to determine an optimum capacity plan. Unilever needed a better answer. The solution was to
introduce a prescriptive analytics intelligent model together with optimization software to define the
best solution meeting certain criteria.
At one time this meant the use of complex mathematical modeling, but fifth-generation drag-and-
drop modeling techniques now simplify modeling processes. An organizational model is built that
closely mirrors reality. Once the model is verified and calibrated, it's possible to determine the most
favorable capacity plan and evaluate alternative scenarios in a fraction of the time needed with
legacy supply chain planning software.
Moving Capacity Planning into the 21st Century
Building a capacity planning model using prescriptive analytics means it's feasible to constantly
review and update the model. In Unilever's case, the company was able to move from an annual
capacity planning exercise to performing it on a monthly basis. Additionally, the company was able to
factor in existing constraints, which meant solutions were always feasible.
Apart from formal capacity planning, prescriptive analytics models allow organizations to respond
proactively to unexpected events such as sudden change in demand, production outages and logistic
issues. A further benefit of prescriptive analytics solutions built on a fifth-generation programming
language is that it's easier to modify models to reflect changed circumstances than those developed
with traditional algebraic mathematical modeling software that requires high-level coding skills.
Additionally, line managers and planners find models developed using drag-and-drop techniques
easier to understand because nothing is hidden inside complex computer code. Once the phrase
"what is capacity planning" is interrogated, it's simple to move onto 21st century methods of setting
up a successful model to help your company thrive.
2) Production activity control (PAC)
(PAC) is responsible for executing the master production schedule and the material requirements
plan. At the same time, it must make good use of labor and machines, minimize work-in-process
inventory, and maintain customer service.

Concentrate on constraints
Methodology for identifying the most important limiting factor (i.e. constraint) that stands in the way
of achieving a 0 out of stock and then systematically improving that constraint until it is no longer the
limiting factor. In manufacturing, the constraint is often referred to as a bottleneck.
Use visual signals
In a manufacturing environment, for example, a card listing specific information can be sent from the
shipping department to the assembly line requesting a certain number of products. A Kanban system
uses visual cues to signal when a particular action should occur.

XIX Inventory Management
1) Inventory Management - Overview
Inventory management refers to the process by which you track how many units of each product you
have on your warehouse shelf, in store or sitting with other retailers and distributors. The primary
function of inventory is to ensure a buffer against delivery time while minimizing total carrying cost.
This enables you to succeed in having the right products and quantities, in the right place, at the right
time and for the right price. Customer demand factor should be considered when establishing an
inventory policy.
When effectively tracking and controlling your inventory, you’ll know how many of each item you
have, when you might be running low on products and whether you should replenish that item in
order to keep selling it. And as a busy business owner, you should be able to do all of this at a glance.
This enables you to make good purchasing decisions quickly and easily. It’s where having the correct
inventory management system comes in, too, as we’ll learn later. A firm may use Radio frequency
identification technologies to track the flow of inventory across its entire supply chain.
2) 11 Benefits of effective inventory management
Keeping track of your inventory is fundamental to your success in retail. At the most basic level, after
all, your job is to supply the products to meet consumer demand. You can’t do that without effective
inventory management.
Listed below are the top eleven benefits of effective inventory management. They all combine to
explain the importance of accurate real-time tracking of stock, and can be easily achieved by using a
dedicated inventory management system.

1. Fewer missed sales

When you don’t keep an accurate inventory report, it’s easy to run out of products and miss out on
sales. Instead of relying on your memory or a visit to the warehouse to decide what to reorder, use
an up-to-date inventory report to:
- Quickly see what products you’re running low on

- Compare your inventory level with what’s been selling well
- Place reorders before you run out
Depending on what inventory software you use, you also might be able to set minimum inventory
levels for each item. Then you can view the list of products that are below that level and place and
send new purchase orders quickly.
2. Better invested cash

To be successful in retail, you need to invest your cash wisely by buying the right quantity of each
product - enough to keep sales going and prevent stock-outs, but not so many that some items just
sit on the shelf. Keeping accurate inventory reports helps. You can quickly identify slow-moving
products so you can mark them down and clear them out to free up cash to invest in new products,
marketing and more.
3. More accurate reports

Accurate product reports produce accurate inventory cost values, which are essential to the
precision of several financial reports if you use cost of sale accounting. This method associates a cost,
which comes directly from the product’s asset value with each sale. That makes correct cost values
critical to your balance sheet, as well as your cost of sales and income statement, upon which many
management decisions hinge.
4. Early problem detection

If you’re keeping an eagle eye on your inventory levels, you’ll spot problems right away - instead of
months later during annual cycle counts when the discrepancies may have already cost you a lot of
money.
Maybe a step in your warehouse process is being missed? Or one of your salespeople is making
mistakes on sales orders? You need to know now! The best way by constantly reconciling sales and
purchases through a tightly maintained inventory management system.
5. Happier customers
Exact inventory reports also help you provide better customer service. When customers say they
haven’t received one of the products they ordered, you need to be able to check your report and
confirm that you have one extra in the warehouse. Likewise, if you regularly keep on top of inventory
levels, you can identify incorrect shipments sooner.
And if your inventory system is up-to-date with purchase orders, you’ll be able to sell customers the
products they want because you’ll know more are just about to arrive. This kind of communication
encourages your customers to trust you, which in these competitive times, is a valuable asset.

6. Efficient reordering
Reordering will be fast and easy if your reports tell you what products are available. When you’re
working with correct inventory numbers and a threshold limit is reached, you’ll be able to trigger a
new purchase order to replenish your goods and keep sales coming in.
This means you can work methodically through your product set, making informed buying decisions
instead of physically checking your warehouse shelves to write a purchase order. If your reports
come from an advanced inventory management system, you also can see if you already have
products on order with a supplier and if your supplier has long lead times or irregular deliveries. This
information is a must if you want to keep reordering under control.
7. Theft and loss reduction

From theft to loss to damage, products can be lost in many ways. But if you manage accurate
inventory levels, you can identify issues quickly. And while no one wants to think that their staff may
steal from them, it pays to be vigilant. Showing your staff that you keep an accurate inventory is a
great theft deterrent.
8. Trusted information systems

Running an efficient and profitable business is all about sharing and using accurate information,
usually through an integrated software system. If your staff knows that the inventory levels in your
system are always up-to-date, they’ll trust the software and use it more for all of their tasks. And
you’ll end up with cleaner data as a result for better reporting, collaboration and efficiency across the
team.
9. Reduced warehouse costs

When your inventory report tells you what you have in stock, the pick pack ship process runs more
efficiently. Your warehouse staffs do not need to run around looking for the last product because you
know exactly when it sold and shipped. This enables you to process more orders in the same amount
of time with the same staff - or balance your resources differently. Accurate inventory levels can
keep your business lean! Warehouse team would use Value Stream Mapping to document, analyze,
and improve the flow of information and materials to customers.
At a logistics company, the warehouse or fulfillment center is the Gemba. In manufacturing, it’s the
shop floor.
Gemba walks involve getting out of one's chair to watch a process, talking with operators and asking
open-ended questions in order to better comprehend the nature of the value being created.
10. Cycle counts and end of year efficiency

When all your inventory levels are up-to-date all the time, periodic cycle counts are faster and more
efficient because you’re just confirming data that’s already in your system instead of doing a lot of
time-consuming data entry.

11. Peak season efficiency

In the event of high order volumes, such as those that arise during peak trading seasons, flash sale
events, or when celebrities step out in your products, your inventory numbers will be able to keep up
in order to keep your sales flowing profitably across all channels - but only if the numbers are
accurate to begin with. The ratio of actual output to standard output is defined as efficiency. For
growing retailers, especially those adding locations or channels, inventory management can seem
overwhelming.
These eleven benefits of inventory management illustrate that the efficiencies you’ll gain make it
well worth your effort. A little focus on this foundational piece of your business can bring big
rewards. You should by now appreciate why efficient inventory management is essential. What,
though, does effective tracking of your inventory entail? There are more strands and techniques
involved than you may think.
Types of inventories
Inventory costs
- Carrying costs (holding costs): rent, depreciation, operating cost, taxes, insurance, handling,
leases, labor, scrap, investment costs, pilferage, etc.
- Ordering costs incurred when ordering more inventory: materials and labor in processing
forms, also setup costs related to preparing for production, such as cleaning, adjusting,
modifying machines, etc.
- Other costs: backorders, lost sales, lost customers, etc.
Example: A company's annual cost of goods sold is $450 million, and inventory carrying cost
is 15%. The company averages four inventory turns. The cost savings resulting from
increasing inventory turns from four to six would be ($450 million * 15% / 4) – ($450 million
* 15% / 6) = $ 5,625,000.

3) Inventory management techniques
Accurate inventory management and inventory control hinge on best practice and using effective
inventory management techniques. To help, consider the following 12 inventory and warehouse
management best practices and activities.
a) Cycle counts
The cycle count procedure involves dividing your inventory into smaller, more focused lists of
products that need to be counted. You could divide your products up by product category, product
vendor or even the warehouse location. This can usually be done easily and efficiently when using an
inventory management system.
But there are two certain counts that are the best inventory control method: high risk and high value.
High risk counts are a list of products that have historically had the largest inventory discrepancies,
are prone to theft or have had the most inventory corrections performed against them due to
breakages or returns. This type of count ensures you’re analyzing the reasons for why there have
been so many write-offs, and thus, you’ll learn how to mitigate the causes.
High value counts, on the other hand, are a list of products that have the highest cost or potential
sales value. As these items are your most cash-intensive, it’s important to understand and accurately
track them at all times.
b) Accounting methods
For inventory valuation, there are three common calculations:
LIFO (last-in, last-out): is a method used to account for inventory. Under LIFO, the costs of the most
recent products purchased (or produced) are the first to be expensed. LIFO is used only in the United
States and governed by the generally accepted accounting principles (GAAP).
FIFO (first-in, first-out): First In, First Out, commonly known as FIFO, is an asset-management and
valuation method in which assets produced or acquired first are sold, used, or disposed of first. For
tax purposes, FIFO assumes that assets with the oldest costs are included in the income statement's
cost of goods sold (COGS). The remaining inventory assets are matched to the assets that are most
recently purchased or produced. It is used mostly when considering storage systems with Pallet
racking.
AVCO (Average Cost or Weighted Cost): Average cost method (AVCO) calculates the cost of ending
inventory and cost of goods sold for a period on the basis of weighted average cost per unit of
inventory. Weighted average cost per unit is calculated using the following formula:
Weighted Average Unit Cost = Total Cost of Inventory / Total Units in Inventory

Like FIFO and LIFO methods, AVCO is also applied differently in periodic inventory system and
perpetual inventory system. In periodic inventory system, weighted average cost per unit is
calculated for the entire class of inventory. It is then multiplied with number of units sold and
number of units in ending inventory to arrive at cost of goods sold and value of ending inventory
respectively. In perpetual inventory system, we have to calculate the weighted average cost per unit
before each sale transaction.
The primary benefit of using a central storage warehouse for all components rather than using point-
of-use storage is ease of control and count accuracy.
Cost of goods sold (COGS) is calculated by adding up the various direct costs required to generate a
company’s revenues. Importantly, COGS is based only on the costs that are directly utilized in
producing that revenue, such as the company’s inventory or labor costs (Overhead) that can be
attributed to specific sales. By contrast, fixed costs such as managerial salaries, rent, and utilities are
not included in COGS. Inventory is a particularly important component of COGS, and accounting rules
permit several different approaches for how to include it in the calculation. Warranty cost is
considered an external failure cost.
Choosing the right inventory valuation method is a crucial step as it can have a significant impact on
your reported profitability. FIFO just like many other inventory management systems is the method
that is most realistic against what’s happening in your warehouse, while ensuring your balance sheet
also reflects the actual costs you’ve paid to acquire inventory.
c) ABC analysis
The idea behind the ABC analysis is to effectively prioritize your attention and resources on inventory
that need it most. According to the Pareto Principle, 80% of overall inventory consumption comes
from just 20% of your total items. ABC analysis comes in useful to help you identify how to make
your inventory control as efficient as possible.
The ABC classification system answers what is the importance of the inventory item, and how the
inventory items will be controlled.
Using this method as a starting point, you can split your inventory into three categories based on
value, cost and consumption. As an example:
Use these groups to help categorize your products and then you can ensure your inventory
management practices revolve around counting those items in Group A first, followed by Group B
and C respectively.
d) Just in Time (JIT)
Although Just in Time ordering, or JIT, is still considered to be a risky strategy for some, it can be a
great way of offsetting the risks associated with inventory management to your manufacturer or
supplier instead.
With JIT in place, you’ll receive goods just before they need to be shipped or sold. This is helpful to
smaller businesses that perhaps don’t have as much warehouse space or monetary capital as larger
ones. Instead of tying up cash in inventory, you can instead invest that money on attracting more
sales in the first place.
For this inventory management technique to work, you’ll need to have a healthy and trustworthy
relationship with your supplier, or you’ll risk disappointing customers if goods are slow to dispatch.
e) Surplus inventory and dead stock
- Surplus inventory also referred to as excess inventory, can result in dead stock if you
don’t have an effective inventory management strategy in place in order to shift these
products and prevent it from happening again.
- Dead stock or dead inventory is used to describe products that were never sold or used
by consumers before being removed from the sales process, perhaps because they’re
outdated. Read on for some ideas on what you can do with both dead stock and excess
inventory.
- Cross-merchandising is a great strategy to help increase sales of your surplus inventory
and slow-moving items, allowing you to shift these products quicker. Likewise, adapting
your multichannel strategy can be a great driver in shifting excess inventory. Perhaps it’s
as simple as selling these goods on marketplaces like eBay and Amazon, or even using
social media marketplaces on Facebook and Instagram to sell these items to those who
may not yet be aware of your brand.
f) Par levels
Par levels are the minimum quantities you wish to have in stock for each product. If your inventory
availability goes below that level, you know that you need to reorder that product.
Setting your par levels provides structure and a method of prioritization within your reordering
process and is an excellent way of keeping up with demand.

g) Safety stock
Safety stock is the extra inventory you hold in your warehouse to reduce the risk of overselling due to
peaks in supply and demand. But you’ll need to calculate what the optimal level of safety stock is -
enough that you don’t oversell on fast-moving inventory, but not so much that you’re tying up too
much cash in your warehouse. When demand is uncertain, the most appropriate action to take is to
recalculate safety stock. Safety stock is used to accommodate forecast errors when developing the
master production schedule.
High variability, long replenishment lead time require the largest amount of safety stock based on
demand variability and replenishment lead time.
h) Contingency planning
Your ecommerce business relies on its customers and how great their experience is, which is why an
element of contingency planning should always be a top priority. As retail trends are constantly
changing, it’s important to keep a vigilant eye on your inventory and inventory management system
in order to be prepared for any scenario.
Particularly related to ecommerce inventory management, you’ll need to have plans in place for each
of these example scenarios:
These are just some of the most common scenarios facing ecommerce businesses today. To avoid a
potential loss in revenue or a hoard of angry customers, you’ll need to ensure you have a viable plan
of action for each of these situations and any others you think your business might face in the future.
i) Consignment inventory
Selling on consignment is when you send products to other retailers for them to store and sell on
your behalf, with each business taking an agreed share of the profits. Consignment inventory
requires that manufacturers stock their products on retail stores shelves and wait for payment until
consumers purchase the product.

Any business can sell as a consignor or consignee but you’ll need to ensure you’re accurately
accounting for the inventory - both financially and physically.
Consider these important points when selling goods on consignment:
- How will inventory levels be communicated? By hand? Email? EDI?

- Are you using multi-location inventory management to make this process easier?
- Who pays for freight and shipping of consignment items?
- What happens if items are damaged or defective?
- Who is responsible for the insurance of the products?
- Do customers return items to the retailer or directly to you?
- Are you using an accounts package or team, which is familiar with consignment
inventory and its financial implications?
- How will you record and chase outstanding consignee debt?
j) Dropshipping
Imagine for a moment that dropshipping is the “anti” inventory management technique. That might
sound a little strange, but just like with JIT ordering, it’s a way of offsetting the risk and costs of
inventory management to another business.
Dropshipping involves forwarding sales orders and shipments as a request to your vendor or
manufacturer. They will then be responsible for sending the items to your customers on your behalf,
usually with your branding, so the customer is unaware you’ve even used a dropshipping company.
By adopting this approach, you’ll typically have lower overheads as you’re not physically storing
products, maintaining a dispatch process and likely won’t have to pay for inventory upfront. Equally,
managing inventory levels is not your responsibility either - this is the “anti” part we referred to
earlier.
k) KPI analysis
There are multiple retail KPIs you can analyze to help with inventory planning and preventing
discrepancies in the warehouse. Here’s what we recommend you keep an eye on:
- Gross Margin influences your pricing and discounting strategies

- Inventory Turnover Rate affects how much working capital you’ll have for operating
expenses
- Sell-Thru Rate enables you to see which products and product lines have spikes or dips in
sales - and why - to help power your demand planning and restocking processes
- Units Per Transaction helps with both your demand planning and upselling strategies
- Rate of Return enables you to deep dive into which products have a higher rate of return
than others, and why, ensuring you know how to improve your pick, pack, ship process or
product packaging

- Perfect Order Rate shows you whether your pick, pack, ship process needs improving and
Perfect order fulfillment is the most appropriate measure of delivery performance for
finished goods.
- Lead Time is a key metric when it comes to demand planning, showing you how long it takes
for your suppliers to deliver items to you once they’ve been ordered
l) Returned inventory
With 89% of American shoppers claiming they would shop again from an online store if treated to a
positive returns process, it’s important to establish a good way of managing this type of inventory
within your inventory management strategies.
There are different ways to handle returned inventory. To start with, we’ll focus on two types:
authorized returns and automatic/blind returns.
- Authorized returns: Require customers to call or email in their return requests

- Blind returns: A return slip and free shipping label contained with the original package, or
allowing customers to print a returns slip directly from your website is required for this
process.
If you require your customers to call or email in their return requests, we refer to these as
‘authorized returns’. Dealing with returns in this way offers your team the opportunity to speak with
the customer to find out more about why they’re returning the product and if a different product can
be offered in exchange for it. It also ensures you have a view of inventory you’re expecting back into
the warehouse, but it does require more man power and time.
On the other hand, automatic or blind returns can make the returns process easier for both yourself
and your customers. A return slip and free shipping label contained within the original package, or
allowing customers to print a returns slip direct from your website is required for this process.
Although you won’t have a view of incoming inventory in advance of it arriving at your warehouse,
you will spend less time in the long-run, especially if you have a reliable inventory management
system enabling you to scan goods into the warehouse.
Plenty goes into effective inventory management, therefore. You may need to dropship, partially
fulfill orders, process back orders, run your operations from one warehouse or several, or maybe
even combine all those processes and more. Higher throughput operations enable private
warehouses to accomplish better facility utilization with declining overheads.
Utilizing technology in the shape of an inventory management system is often the only way to stay
on top of everything. Precisely what, though, is such a system? What types are there, and what can
the correct alternative bring to your business?

4) Inventory Management System
You’ve now got a robust understanding of the basics of inventory management and how they’re part
and parcel of your day-to-day operations. It’s all about tracking stock, supplies, and sales. In short,
everything that impacts the resources you have at hand. The functionality of decoupling stock within
firm’s inventory systems is a separation of the manufacturing process from order processing (It is
considered as demand management which includes processing a customer request and making
material available for production or shipping).
Inventory management systems are your means of organizing all the elements that go into inventory
management. It’s the process by which you track goods from one end to the other along your supply
chain. Ensuring throughout that you know what you have, where it is, and how to manage it.
There are many types of solutions. No one option will suit every business. Each organization has its
own needs and principals. In general, though, automated inventory systems fall into two categories:
- Periodic Inventory Management Systems

- Perpetual Inventory Management Systems
Periodic Inventory Management Systems
This is what is probably best termed as ‘old-fashioned’ inventory management. In fact, the name
‘stock-taking’ is perhaps a better descriptor. Companies count their stock at consistent but
comparatively long intervals.
A typical periodic system might see a firm perform a stock take every three or six months. At that
time, staff will check warehouses or storerooms, and count the units of inventory on hand. They will
typically also calculate the financial value of the stock, as well as raw materials on-site.
At the point of each stocktake, an organization can check that inventory levels make sense. Any
decrease in inventory would need to match up with sales figures or wastage. This is the only way to
spot any discrepancies that could be damaging to the bottom line.
Periodic inventory management is far from ideal. It’s generally only suitable for the smallest of
retailers. It’s only firms that hold and sell minimal volumes of inventory that can get away with a
periodic approach. For other firms, such an approach makes it far too easy for costly errors to arise
regularly.
Failing to track stock continually, for instance, can allow either overstocking or understocking. Both
of these occurrences are hugely damaging to a business. Overstocking means you have valuable
inventory sitting idle. You’re also wasting critical warehousing space on that slow-moving stock.

Understocking is just as detrimental to operations. When you don’t have enough inventory, you must
refuse orders, or worse, fail to fulfill all the orders you do accept. Having to take either of those
avenues will hurt your reputation with customers. Random stocking can be greatly improved through
the use of a planning process specifically designed to balance demand and supply within your
organization and arrive at a consensus forecast, planning process known as advanced planning
system (APS). Advanced planning and scheduling deals with analysis, planning of logistics and
manufacturing during various time periods. Priorities of the master schedule items have the largest
effect on the schedule developed by an advanced production scheduling (APS) system.
Perpetual Inventory Management Systems
The other principal type of inventory tracking solution is the perpetual variety. With perpetual
systems, everything related to a firm’s inventory and supply chain gets tracked in real-time. Stock
levels and associated reports get updated with every sale, delivery, or breakage.
Most retailers use a perpetual inventory management system of some kind. These systems have a
raft of advantages over the periodic alternative. In general, perpetual systems allow a higher level of
accuracy. That makes for better-informed future planning.
There are lots of different examples of perpetual automated inventory systems. Let’s take a look at
some of the principal ones, along with their primary strengths and weaknesses.
Manual, Low-Tech Inventory Management
Many new or small retailers start with manual, low-tech solutions. In short, they keep track of
inventory with a pen and paper. Each sale and delivery get recorded in a ledger as it happens, to
keep records up to date.
The business owner then needs only to check the written record as and when required. For instance,
they may wish to work out if and when to raise a purchase order with suppliers. The main strengths
of this type of system are that it’s simple and inexpensive. Human error, on the other hand, is a
significant weakness, as is the system’s time-consuming nature.
Inventory Management Via Spreadsheet
Many businesses have moved away from manual stock-taking. There are plenty, however, who
haven’t yet embraced the dedicated software solution that is an inventory management system. The
system which these individuals use involves tracking stock and more via spreadsheet.
A program like Excel can be excellent for managing inventory at a basic level. A professional with a
good affinity with spreadsheets can create a decent system. Stock, value, sales figures, and more can
all get tracked on one straightforward document. Modern file-sharing tools, too, can form a part of
these systems. They mean that anyone in an organization that needs to can access the relevant
document.

The issue of human error is still a significant downside of spreadsheet-based systems. Enter incorrect
figures at any stage, and the mistake can snowball. What’s more, spreadsheets can’t account for the
complexity of many businesses. Plenty of firms have multiple sales channels or warehouses. In those
cases, an Excel document will swiftly get complex and unwieldy.
Dedicated Inventory Management Software
Inventory management is fundamental to many modern firms. For that reason, there’s lots of
inventory management systems and software on the market. They exist specifically to help retailers
organize their supply chain. The solutions allow firms to implement more complex, nuanced
inventory tracking solutions.
Dedicated inventory management solutions come in all shapes and sizes. Many are now cloud-based,
which makes them simple to implement and scale when required. The best examples also provide a
superb range of features for businesses. Some of the most notable include:
- Real-time updating of stock levels

- Automated low stock notifications
- Asset tracking via barcodes or lot number
- Creation of accurate records
The principal benefits of such a software-defined inventory management system are apparent. Many
previously time-consuming inventory management processes get automated. That saves staff hours
and frees workers for other tasks. What’s more, human error gets taken far more out of the
equation. These systems, then, achieve a higher level of accuracy.
There is one downside to a dedicated inventory management system, though. That is that you have
to integrate it with your other systems. That can take time and effort, and depending on the systems,
it may not even be possible. That’s where more comprehensive and integrated systems come in.
Integrated Retail Operations Solutions
Inventory management is merely one part of your broader business operations. The best inventory
management system, therefore, should work seamlessly with your other processes. That’s what you
get if you leverage an integrated retail operations platform.
Such solutions unify all of a merchant’s vital operations, including inventory management. That
means information about - and access to - all parts of your business are always at your fingertips.
Through one interface, you can manage inventory, handle accounts, track orders, and more.
The benefits of these all-encompassing systems are numerous. You get accurate cross-organizational
data and control. All departments can communicate automatically. What’s more, critical business
processes will run smoothly with little interference. Such systems, however, are more expensive than
simpler alternatives. They’re best leveraged by firms that grow beyond those less comprehensive
options.
Why You Need an Inventory Management System
Which type of inventory management system you need will depend on your business. What’s a
constant across all retailers, is that you do need one. Taking a systematic approach to inventory
management is the best way to ensure accuracy. Approach things in an ad hoc manner, and you
invite difficulties of many varieties.
Automated inventory systems let you keep up-to-date records of stock or components. Failing to
have such records can lead to issues of overstocking or understocking in no time. Not to mention the
knock-on effects that either circumstance can have.
Overstocking
Without an inventory management system, you may lose track of how many units of a product you
have. That can lead to you placing a new order when you didn’t need to. You’ll then have far more
inventory than customer demand realistically requires. This is the problem known as overstocking.
Overstocking is something all retailers must avoid. It produces two significant and damaging
problems. At best, carrying too much stock means you’re wasting your warehousing space. Capacity
that could get used for higher-demand items is lost on slow-moving inventory instead. At worst,
overstocking can create the retail nightmare of dead stock. A production rate based on customer
demand is called Takt Time. The practice of stopping the production line when a defect occurs is
called Jidoka.
Exercise: Calculating the carrying cost:
Carrying cost = Capital cost + Storage cost + Risk cost = 9% + 11% + 5% = 25%
PS: Dead stock is inventory that – for whatever reason – you have no chance of selling. It may be that
consumer trends change to mean there’s no longer any demand. In the case of perishables, the stock
could go off before you’re able to sell it. Dead stock always hurts your bottom line. You’ve wasted
the money spent on buying it and often have to pay more to dispose of it.
Understocking
Failing to carry enough stock is often as detrimental as having too much to make life more difficult.
When a business understocks, it can create two distinct issues. The first requirement is to turn down
orders or mark items as out of stock on your website.

Refusing orders is something no brand should ever do if they can avoid it. It’s the very definition of
turning down revenue. There’s no guarantee, either, that a customer who can’t buy one item from
you won’t take all of their business elsewhere.
The second problem that understocking can create is even more severe. It’s the issue of overselling
and is particularly hurtful to ecommerce businesses. Overselling means to take orders for stock you
don’t actually have. It plagues many retailers that don’t use an inventory management system.
That’s as their records don’t accurately reflect the real-life situation in the warehouse. Websites and
order systems can’t keep track of the actual inventory on hand. They allow customers to place orders
for out-of-stock items. The company will then, more than likely, fail to fulfill those orders. Few things
frustrate customers more. Not to mention causing firms to provide refunds or other means of
compensation.
Knock-On Effects
It’s a lack of transparency or accuracy in tracking your supply chain that leads to the above issues.
Such inaccuracy is a direct result of a failure to use an inventory management system. There is also a
range of knock-on impacts of spotty, inexact inventory management—the kind employed by retailers
with no definite system.
Failures born out of poor inventory management can swiftly erode your brand reputation. Modern
consumers abandon companies far more quickly than ever before. The vast majority will leave
following only one poor experience. Many, too, don’t stay quiet about those bad experiences.
Negative customer reviews are hugely off-putting to potential new customers—especially those that
all reflect similar complaints.
Streamlining Multi-Channel Inventory Management
Merchants that sell via multiple channels must take a systematic approach to inventory
management. As well as facing the same issues outlined above, the complexity of their operations is
such that no other approach is viable.

If you sell through your site, via Amazon, and using other third-party channels, keeping track of
inventory is a significant challenge. Building and maintaining a spreadsheet for the purpose simply
isn’t possible. Updating stock levels and tracking orders would take a vast number of staff hours. You
need an automated inventory system so that your team can focus on their other crucial roles.
Features Your Inventory Management System Must Have
It should by now, be apparent how critical the right inventory tracking solution is to your firm. What,
though, defines which option is right for you? That will depend on your industry, target audience,
and many more factors besides.
There are some essential features to look out if you’re looking for a software solution. The following
is a brief rundown of some of the most useful:
1. Barcode Scanning
Knowing your stock levels and where items are is fundamental to inventory management. The top
software solutions integrate seamlessly with barcode scanners in your warehouse. That way, the real
situation on the ground is also what your system reflects.
2. Real-Time Inventory Updating
Changes to stock levels and movement of inventory get updated in real-time. As soon as an order
gets placed or delivery arrives, your system tracks the changes. That’s even when products get sold in
bundles or if units form part of a larger package.
3. Advanced Reporting
Inventory management can also help companies learn more about their wider business. Intelligent
reporting of sales data, reorder levels and more provides invaluable insight. Such reports help
companies to optimize order times and track their most popular products.
4. Support for Multichannel Sales
Few modern businesses are one-dimensional. Most ecommerce companies, for instance, sell via a
range of varied channels. They may include third party sites such as Amazon or eBay, for example.
Your inventory management system must integrate with such channels to ensure accuracy.
5. Multi-Warehouse Inventory Control
If you have more than one warehouse or storage site, inventory management can be trickier. The
best inventory management system will traverse more than one site and give insights into stock
location as well as volume. It will also make transferring stock from one place to another intuitive.
Not to mention recording all movements in real-time.

6. Inventory Demand Planning & Forecasting
Superior inventory management is about the future as well as the present. The best inventory
management systems account for this with built-in demand planning and forecasting features. Data
on seasonality, consumer trends, and more gets leveraged to develop accurate forecasts of future
customer demand. That ensures you can invest in the correct inventory at the right time. A demand
filter can best be used to flag a large order.
7. Accurate Accounting
The value of your inventory and how it changes is critical to business operations. An inventory
management system must include integrated accounting. That's how you get accurate, real-time
tracking of your financials. Increasing inventory counting is the most critical warehouse operations in
designing a warehouse.
8. Raw Material & Assembly Process Tracking
Inventory management isn’t only for pure B2C retailers or online stores. It’s also critical to
manufacturers who take their products to market. Inventory tracking solutions suited to these firms
must have additional elements. They include the ability to track raw materials in the supply chain as
well as handling assembly processes.
9. Cross-Organizational Integration
As crucial as inventory management is, it’s not a commercial island. It’s merely one part of your
broader business operations. An ideal inventory management system integrates seamlessly with all
other departments. That way, your whole company will forever pull in the same direction.
10. POS
For retailers with physical stores as well as ecommerce channels, integrated POS software is another
must. Such software syncs all purchase and stock details from in-store transactions with the retailer’s
broader automated inventory system. That way, inventory gets instantly updated across both online
and offline channels.
Warehouse Management vs. Inventory Management:
While inventory management and warehouse management might seem like interchangeable terms,
they are not.
A warehouse management system (WMS) supports the entire operation of a warehouse, which
includes inventory management. Simply put, warehouse management is the umbrella term for all
that occurs in a warehouse, of which inventory is one process. The demand side of a traditional
warehouse management system primarily is concerned with assembling outbound orders.

A WMS will include inventory management, providing visibility into an organization's inventory in any
location. The WMS can also manage the entire supply chain operation and is often integrated with a
Transportation Management System (TMS).
Features of a Warehouse Management System (WMS)
- Warehouse design: Optimize inventory allocation and customize workflow and picking logic.
- Inventory tracking: Use automatic identification and data capture (AIDC) technology such as
barcodes or RFID to track the location of goods.
- Receiving and putaway: Guides inventory putaway and retrieval, often using pick-to- light or
pick-to-voice technology.
- Picking and packing: Guides warehouse workers to pick items and pack them in the most
efficient way possible. Picking list is document generated to show required components for a
shop order
- Shipping: Generates bills of lading, packing lists and invoices for shipments and can send
advance shipment notifications.
- Labor management: Tracks employee performance by key performance indicators.
- Yard and dock: Helps drivers find the correct loading dock and can assist with the cross-
docking operation.
- Reporting tools: Analyzes warehouse operations to track KPIs and see areas for
improvement.
Features of Inventory Management
- Picking and packing: Directs picking and packing employees to the correct warehouse
locations.
- Shipping: Manages bills of lading, invoices, packing sheets and other related documents.
- Managing locations: Directs placement of items in the warehouse for the best use of space
and resources.
- Receiving orders: Manages incoming orders to direct fulfillment operations.
- Tracking inventory levels: Keeps a running total of inventory status on each item or SKU.
- Cycle counting: Supports cycle counting inventory strategies to maintain up-to-date totals.
- Reorder Point (ROP): A reorder point is the unit quantity that triggers the purchase of a
particular stock item. The basic formula for the reorder point is to multiply the average daily
usage rate for an inventory item by the lead time in days to replenish it.
- Barcode tracking: Manages barcode scanning inputs and integrates with shipping, accounting
and other systems.
- Reporting tools: Generates data for actionable intelligence to drive tactical and strategic
decision-making.
To some extent, the difference between warehouse management and inventory management is a
matter of degree or scope. Warehouse management systems are typically used by large enterprises
with at least one large warehouse or distribution center, if not multiple locations. Inventory
management systems are favored by enterprises that don't need all the functions that a full-featured
WMS can provide, at least not for every warehouse location.
For example, companies engaged in large-scale e-commerce use WMS to manage inventory across
their locations. A WMS can support e-commerce websites, such as showing the available quantity of
each item.
To fulfill an e-commerce order, the system knows the amount of product in each warehouse and
which warehouse would be the best to satisfy that order due to geographic location (Backward
scheduling begins with order due), shipping cost or other consideration. When the item is shipped,
the WMS updates the quantity count that's visible to all locations.
Typically, a WMS will integrate with the organization's ERP and TMS for seamless integration of
information flows. By comparison, inventory management software is typically a less complex system
that is ideal for individual warehouses or other storage locations that don't need all the functionality
of a full WMS.
Inventory management software will support anywhere from one to hundreds of locations to
manage supply chain and fulfillment operation. The system tracks shipping and receiving, product
locations and provides record keeping for up-to-the-minute visibility.
The inventory management system fully supports technology such as barcodes and RFID but doesn't
have the same comprehensive functions of the WMS. It's also a more cost- efficient solution for
many warehouse operations.
In addition to supporting retail and e-commerce operations, inventory management software is ideal
for field service or healthcare operations that pre-position items for use by technicians and
customers. The choice of solutions is best guided by the size and needs of the individual warehouse
or storage location.
How to Manage Inventory
Inventory management strategies and methods will vary based on the organization. After all, we
wouldn't expect a mom-and-pop candle shop in a resort town to keep track of goods like an
automotive manufacturer. However, even that quaint candle shop uses a strategy, even if the
owners may not realize it.
5) Common Inventory Management Techniques and KPIs
- ABC Method: This system ranks inventory based on turnover rates. For example, the 20
percent of products that generate 80 percent of the revenue are designated Category A.
Categories B and C are lower performing products. Class A products should be located closest
to the fulfillment and shipping areas of the warehouse. Ongoing analysis will identify when
products should shift categories and be moved to another class.

- Two Bin Method: Items are stored in two locations or bins, depending on their size. When
the first bin is empty, items are moved from the second bin. The stock is replenished when
the second bin is empty.
- Fixed Order Quantity: A minimum number of products is set, and when the inventory
reaches that number a fixed number of products are ordered to restock.
- Fixed Period Ordering: Goods are ordered according to a set period of time. This approach is
common for small stores without sophisticated systems.
- Order-To-Cash Cycle: is referring to the time that elapses from when the company receives
an order from the customer until the customer receives that order in inventory.
- Vendor Managed Inventory: The supplier manages inventory levels and reorders based on
sales or on a regular time period. This is common in grocery, retail and forward- deployed
inventory for field service and healthcare.
Inventory management KPIs (Most Critical)
Within each section, we will define the specific, standard inventory KPI, tell you how it’s calculated
(inventory KPI formulas), and what it each metric tells you about your stock, processes, or sales. The
third is the most important, since data is useless without an actionable understanding of it.
a) Sales KPIs
These KPIs are influenced by your customers’ actions and they will let you know how your inventory
is affected.
Stock to Sales Ratio

- Definition: The ratio of stock available for sale versus the stock that has been sold.
- Formula: Units available ÷ Units sold
- What it means: The stock to sales ratio will help you keep your inventory at optimum levels.
If you have too much inventory, you are tying up capital that could be better spent
elsewhere. Conversely, if you have too little stock, you may run out, which is the number one
thing not to do for retailers.

Sell through Rate

- Definition: The percentage of units sold during a specific time period.
- Formula: Units sold ÷ (Units sold + On-hand inventory)
- What it means: Your sell through rate tells you the percentage of your available inventory
that actually sold. When the rate is too low, it means you have too many units on-hand (you
overstocked), or you priced too high. When the rate is too high, it may mean that you have
too little inventory, or you priced too low.
Weeks On-Hand
- Definition: The average amount of time it takes to sell the inventory it holds.
- Formula: Average Inventory ÷ Cost of Goods Sold x 52
- What it means: This KPI tells you how your inventory is efficiently moving. When the weeks
on-hand is high, it means that your inventory is not moving efficiently, which results in a
lower profitability due to storage fees and tied up capital. When the weeks of inventory on-
hand is low, it means that your inventory is moving quickly and efficiently.
Inventory Turnover Rate

- Definition: A ratio that shows how many times inventory was sold and replaced during a
specific time period.
- Formula: Sales ÷ Average Inventory or Cost of Goods Sold ÷ Average Inventory
- What it means: This KPI tells you how fast you are selling your inventory. It’s often measured
against the turnover rate of industry averages. When your turnover rate is low, it indicates
you have weak sales and excess inventory. A higher ratio shows that you have either strong
sales or it could indicate that you are giving customers large discounts.
** In determining warehouse velocity, the average inventory level is calculated by dividing the
annual sales through the warehouse by the inventory turnover rates for the warehouse.
Back Order Rate

- Definition: Shows how well you stock products that customers demand.
- Formula: (# of Customer Orders Delayed due to Backorder ÷ Total # of Customer Orders
Placed) x 100
- What it means: This KPI indicates whether or not your inventory is meeting customer
demands. A higher back-order rate tells you that your forecasting is inefficient or your
inventory management needs work. A lower back-order rate means that you are
experiencing slow order cycle times and that you run the risk of customers being dissatisfied.
Days to Sell Inventory

- Definition: How long it takes to turn your inventory into sales.
- Formula: (Average Inventory ÷ Cost of Sales) x 365
- What it means: This KPI tells you the time period that it takes for your inventory to convert
into sales. When the number is high, it may indicate that your inventory movement is
inefficient. However, the optimum days to sell inventory varies depending on the industry
you’re in. If you sell large ticket items, they typically move slower than lower-priced
products.
b) Receiving KPIs
These KPIs are tied to the receiving of stock and may overlap with warehouse KPIs.
Time to Receive
- Definition: How efficient your process for receiving stock is.
- Formula: The time taken for received stock to be validated, added into inventory records,
and be ready to put away.
- What it means: This KPI tells you how efficient your receiving process is. Knowing the rate at
which your stock is received and becomes ready to sell will help you identify any deficiencies
that are occurring in your warehouse, so they can be addressed quickly.
Put Away Time

- Definition: Total time taken during the entire process of each put-away task.
- Formula: The time taken for received inventory to be put away and ready to pick.
- What it means: This KPI tells you how effective your put-away process is. When your put-
away process is efficient, your lead time is significantly lower.
c) Operational KPIs
These KPIs measure the effectiveness of operational costs, of which a large part is labor costs.
On Time Orders
- Definition: The percentage of the time that customers receive their orders on time.
- Formula: # of Orders Delivered On Time ÷ Total # of Orders
- What it means: This KPI indicates your performance in getting customers their orders within
the time that you have specified. The higher the number the better. When your on-time
order percentage is low, you will likely experience customer service issues and dissatisfied
customers.
Shrinkage
- Definition: The percentage of inventory that is listed in records but is not physically in the
actual inventory.
- Formula: (Cost of Recorded Inventory – Cost of Physical Inventory) ÷ Cost of Recorded
Inventory
- What it means: This KPI, when excessive, may mean that you have a problem with inventory
damage, theft, miscounting, or supplier fraud (when a supplier bills for more products than it
sends), and that a thorough investigation should be performed.
Average Inventory
- Definition: The amount of inventory on-hand during a specific period of time.
- Formula: (Beginning Inventory + Ending Inventory) ÷ 2
- What it means: This KPI tells you how much stock you have on average during a specific time
frame. Your average inventory shouldn’t have unexplained drops or spikes. The aim is to
keep your inventory flow in and out, in a relatively consistent manner (Flows tend to have
the lowest work in process (WIP) inventory).
Rate of Returns
- Definition: The percentage of shipped items that are returned to you.
- Formula: (# of Items Returned) ÷ (Total # of Items Shipped)
- What it means: This KPI tells you how much of your inventory is being returned to you,
allowing you to identify any patterns of issues (defective or malfunctioning products, inferior
quality products, etc.).
Cost of Carrying Inventory

- Definition: The percentage representing cents per dollar that is spent on inventory overhead
each year.
- Formula: Carrying Costs ÷ Overall Cost
- What it means: This KPI tells you how much you will spend (as a percentage) to hold and
store your inventory annually. When you need to reduce your cost of carrying inventory, it’s
important to reduce your inventory by eliminating obsolete, slow-moving, or dead stock
inventory.

XX Logistics Management
1) Introduction to the Logistics
Logistics management is the governance of supply chain management functions that helps
organizations plan, manage and implement processes to move and store goods. The value that
logistics provides within the supply chain can best be summarized as satisfying customer
expectations about availability and delivery at an acceptable total cost.
Logistics management activities typically include inbound and outbound transportation

management, fleet management, warehousing, materials handling, order fulfillment, logistics
network design, inventory control, supply/demand planning and management of third-party logistics
services providers.
Logistics management functions
To varying degrees, logistics management functions include customer service, sourcing and
procurement, production planning and scheduling, packaging, and assembly. Logistics management
is part of all the levels of planning and execution, including strategic, operational and tactical.
Further, it coordinates all the logistics activities, and it integrates logistics activities with other
functions, including marketing, sales, manufacturing, finance and information technology.
Importance of logistics management
Effective logistics management is important to companies for a number of reasons, both positive and
negative.
Good logistics management ensures that products are shipped in the most economical, safe, efficient
and timely manner. This results in cost savings for the company and more satisfied customers.
In contrast, poor logistics management can result in damaged or delayed shipments, which can then
lead to dissatisfied customers, returns and scrapped products. The consequences of these problems
include higher costs and customer relation problems. In order to avoid these results, effective
logistics management includes careful planning, proper software system selection, proper vetting
and selection of outsourced vendors, and adequate resources to handle the processes.

Logistics management process
Logistics management generally consists of processes for inbound and outbound logistics traffic.
Cross-Docking: The concept of packing products on the incoming shipments so they can be easily
sorted at intermediate warehouses or for outgoing shipments based on final destination. The items
are carried from the incoming vehicle docking point to the outgoing vehicle docking point without
being stored in inventory at the warehouse. Cross-docking reduces inventory investment and storage
space requirements. It is used when distribution center receives material from a number of sources
and combines them into exact quantities for a specific destination. Accuracy of demand forecasts is
the factor that most likely will contribute to the risk of loss in inventory investment.
Consolidation: Is the process where a carrier or a shipping company combines several smaller
shipments into one full container. Ideally, consolidation favors both the carrier and the shipper. In
the case of the carrier, it helps to reduce the cost of shipment and to make delivery of goods quicker.
And for the shipper with smaller shipment, he would not need to pay for a full container shipment.
Break bulk: A break bulk sorts and splits the individual orders and arranges for local delivery. Break
bulk helps in ensuring economical large bulk transportation from origin into smaller sized local
deliveries. It is the system of transporting goods in pieces separately, rather than being shipped in a
container. Goods shipped in crates, bags, boxes, drums, barrels without the use of container are
referred to as break bulk cargoes. These types of cargoes are usually large in sizes and dimensions.
Some examples of break bulk cargoes are oil and gas equipment, windmills, yachts oversized
vehicles, boats, cranes, turbine blades, ship propellers, generators, large engines, construction
equipment and so on. These goods are also known as Non-Containerized Cargo (NCC).
Integration: Integration is the degree to which a logistics organization has decided to directly
produce multiple value-adding stages from raw material to the sale of the product to the ultimate
consumer.
Inbound logistics is the process of moving goods from suppliers into a warehouse, then into a
production facility to make products. Inbound logistics can include raw materials, tools, component
parts, office equipment and supplies. Outbound logistics is the process of moving finished products
out of warehouse inventory and shipping them to customers.
It Includes:
- Transportation
- Warehousing
- Materials handling
- Packaging
- Information processing
- Finance

2) Role of Logistics in Supply Chain Management
Logistics is an essential component of supply chain management. It involves the planning, carrying
out and management of goods, services, and information from the point of origin to the point of
consumption. Logistics aligns the complex pattern of traffic and transportation, shipping and
receiving, import and export operations, warehousing, inventory management, purchasing,
production planning, and customer service.
Companies see logistics as a critical blueprint of the supply chain. It is used to manage, coordinate
and monitor resources needed to move products in a smooth, timely, cost-effective and reliable
manner. On top of transportation the scope of logistics includes inventory carrying costs,
warehousing, and cost management.

Difference between SCM and Logistics
SCM is more strategic in nature, Logistics is more operations-oriented. Logistics can be considered as
a part of SCM.
How Logistics Can Help Improve Efficiency and Reduce Costs
As the global economy moved into the 21st Century, logistics became a critical part of supply chain
management and consumer demand. In less than two decades, logistics management has influenced
product movement to meet or exceed consumer demand. Companies saw they could lower costs
and increase productivity by managing logistics on a system theory and managing the company as a
whole to boost performance.
By creating partnerships with suppliers, shipping services and warehousers, and connecting these
services through automated systems, the logistics of getting products to the consumer are improved
with reduced overhead costs and faster delivery. Understanding how the logistics system theory
works require strategic planning when calculating what will be needed while focusing on obtaining
materials and managing how quickly products are produced to help ensure swift delivery to the
consumer. To successfully implement a multiple-site pickup of parts from different suppliers, it is
necessary that suppliers have their products ready at specified times.

Simplifying communication and services between multiple departments help create a workflow
blueprint that reduces costs by increasing visibility and improving the overall understanding of
company needs. Cost savings is created by reducing warehousing costs and purchasing based on
supply forecasts, better inventory management, reliable shipping and timely delivery to the end-
user.
Commanding Logistics Fundamentals: Transportation and Warehousing
Today’s world economy is connected through social media and the Internet and has raised customer
expectations for faster product delivery and transit time consistency. Developing logistics strategies
that embrace these expectations requires companies to look at things like the physical location of
warehouses and the use of sophisticated software systems to receive purchase requests within a
matter of seconds rather than days.
Because customer service satisfaction has become a basis on which companies drive business growth
and profitability, using the best transportation system strengthens performance trade-offs to reduce
shipping costs and ensure timely delivery of goods. These processes and systems are integral parts of
a solid logistics management system, emphasizing the importance of warehousing and
transportation for customer service excellence for end-user product delivery.
Logistics: Getting the Right Product to the Right Place at the Right Time
Logistics within supply chain management is constantly changing to meet consumer demands.
Consumers frequently order products using Smartphones, and Tablets expecting to receive their
product within 24-48 hours. To meet these expectations, companies have to improve the logistics of
their supply chain to expedite order fulfillment and quickly ship the item via the most reliable, yet
cost-effective and timely means. When companies create a blueprint that outlines the logistics of the
supply chain, each component within that logistics model stays focused, reduces costs and moves
quickly and efficiently resulting in higher customer satisfaction. Logistics helps companies understand
the key metrics, core processes and long-term goals of their supply chain so they can get the right
item to the right place at the right time.
3) Segmentation of Domestic Logistics
Global companies have thousands of customers and dozens, if not hundreds, of manufacturing plants
(Project manufacturing systems involve the creation of one unit or a small number of units) and
distribution centers around the world. The sheer product variety, number of business partners and
distribution channels adds an order of magnitude of complexity, which is further magnified by
continuous innovative product introductions and changing business models.
This complexity has created a problem. Companies have ended up with multiple, differentiated
logistics with redundant assets, infrastructure, systems and processes and it gets more so as
companies expand across geographies.

That’s why leading corporations are re-thinking how they segment their logistics based on
contribution to profitability and growth. And within this framework of smarter segmentation, they
are working to standardize logistics elements. This is why financial management is considered part of
the logistics function of a manufacturing organization.
The idea behind this strategy is to create a Lego-like logistics that consists of core standardized
elements that are augmented by standardized bolt-ons. These bolt-on components are tailored to
unique market, customer and product needs. By segmenting and standardizing in this manner,
companies avoid having an entirely different logistics for every country they serve.
a) Warehousing
Warehousing refers to the storage of product and goods to be transported, whether inbound or
outbound. Overall, the warehousing segment constitutes about 35% of the total logistics industry.
History of warehousing

Value-added warehousing
Value-Added Warehousing is a relatively new concept in the logistics industry and is based in part on
bridging the gap within the existing transportation and distribution process of shipping and
assembling consumer products. In essence, Value-Added Warehousing services are those which
complement and enhance freight transportation, warehousing, and logistics-based industries by
assembling and customizing products moving through a distribution facility. They improve product
flow to reduce and often eliminate storage, while enabling customization to fit the needs of
customers. Logistics-based companies which utilize Value-Added Warehousing services are typically
able to lower their inventory of finished goods until company or customer orders are actually
received. Overall, this process enables a more cost-effective supply chain approach to distribution,
providing more flexibility and cost savings. Operations management should measure the workload
resulting from manufacturing orders for controlling queues.
The value-added function of warehousing reflects a new role for many logistics companies to take on
the final elements of the production process. Many economic development experts consider Value-
Added Warehousing to be the new form of manufacturing jobs in the United States. When
corporation is redesigning its warehouse and decided to use a rack system that allows each level to
be accesses individually by placing pallets on wheeled frames. The rack system that best meets these
criteria is drive-in.
The primary services associated with Value-Added Warehousing include:
- Inventory Management: Overall management of products and their assemblage to keep

supply chains moving efficiently.
- Inspection/Testing: Quality control and testing of products prior to shipment.
- Transloading: Moving products from international loads to domestic loads.
- Packing/Packaging: Packing, packaging (i.e. blister packaging), and repackaging of goods
and products.

- Labeling/Identification: Labels to products, electronic bar code identification, product

samples.
- Assembly/Customizing: Kitting of products, customized pallets, light assembly, final
assembly.
- Reverse Distribution: Return inspection and disposition, recycling of used and returned
goods.
- Specialized Storage: Storage and transport of perishable and distinctive products and
cargo.
Overall, the Value-Added Warehousing process includes three general steps:
- Transport of products from supplier at terminal (i.e., port, manufacturer) to the freight
distribution warehouse.
- Value-added services are administered to products (i.e. assemblage, packaging).
- Value-added products are shipped to logistics terminal for delivery to customer.
The traditional role of warehouses and distribution centers has greatly changed from an exclusive
storage and staging function to a focus on expediting the movement of goods through customization
and value-added services. Considering reducing the number of distribution centers in its system most
likely will reduce fixed warehousing and the cost of transportation from the plant to the distribution
centers. If a firm decides to reduce the number of distribution centers it uses, order-fill rate
improvement is the most likely result of this change.
The three main objectives of modern warehousing and distribution centers are:
- Velocity: moving goods through Just-in-time (JIT) logistics management.

- Customer Service: ensuring products are consumer and shelf ready.
- Adding Value: Assembling and customizing products ready for consumption.

The elements of Value-Added Warehousing have become a major source of new jobs at distribution
centers. The job creation aspects associated with Value-Added Warehousing could become
significant for many parts, especially in regions which have lost traditional manufacturing jobs, but
also for areas that have significant population growth and consumer demand.
The effects of adding warehouses
A company ships from its manufacturing facilities directly to its warehouses. If the number of
warehouses increases, transportation costs between manufacturing facilities and warehouses most
likely will increase.
Who should own the warehouses?
Warehousing capabilities: consolidation
A form of warehousing that pulls together small shipments from a number of suppliers in the same
geographical area and combines them into larger, more economical, shipping loads intended for the
same area. Small, flexible shipments in – Large, economical shipments out!

Warehousing capabilities: break-bulk
A break-bulk operation receives the combined customer orders from a manufacturer and then ships
them to individual customers based on the requirement. A break-bulk warehouse fundamentally
sorts and splits the individual orders and arranges for local delivery.
Warehousing capabilities: cross-dock
Cross-docking allows you unloading materials from an incoming semi-trailer truck or railroad car and
loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in
between. ... The US military began using cross-docking operations in the 1950s..

Warehousing capabilities: postponement
Postponement is a business strategy which maximizes possible benefit and minimizes risk by delaying
further investment/transformation into a product or service until the last possible moment. An
example of this strategy is Dell Computers' build-to-order online store.
Warehousing capabilities: stockpiling
A storage pile such as a reserve supply of something essential accumulated within a country for use
during a shortage. Examples of stockpiling: stockpiling contributes to political flexibility and
manoeuvrability during oil crises.
Warehousing capabilities: mixing
During the mixing process, inbound goods can be combined with others regularly stocked at a
warehouse. Warehouse that performs mixing operations often result in reducing overall product
storage in a logistical system while achieving customer required assortments and optimizing
transportation costs.

Goals and limitations of equipment and automation
Forklift trucks

Conveyers
Towlines
Tow tractors with trailers

Bridge and wagon cranes
Automated guided vehicle systems (AGVS)
Sorting and picking systems

Automated sorting devices
Automated storage and retrieval systems
Information technology

Value-added Services
- Packaging – is a coordinated system of preparing goods for transport, warehousing, sale, and
end use. It protects the goods from damage and spoilage.
- Labeling and Assembling – Labeling is any written, electronic, or graphic communications on

the packaging or on a separate but associated label. Assembling is putting the components
of any product together in a form as may be required.
- Express Services – to send a package from one point to another using a special rapid-delivery
service.
- Tracking and Tracing – a process of determining the current and past locations (and other
information) of a consignment.
- Cold Chain – can be defined as a series of inter-related facilities for maintaining ideal storage
conditions for perishables from the point of origin to the point of consumption in the food
supply chain.
These services are generally availed in combination and seldom as stand alone.

XXI Transportation Management
1) Introduction to the Transportation Management
Transportation in a supply chain refers to the movement of products from one location to another,
which begins at the start of the supply chain as materials make their way to the warehouse and
continues all the way to the end user with the customer’s order delivered at the doorstep. The most
likely benefit of implementing a collaborative transportation management system is less variability in
transportation costs. The lowest-cost supply network design requires balancing inventory costs and
transportation costs.
Because of the importance of transportation, warehouse managers should examine transportation

within their supply chains. Ultimately, this is the only way to achieve lower total costs for a model
where transportation can account for as much as 60 percent of total operational costs, a significant
portion of a company's supply chain costs. On top of cost, the primary drivers for transportation
mode selection that any company should look to are also capacity, transit time, safety, supply chain
security participation, and availability.
Freight transportation costs in the United States amount to about 6% of the GDP, which means that a
large portion of a company's supply chain costs come from transportation. When you think more
holistically about the role of transportation in the overall supply chain and business, and less about
the tactics of transportation, you can strategically work with other players in the supply chain in
order to more effectively reach the corporate and business vision your organization has set out to
reach.
Many manufacturers and retailers have found that they can use state of the art supply chain
management to reduce inventory and warehousing costs while speeding up delivery to the end
customer.
Any supply chain’s success is closely linked to the appropriate use of transportation. Walmart has
effectively used a responsive transportation system to lower its overall costs. At distribution centers,
Walmart uses cross-docking, a process in which product is exchanged between trucks so that each
truck going to a retail store has products from different suppliers.
Managers should ensure that a firm’s transportation strategy supports its competitive strategy. Firms
should evaluate the transportation function based on a combination of transportation costs, other
costs such as inventory affected by transportation decisions, and the level of responsiveness
achieved with customers.
Managers should consider an appropriate combination of company-owned and outsourced

transportation to meet their needs. Transportation cost is most likely to decrease when the number
of warehouses in a distribution network increase.

Supply Chain Transportation Risks to Consider
Modern supply chain transportation managers deal with more risks than ever before, so mitigating
these risks is key to keep a supply chain moving with minimal delays. Recent risks facing the
transportation industry include driver shortages, cyberattacks and a deteriorating infrastructure, to
name a few.
According to the American Trucking Association, the trucking industry projects a shortage of more
than 100,000 drivers by 2022. At an average age of 56, America’s truckers will soon retire in large
numbers with nowhere near enough replacements. With fewer drivers, greater demand will be
placed on the drivers still on the road, which could increase the risks of fatigue-caused accidents.
It is essential for companies to stay up to speed with technological advances in order to remain
competitive (technology now is the business process enablement tool). With an explosion of vehicle
technology in recent years (including automation and internet-connected sensors), the industry is
more exposed to a new wave of risks, such as cyber-attacks by hackers, so it’s important drivers use
the latest in security tactics and software.
Another growing risk in the transportation field is the continued decline of America’s roadways and
transportation infrastructure. From crumbling bridges and roadways to increased traffic congestion
on the rails and in the air, delays can occur anywhere. As a result, vehicles are more likely to
consume additional fuel and incur damage, thus requiring more frequent maintenance and repairs.
Your supply chain’s success depends on a strategic use of appropriate transportation. An example
would be to adopt a responsive transportation system, which uses cross docking—exchanging a
product between trucks so that each truck delivers products from different suppliers to the
designated destinations. In the end, cross docking helps lower overall costs.
To help manage these and other risks and to increase performance and reliability, companies need to
enhance visibility and transparency across the transportation supply chain and use a well-executed
transportation management system.
The Adverse Effect of Not Understanding the Transportation
When freight costs are high, even seemingly small oversights can result in unneeded expenses that
could have been avoided and thus cut into overall profit margins. Product write-offs can occur when
sales channels are oversupplied. Undersupplied sales channels can also have negative results in the
form of missed sale opportunities. Failure to monitor raw material prices can also result in above
average costs across multiple sources. In addition to this, and probably more detrimental to
budgeting, is the hidden cost of transportation in a poor supply chain. When getting goods from one
point to another is a crucial aspect of business, then ensuring that this process is most efficient
becomes a huge economic concern.

This is especially true in large enterprises and the obvious connection between visibility of freight
and the transportation economics become easy to see. Even in smaller businesses where the margins
are rather low, transportation costs are still a crucial element of creating profitability.
The Transportation Supply Chain is Driven by Properly Integrated Technology Systems
Most businesses would identify transportation supply chain visibility as a primary goal; however, it is
sometimes used to simply impress those invested in the company. This is especially true in larger
enterprises. That is because many enterprises have never really figured out ways to implement real
transportation and supply chain visibility. One of the reasons that transportation supply chain
visibility does not get the attention it deserves is because, as a process, supply chain visibility
requires true system integration operating between many elements. Some of these elements have
different master data that must be used. This data must be not only present, but also running in
harmony over all systems. These can include warehouse management systems, multiple enterprise
resources planning ERP as the primary purpose of ERP is to integrate an approach to business
management, ordering systems, and transportation management systems.
When these sources are made up across many geographies, special attention is required in order to
keep them all cohesively glued together. The glue is getting the materials from starting point to
destination. The goal is to get this done efficiently and cost effectively. Without transportation supply
chain visibility there will be time delays, expenses, and even backlogs. These events can throw off
production schedules, even creating idle labor or eventual lost sales. So, as the costs add up, you can
see the importance of focusing on understanding transportation's role in the supply chain.
The Delicate Balance of Transportation Supply Chain Management
Usually supply chain management simply becomes a balancing act of time versus cost. This is seen
most easily in the transportation element. There are many ways to ship goods from one place to
another, but with foresight, the cost of shipping can be balanced through different practices and
compared against relative shipping times. When manufacturers plan ahead to make sure the
materials are arriving in the most time-efficient way, they can then achieve the lowest freight costs.
Many like to think of an enterprise supply chain as a living thing. Living things are always changing.
Some suppliers like to challenge incumbents with what seems to be better prices or services, raw
materials may fluctuate in price, or foreign exchange rates could change. Any of these changes can
affect the transportation supply chain as well. This means the supply chain is not static, and if the
supply chain is not static then the distribution requirements will change. Transportation systems
must change in response and it's up to the shipper putting in place systems either in-house or
through a transportation management 3PL to provide that expertise.
Many problems in the transportation supply chain can be addressed through the availability of
analytics provided by a transportation management system. Needing such insights to allow
companies to make smarter business decisions is especially true when supply chains grow and begin
operating on a larger scale.

Recent advancements in technology also help promise a better integration between physical product
movement and visibility. One good example is the surge of interconnected devices to connect pallets,
trailers and containers systems in order to provide greater visibility. Of course, proper
implementation is essential in order for these great technologies to succeed.
Companies of all sizes must approach the transportation supply chain by implementing more
harmonious systems in order to achieve greater visibility and a lower occurrence of supply chain
errors. In the end, this will result in lower total costs for the organization even beyond transportation
costs.
Well executed transportation management systems always lead to the greatest supply chain
visibility. When transportation systems feed into a predictive analytics scheme, performance will be
improved across the board. In fact, once the inventory is loaded into a channel it is the predictive
analytics’ responsibility to plan for efficient transportation.
Supply chain management ultimately has many moving parts. The starting point must always be
transportation, however, as it is anywhere from 40 to 60% of your costs. The concern of each part is
summarized in the below table:
1 Shipper Goals 2 Recipient 3 Carrier Goals 4 Government 5 Public Goals

Goals Goals
Convenient On-time arrival Convenient Stable, efficient, Stable, efficient,
schedule schedule predictable, and predictable, and
affordable affordable
passenger and passenger and
commercial commercial
service service
Low cost (for Low cost (to Good revenue Infrastructure Balance between
them) of them) of for service suitable for convenience,
shipping shipping national defense cost,
uses environmental
consequences,
etc.
Limits on liability No loss, damage, Limits on liability Concerns: Concerns:
for loss, damage, etc. for loss, damage, Ownership Ownership
etc. etc. (public or (public vs.
private?), private?),
funding (taxes?) funding (taxes?)
Good Good Good
infrastructure infrastructure infrastructure
(Who pays?) (Who pays?) (Who pays?)

2) Modes of transportation
Major modes of transportation: Rail
Rail transportation refers to the movement of vehicles on guideways. The most common guideways
are rails, but recent technological developments have also made available monorails as well as
magnetic levitation trains.
First invented for use in the early 19th century, rail transport quickly became vital for the expansion
of the western world and has played a pivotal role in the realm of logistics for over two centuries. In
modern practice, rail is used more exclusively for the largest and heaviest payloads (bulk cargo)
traveling across land. The vast majority of railway infrastructure connects highly populated areas
with large unpopulated strips of land between them making rail ideal for long-distance and cross
country hauls. Canada, for example, is very sparsely populated between coasts so anything shipped
more than 500 miles often requires a rail transport.
Rail transport is confined to a more limited infrastructure than road transport (Routes from city
centers are considered as a weakness of the rail systems). As a defining trait, locomotives (trains,
monorails, etc.) are confined to a traced path going between point A and B with very few points of
divergence. Railways are costly and time consuming to construct and only a few new railways have
been constructed since the early 1900’s. Additionally, railways are limited to semi-level geographic
areas making construction increasingly laborious. Thus, railways are primarily only accessible in large
metropolitan areas. This attribute makes rail one of the primary players in the intermodal
transportation.
Within the confines of the railway system, the rail vehicle is not influenced by traffic, points of
diversion, and switch offs between modes. This makes the rail the most dependable mode for
making long hauls across land with minimal damage. Trains commonly carry bulk cargo items such as
coal, corn, iron, ore, and wheat, items that would be uneconomical to ship by truck.

Major modes of transportation: Road
The first, and most common mode of transportation in logistics, is road. From walking to horses to
wagons to bikes to cars to trucks, road transportation has been around longer than mode and is
utilized the most of any mode in logistics.
With the continued improvement of vehicles and road infrastructure, transportation by road is the
most versatile of the four main modes with the least geographical constraints. This attribute of road
transport makes it the preferred mode for smaller loads over shorter distances and as such, road is
the only mode that performs door-to-door deliveries. Consequently, most shipments that initially
were carried by another mode of transportation are completed by road transportation. Road
transportation mode is used for fast and door-to-door connectivity.
Anything that can be shipped in small-to-medium quantities can be shipped by road. Small packages
(or Parcel) can be transported in a vehicle no larger than personal car. Companies specializing in
ecommerce ship parcel when there are hundreds, if not thousands, of small packages being shipped
to different locations (Parcel is often made up of different modes of transportation, but always
picked up and delivered by truck).. On the flipside, shipments larger than 150lbs. are considered
freight and require a truck. The two main forms of road transport are Less-than-Truck-load (LTL) and
Truck Load (TL).
LTL transports smaller shipments (primarily palletized shipments) to their respective locations along a
specified route. The route begins and ends at a specified hub of origin and makes various stops
according to the number of different shipments it is carrying. This system of transportation is known
as the Hub and Spoke model. The advantage of LTL is that the shipper only pays for the portion of the
truck occupied by their freight while the rest is paid for by the shippers using the rest of the truck.
The disadvantage of LTL is the multiple stops and transfers that the shipment undergoes en route to
its destination. A shipment will be transferred multiple times to different trucks along the route
much like a passenger on a plane will be transferred to different planes en route to their destination.
This results in a longer shipping time and the possibility of the shipment being damaged.
TL is much faster than LTL because it does not operate on a hub and spoke model. As such, the truck
will go from origin to destination with no additional stops or transfers along the way. The drawback
to TL is that a shipper must ship a lot of freight in order to make the shipment economical. Generally,
if a shipment is longer than 16 linear feet or 20,000lbs or greater, it is cheaper to ship TL. In other
cases, a shipper needs a shipment moved much faster than LTL and cannot ship by air due to cost or
size regulations.
The main downside to road transport is the external influences that play into its effectiveness,
primarily weather, traffic, and road regulations, three things that mostly don’t influence other
modes. In addition to these drawbacks, in the current shipping environment it has become
increasingly difficult to find truck drivers. This capacity shortage has led to an increase in intermodal
transportation.

Major modes of transportation: Water
Shipping by water has been practiced for thousands of years and remains pivotal to today’s global
trade. 90% of all international trade is accomplished through maritime transportation. Cargo ships
travel on almost every major body of water and have capacity to transport the highest volume of
freight of any mode of transportation at the lowest cost and considered the most prone to packaging
and product damage.
The routes available to container ships are calculated and strictly followed. Many routes used today
have been used for centuries. However, new routes are still being sought out and tested for optimal
supply chain efficiency. In the past few months, Maersk sent a cargo ship over the Arctic Circle for
the first time in history to explore the potential for increased efficiency in shipping routes.
An ocean carrier’s goal of maximizing total revenue of the entire ship by offering very competitive
rates that cover their variable costs and then increasing rates according to what the traffic will bear is
referred to any-quantity service rate.
The greatest disadvantage of maritime cargo ships is the speed at which they operate. By far,
maritime is the slowest mode of transportation. It is, however, the most efficient for the amount of
cargo it is capable of carrying. In practice today, the speed of ships compared to air can have great
significance when it comes to regulations and tariffs. As of January 2017, there were 52,183 cargo
ships in service, so at any given time there can be thousands of ships at sea. If a sanction is put in
place during a ship’s 40 days at sea, the operators have to either turn around or comply with a tariff
they were not prepared to pay. This has caused a lot of upset in the trade world recently.
Also, when carrier casts are driven by equipment movement rather than shipment weight the rates
that would be most appropriate for the carrier to utilize in charging its customers Freight all kind
(FAK) rates.
Additionally, the carbon emissions produced by one cargo ship are equivalent to the emissions
produced by 50 million cars. There is a continued effort to reduce ocean emissions by 50% by 2050.
The closest alternative to maritime shipping is air shipping, however, due to current technological
setbacks, air will not be taking over maritime for international shipping anytime soon.

Major modes of transportation: Pipeline
Pipeline shipping is not a formal mode of transportation in the traditional sense but characterized as
having the highest fixed cost and lowest variable cost. However, it is important to acknowledge for its
importance in the current fossil fuel market.
Pipelines transport unrefined fossil fuels such as gas and oil from their point of origin to the point
where they can then be transferred to the refineries or another mode of transportation. The cost of
shipping primarily lies in its construction, the diameter of the pipeline, and the viscosity of the fluid
being transported. They can be built above ground, underground, or underwater making them ideal
for offshore drilling.
The pumping of crude oil has risen in recent years the increasing need of transporting crude oil is
correlative with the increase in drilling and extraction traditionally, the transporting of oil was
accomplished by rail but oil and gas companies are quickly turning to pipeline shipping because of
increased safety and efficiency. Regardless, the building of pipelines has been a topic of controversy
because of the environmental damage they will cause by increasing the speed of the oil industry,
creating additional fossil fuel emissions, and slow the progress of sustainable energy. The
controversies surrounding the Trans-Alaska pipeline are a prime example of this.

Major modes of transportation: Air
The newest mode of transportation is air. Airplanes are becoming increasingly important in domestic
and international trade. With continually improving technologies and practically unlimited route
possibilities, air transportation is the fastest growing and most time efficient shipping mode.
Consequently, many companies, such as Amazon and UPS, have purchased their own fleets of
airplanes to gain a competitive edge in the growing market.
As air travel has become increasingly advanced and dependable, more companies are trusting
airplanes with high value freight and goods. The increasing popularity of flight as a preferred way to
travel also makes shipping by air more convenient as shipments regularly piggyback on passenger
planes, further making air an economic way to transport goods.
There are a couple drawbacks to air transport. In its current state, air transport is still, by far, the
most expensive way to ship. Also, due to the nature of air travel, weight and volume of freight has to
stay minimal to ensure the safety of the flight. The level of emissions produced by air transport is
also the highest of any mode.
Transportation desirability criteria

Intermodal operators
Often in logistics, one shipment is completed using multiple modes of transportation. For example,
consider a SMB in Germany shipping goods to the Oregon. Their shipment will most likely begin on
road, be transferred to rail, then to maritime, which transfers to rail in the US, and then arrives at its
destination in Oregon by road once again. The purpose is to take advantage of the individual
strengths of the different modes, thus reducing costs. This practice is known as intermodal
transportation and is often necessary in logistics.
Historically, intermodal presented many challenges for shippers and carriers, primarily, transferring
shipments between modes with maximum efficiency and minimal damage. With the advent of
containerization, intermodal has become much more efficient and safer. By creating a global system
of standardized containers, warehouses and shipping yards can safely and efficiently transfer
containers between road, rail, and maritime. The standard for intermodal containers is 8’ wide and
20’ or 40’ long. There is no set standard for height, however, most containers average 8.5’ in height.
In recent years, intermodal has experienced a substantial uptick. With rising freight rates and a
shortage of available truck drivers on the market, companies are turning to other modes, primarily
rail, to complete shipments. In a capacity crunch like this, companies scramble to see how they can
keep costs low while maintaining fulfillment promises.
Legal types of carriers

XXII Logistics Service Providers and Reverse Logistics
1) Introduction to the Logistics Service Providers
Logistics Service Providers (LSPs) management is the outsourcing of logistics operations to a third
party. Companies, or clients, use these third parties known as logistics service providers (LSPs) to
provide logistics services. LSPs may provide logistic services to one or more clients at any given time.
Third-party logistics (3PL) is a service that allows you to outsource operational logistics from
warehousing, all the way through to delivery, and ultimately enables you to focus on other parts of
your business. Generally, your customers would consider logistics operations responsiveness when
looking to purchase product from your company. Selecting a third-party logistics (3PL) or fourth-party
logistics (4PL) provider is an example of a joint venture. An advantage of using a third-party logistics
service (3PL) is improved cost structure due to economies of scale.
3PL companies provide any number of services having to do with the logistics of the supply chain.
This includes transportation, warehousing, picking and packing, inventory forecasting, order
fulfillment, packaging and freight forwarding. The value-added warehousing services provided by a
3PL to international shippers refer to activities such as total warehousing cost minimization on
equipment, maintenance, and labor.
Example: A large manufacturer wanting to be more competitive in the global market place decided to
outsource its transportation and return processing to other companies on a contractual basis. The
companies providing the services would be referred to as third party logistics providers.
2) Different Kinds of Logistics Service Providers

First Party Logistics (1PL)
- A First-Party Logistics Provider (1PL) is a firm or an individual that needs to have cargo,
freight, goods, produce or merchandise transported from Point A to Point B
- The carrier who connects the consignor and the consignee is the First-Party LSP (Logistics
Service Provider)
- A 1PL can be a manufacturer, trader, importer/exporter, wholesaler, retailer or distributor in
the commerce field. It can also be institutions such as government department or an
individual or family moving from one place to another
Second Party Logistics (2PL)
A Second-Party Logistics (2PL) is an asset-based carrier, which actually owns the means of
transportation and warehousing
- Shipping lines: who own, lease or charter ships
- Airlines: who own, lease or charter aircrafts
- Truck Companies: who own or lease trucks
- Barge Companies: who own, lease or charter vessels for carrying heavy loads through canals
- Railways: who owns trains
- Warehouse Owners
Third Party Logistics (3PL)
- A Third-Party Logistics (3PL/ TPL) is a one-stop-shop service to its customers who

outsource their distribution activity post import or manufacturing
- Third-Party L. S. P specializes in integrating operations such as receipt of merchandise,
warehousing, invoice generation, pick and pack, transportation, delivery and desired M.I.S
- 3PL is estimated to grow at about 30% annually
Fourth Party Logistics (4PL)
- A Fourth-Party Logistics Provider (4PL) - Logistics operation that uses 3PL services on behalf
of its customers rather than controlling a large network and a fleet of vehicles
- A 4PL is an independent, singularly accountable, non-asset-based integrator who will
assemble the resources, capabilities and technology of its own organization and other
organizations, including 3PLs, to design, build and run comprehensive supply chain solutions
for clients.

Logistics manager arranges transportation separately with third-party logistics providers.
4PL express carrier as consultant arranges all logistics for plant and provides express air—its core
competency.

3PL tradeoffs
4PL tradeoffs
3) Reverse Logistics
Reverse logistics stands for all operations related to the reuse of products and materials. It is the
process of planning, implementing, and controlling the efficient, cost effective flow of raw materials,
in-process inventory, finished goods and related information from the point of consumption to the
point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse
logistics is the process of moving goods from their typical final destination for the purpose of
capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included
in the definition of reverse logistics. When a company would like to implement a strategic initiative
of enhancing its reverse logistics process, the profitability impact of such a strategy more profits due
to higher return rate of customers.
Within the Circular Economy value recovery cycles, products can be Reused, Repaired, Renovated,
Remanufactured or Recycled.

The Circular Economy model applied to Remanufacturing aims to reuse end-of-life products and
components as resources, for making good as new, or upgraded products. Remanufacturing is a well-
defined industrial process.
The industrial process consists of restoring a worn-out component or product (broken, at end-of-life,
obsolete or waste), to a product with equal or higher performance, quality and warranty as a new
product.
Recycling: Extracting the individual materials from a product and reprocessing them, to be used as
raw materials for the same type of product, or any other product, or used as source of energy.
Reuse: Simply reusing the product without any modification, basic cleaning for example.
Repair: Fixing a mechanical or electronic failure for example, but with no warranty on the entire
product.
Renovate: Fixing a failure, cleaning the product to look like new, and replacing some semi-worn-out
parts for example.
Recondition: Fixing failure, preventing future failures, cleaning the product to look like new product,
changing asthetical parts, and functional upgrades.

Remanufacturing: An industrial process that regenerates the intrinsic value of components (formed,
machined materials, energy and knowledge) from end-of-life-products, these components are then
used to make new products with equal or higher performances, quality and warranty as a new
product.
Refurbishing: In everyday language, is "to renew or to restore to a new condition and/or

appearance". In the computer world, refurbished equipment is not necessarily defective in any way,
it may just be "old" (a relative term in the world of computers). When hardware is refurbished, the
components are examined and non-working parts are replaced.
Example: Individual packages and cartons are less uniform attributes typically makes reverse logistics
processes more complicated than outbound logistics processes.
The reverse logistics process includes the management and the sale of surplus as well as returned
equipment and machines from the hardware leasing business. Normally, logistics deal with events
that bring the product towards the customer. In the case of reverse logistics, the resource goes at
least one step back in the supply chain. For instance, goods move from the customer to the
distributor or to the manufacturer.
A return material authorization (RMA) policy is used in reverse logistics to reduce the cost of
returned items by refusing to accept items that should not be returned.

When a manufacturer’s product normally moves through the supply chain network, it is to reach the
distributor or customer. Any process or management after the sale of the product involves reverse
logistics. If the product is defective, the customer would return the product. The manufacturing firm
would then have to organise shipping of the defective product, testing the product, dismantling,
repairing, recycling or disposing the product. The product would travel in reverse through the supply
chain network in order to retain any use from the defective product. The logistics for such matters is
reverse logistics.
Reverse logistics activity typically peaks nearest the beginning of decline of the product life cycle.
Cost of Logistics
Logistics costs are the summation of all expenditures undertaken to make available a good or a
service to the market, mainly the end consumer. Transportation costs remain the dominant
consideration as they account for about half of the logistic costs. Inventory carrying costs are also
significant with a share of about one-fifth of total costs. They include the costs of holding goods in
inventory (capital costs, warehousing, depreciation, insurance, taxation, and obsolescence) and are
commonly expressed as a share of the inventory value.
Labor costs involve the physical handling of goods, including tasks such as packaging and labeling.
Customer service encompasses receiving and processing orders from customers. The most intangible
and subjective of all the carrying cost elements is capital cost.

Source: Establish, Inc. / HWD & Grubb & Ellis Global Logistics.
Under such circumstances, distributors are willing to pay higher rents to take advantage of a logistics
site that offers co-location with an intermodal terminal since this strategy enables them to reduce
transportation costs, such as drayage, as well as improve their time responsiveness (lead time).
Therefore, while transportation costs remain the most important element of logistics costs and its
friction, non-spatial components such as inventory carrying and labor costs, are significant
components that will influence locational choice depending on the supply chain.
High Cost of Logistics is mainly due to:
- Poor quality of infrastructure

- Inadequate service quality
- Domination by unorganized sector with organized sector merely being less than 10%
- Large portion of the employment constitutes semi-skilled or minimally educated
workers
- Focus on ‘Physical Distribution’ rather than ‘Integrated Logistics Management’

XXIII Global Logistics and International Business
1) What is global logistics?
Global logistics connects critical components of the supply chain from a product’s point of origin to
its point of consumption—to ensure timely and efficient distribution of goods from producers to
consumers. In 2019, the global volume of merchandise trade was $19 trillion, according to the World
Trade Organization. The global logistics industry facilitates this worldwide flow of goods.
Global logistics is the process—largely a science but also an art—of managing the flow of goods
through the supply chain, from the place where they are made to the place where they are
consumed. It might involve shipping seeds and fertilizer to a grain farmer, sending harvested grain to
a processing mill, trucking flour to an industrial bakery, sending containers full of loaves of bread to a
distribution center, and then delivering them to restaurants. Global logistics involves the movement
of goods—by truck, train, ship, or plane—as well as preparation, packaging and storage of goods in
distribution centers and other logistics real estate facilities.
Free trade zones
FTZ enables goods to enter a country, undergo further modification, and then be exported without
paying customs duties. Also called foreign-trade zone, formerly free port, an area within which goods
may be landed, handled, manufactured or reconfigured, and reexported without the intervention of
the customs authorities. Only when the goods are moved to consumers within the country in which
the zone is located do they become subject to the prevailing customs duties. Free-trade zones are
organized around major seaports, international airports, and national frontiers—areas with many
geographic advantages for trade such as deferral/reduction or elimination of certain duties, relief
from inverted tariffs, duty exemption on re-exports, duty elimination on waste, scrap, and yield loss,
weekly entry savings, improved compliance, inventory tracking, and quality control, indefinite
storage, waived customs duties on zone-to-zone transfers.
What kinds of companies operate in the global logistics industry?
Global logistics requires close and intricate collaboration between a host of business partners.
Shipping companies, airlines, railroads and trucking companies move goods. Global delivery services
manage the movement of goods. Logistics real estate companies own and operate facilities that are
essential nodes for transport, management and storage, while a host of service providers provide the
software, security, labor and business intelligence that keep the global logistics system working.
Prologis, a leading global logistics company, provides efficient logistics real estate solutions around
the world. Prologis, the leading global logistics company, provides efficient logistics real estate
solutions around the world.

What drives demand for the global logistics industry?
Growth in global logistics is fueled by three fundamental trends: increasing consumption, rising e-
commerce and ongoing reconfiguration of the supply chain to move goods more quickly and
efficiently. The enduring strength of these trends across the world means is an indication that global
logistics will continue to play an essential role in the world economy.
What considerations do companies make where to build components of the global logistics
system?
Time, cost and quality are key drivers of success in global logistics. As a consequence, location is a
leading consideration. Other considerations include cost and availability of suitable labor, presence
and reliability of essential business partners, geopolitical and geographic risk and stability. Because
global logistics connects critical components of the supply chain—from a product’s point of origin to
its point of consumption—to ensure timely and efficient distribution, location is a key success factor
for distribution centers, transport hubs, terminals and other infrastructure. Typically, the most
functional and compelling infrastructure is located near or adjacent to highly trafficked transport
routes and dense population centers to serve large numbers of consumers.
2) Export-import participants
Exports are the goods and services produced in one country and purchased by residents of another
country. ... Exports are one component of international trade. The other component is imports. They
are the goods and services bought by a country's residents that are produced in a foreign country.
The definition of import is to introduce or bring goods from one country to be sold in another. An
example of import is introducing a friend from another country to deep fried Twinkies. An example of
import is a shop owner bringing artwork back from Indonesia to sell at their San Francisco shop.
The shipper/exporter should integrate its shipping needs and the carrier its market power to achieve
better contract terms individually when a shipper and a carrier who are negotiating a contract
utilizing the integrative bargaining technique.

3) Process Mapping
Typically, the procedure for import and export activities involves ensuring licensing and compliance
before the shipping of goods, arranging for transport and warehousing after the unloading of goods,
and getting customs clearance as well as paying taxes before the release of goods.

4) What are Incoterms?
“International commercial terms” used to define obligations of exporters and importers during the
exchange of goods and money.
Are they legally binding?
No. The International Chamber of Commerce in Paris issues and updates them. Buyers and sellers
incorporate them into purchase order contracts.
What’s an example?
FOB (“Free on Board”) is a classic, indicating that the exporter is freed of liability for the goods once
they’re on board the carrier.
Incoterm definitions

5) Export-import documents
Certificate of origin: A certificate of origin (CO) is a document declaring in which country a

commodity or good was manufactured. Required by many treaty agreements for cross-border trade,
the CO is an important form because it can help determine whether certain goods are eligible for
import, or whether goods are subject to duties. In addition to declaring the origin of goods, a
certificate of origin is used to determine the export declaration.
Manifest: Is the act of making something obvious or proving something. ... For example, a manifest is
often a list of cargo on a ship, of goods on a truck or train, or of cargo and passengers on an airplane,
basically, it is an organized account of specific shipments or payloads on various vehicles.

Packing list: A packing list is a document used in international trade that provides the exporter, the
international freight forwarder and the ultimate consignee with information about the shipment.
Bill of lading: A bill of lading (B/L) is a legal document issued by a carrier to a shipper that details the
type, quantity and destination of the goods being carried. A bill of lading also serves as a shipment
receipt when the carrier delivers the goods at a predetermined destination. B/L is a document that
serves as a contract, a receipt, and a certificate of title in an international transaction.
Commercial invoice: The commercial invoice is a legal document between the supplier and the
customer that clearly describes' the sold goods, and the amount due on the customer. The
commercial invoice is one of the main documents used by customs in determining customs duties. It
is also a document that serves as a quote to obtain a letter of credit or an import license.
Pro forma invoice: A pro forma invoice is a preliminary bill of sale sent to buyers in advance of a
shipment or delivery of goods. The invoice will typically describe the purchased items and other
important information, such as the shipping weight and transport charges.
Export license: An export license is a government document that authorizes or grants permission to
conduct a specific export transaction (including the export of technology). Export licenses are issued
by the appropriate licensing agency after a careful review of the facts surrounding the given export
transaction.
Consular invoice: A consular invoice is a document certifying a shipment of goods and shows
information such as the consignor, consignee, and value of the shipment.

XXIV Customer Relationship Management and Supplier Relationship Management
1) Customer Relationship Management
The importance of customer relationship management (CRM) within the supply chain is vitally
important. The customer and the customer's customer have been a critical part of the supply chain
since its inception. The customer is quite clearly what the supply chain is all about. Having
procurement, warehousing, manufacturing and distribution in place is all well and good, but without
a customer it is academic and lacking in profit. Compared to mass-media marketing, customer
relationship management has the advantage of allowing the organization to compete for customers
based on service.
CRM's standard core applications consist of sales force automation (Sales force automation has
improved management of the customer pipeline), marketing automation, and call center technology.
These applications give more attention to customer needs by providing a better handle on the
product or products involved, the content of the service, and added value. Gaining a better
understanding of customer requirements is a benefit typically expected of customer relationship
management (CRM).
A main benefit of using customer relationship management (CRM) is identification of customers with
high lifetime value and the first step in implementing the philosophy of customer relationship
management is creating a customer-centric organization. A company that is focused on customer
relationship management is most likely to take customers who have been profitable over time and
target them for greater attention.
Knowing your customers means knowing who your customers are, what their needs are, and the
means by which you communicate with them. When this data becomes a part of your database,
there is no reason to research this data again. You can focus instead on updating customer
information, processing orders, and extending your knowledge of the customer. Customer
relationship management activities most appropriately used for revenue generation in generating
customer leads.

If a firm wants to lose customers that don't value the unique products and services the firm offers
and to attract and retain customers that want what the firm offers. Engaging in this activity should
allow the firm to create a more loyal customer base. It is most appropriate to measure spending per
customer as a proportion of profitability during customer retention phase of a supplier/customer
relationship.
Marketing becomes, to a great extent, a function of properly managing critical customer data. It is
out of this information that you can target customers and customize communication to meet their
needs.
How CRM Makes Supply Chains More Efficient Through Segmentation
Although for many enterprises it takes time for it to sink in, the result is inevitable. Marketing led the
way with the concept of tailoring products and services to the requirements of specific groups of
customers. It named its approach ‘segmentation’ and asked customers what they wanted, so that the
company could produce different offerings that matched varying needs and wants. When a company
undertakes a win-back strategy without considering the profitability of customer accounts, it is
neglecting segmentation.
Now that supply chain is fast becoming the one key competitive advantage that sets one business
apart from its rivals, what could be more natural than to extend the concept to the supply chain as a
whole – and to use marketing and customer relationship management (CRM) to pilot the process?
Benefits can be multiple, including a boost to the bottom line as IT vendor Dell showed in reducing
operational costs by US $1.5 billion by using CRM and SCM in a new multichannel market strategy.
One Size Does Not Fit All
Very rarely does a company ever have just one fixed offering. With choice and therefore power in the
hands of end-customers, most enterprises try to adapt by supplying a range of products or services,
under attack from competitors in one segment, they also attack back in others. The expectations of
customers will vary – not just in terms of what they receive, but how, where and when. A brute
force, one-size-fits-all approach in supply chain ends up over-serving some customers and under-
serving others. This situation cannot simply ‘balance out’: the company will necessarily sacrifice
profit in some areas and damage customer satisfaction (or even lose customers) in others. The
probability of customer dissatisfaction is highest when there is a gap between expected performance
and perceived performance.
Think of a firm making different lines of shoes, perhaps a basic ‘everyday’ range and a fashion range.
‘Everyday’ customers are more likely to want lower prices with reasonable availability, whereas
fashion customers will often pay a higher price, if they can have their products right now. These are
two different supply chain requirements, leading logically to segmentation into two different supply
chain approaches. A company’s decision to charge different prices for the same service sold in
different market segments is most likely based on lifetime customer value (LCV).

Where Segmentation Can Help Supply Chains
Segmentation can have several advantages. Separating the supply chain into separate streams
(several ‘virtual’ supply as for the shoe company above, segmentation allows a supply chain to be
both efficient and responsive, and tackle the general problem of demand variability. By identifying
the stable component of demand, a supply chain segment can be set up to serve this. Management
then has more time and energy to focus on handling the variable parts. More granular or finer
information about customer buying behavior would help even more chains on top of one physical
one, for example) helps to address unprofitable parts of a company’s product and customer
portfolio. A cost-to-serve analysis can assess the profitability of a customer account based on the
supply chain resources consumed in serving that customer. This allows supply chain segments to be
defined with specific characteristics in terms of inventory and shipping. The allocation of revenues
and costs to customer segments or individual customers in order to estimate segment value is known
as customer relationship management.
The stakes are important. An estimate of 30% is not uncommon for the unprofitable portion of a
company’s supply chain portfolio when segmentation is not applied. On the other hand, the stable
demand component often accounts for as much as 70% and only requires 30% of total management
effort, leaving supply chain teams that much more time to change unprofitable activities in profitable
ones.
2) The Role of Customer Relationship Management
Customer relationship management is about building and maintaining profitable long-term customer
relationships, typically by supplying customers with what they want. To know what your customers
want, ask them, or ask the customer relationship management system that the marketing and sales
departments rely on to track what customers want, prefer, dislike and are likely to do in the near
future. Retention of key customers is increased when a company implements customer relationship
management.
Not only does an existing CRM system contain a ready-made database of customer information, but
it is also a purpose-built tool for getting more. From web surveys that ask supply chain related
questions, or unstructured notes made by customer service representatives, a CRM system can
collect valuable data to show which groups of customers want which kind of service. However, you
do it, supply chain has to connect with the marketplace. Leveraging the knowhow and tools of your
marketing colleagues is a smart way forward.
The Seven ‘R’s of CRM’s Contribution to Supply Chain
Good customer relationships are the result of ‘the right product, for the right customer, in the right
place, at the right time, in the right quantity, in the right condition, and at the right cost’. CRM is a
way to identify each of these ‘rights’ and to segment customers accordingly. Yet besides relationship
marketing and cross-selling techniques favoured by sales and marketing, CRM can also be used to
predict future customer behavior. Forecasts can be made of the likelihood of customers’ purchases,
and even of the risk that they may move over to a rival company and stop buying from yours.

US supermarket Walmart and Target both use CRM to run sales promotions aimed at specific
customer groups, using these business analytics. Other advantages of well-tuned business analytics
include being able to display key status information at any time (‘dashboards’ showing quantities of
customer orders and levels of satisfaction, for instance), they can also give recommendations for
immediate action according to the trends or events predicted for the future.
Putting SCM and CRM Together
On a conceptual level, information flows out of CRM and into SCM. On a practical level, there may be
challenges to this apparent simplicity. Even if a company already has software systems for both,
there is no reason to expect the two environments to be exactly in phase in terms of their activities,
their data and their inputs and outputs. CRM systems already consist of sales automation, marketing
information systems and call center technology. SCM is built up of procurement, transportation,
inventory, production, packaging and distribution. Throw an enterprise resource planning system
into the mix, and the complexity grows further.
Whether an integrated system to give end to end supply chain visibility starts from SCM strengths in
logistics, ERP solidity in financials or CRM precision concerning customers will depend on what needs
to be created, modified or replaced. However, it can be done, in fact American Airlines has been
doing it for years, taking customer information from its reservation systems and website to feed into
planning for fuel, food, spare parts and more. Cemex (second largest US producer of cement and
concrete mix) uses CRM and SCM to guarantee future deliveries to the hour, without over-producing,
a key capability for a company whose finished product sets rock hard so soon after preparation.
What Are the Results?
Showcase results include firms that reduce their inventory practically by half, while still managing to
increase on-shelf availability to almost 100%. Other benefits include reductions in SKU complexity,
increases in forecast accuracy, revenue growth and overall supply chain cost reduction. Does that
mean that everyone is looking for supply chain speed and low costs? There are always exceptions.
Some luxury goods niche manufacturers make a point of keeping their customers waiting to
emphasize the exclusivity of what they sell. But if they choose to organize their supply chains like
that, it’s also quite possible that they used CRM to confirm a net positive effect on customer buying
patterns.
3) Supplier Relationship Management?
Supplier relationship management (SRM) is the process of identifying the suppliers that are critical to
a business and implementing a system of managing relationships with those key suppliers. As supply
chains become more complicated, the need to develop clear, measurable ways to evaluate how
every supplier either contributes to or detracts from the success of a business is more important
than ever before.

SRM is part of an overall supply chain management strategy focused on optimizing efficiencies in a
way that is beneficial to all parties. SRM is often referred to as the business-to-business equivalent of
customer relationship management, or CRM because many of the principles used in CRM are
transferable to the relationship between suppliers and purchasers.
Identifying key suppliers often means creating a supply scorecard — an in-depth analysis of every
supplier affiliated with your business. Supplier scorecards are used in a wide range of industries to
develop, and maintain, a profitable, metrics-based supply chain.
Benefits of Supplier Relationship Management
The goal of SRM is to leverage relationships with suppliers in order to build value and profitability for
a business. Done right, supplier relationship management can reduce wholesale costs, improve
efficiency and eliminate redundancies in the supply chain.
Reduced Costs
Optimizing supply chain management practices can dramatically reduce the costs associated with
establishing relationships with new suppliers. Sourcing new suppliers, sampling products and
negotiating contracts is a costly, time-consuming process and mistakes made can undermine the
growth of a company.
Pinpointing existing suppliers who have the capacity to meet the current and future needs of a
company can mean stable costs and a reliable supply chain — two critical factors in the profitability
and sustainability of any business.
Increased Efficiency
Identifying supplier relationships that align with corporate goals can also lead to increased efficiency.
As with every type of healthy, mutually-beneficial relationship, communication improves over time.
Suppliers gain a clearer understanding of the specific needs of the businesses they work closely with,
and that helps eliminate supply chain delays. If issues should arise, having an established relationship
can make troubleshooting a relatively pain-free process.
Stable Pricing
Using a supplier scorecard is a key part of supplier relationship management because it quickly
highlights the various pricing strategies used by each supplier.
SRM helps companies spot the suppliers who offer fixed pricing, which eliminates concerns over cost
fluctuations. Analyzing supplier relationships, and focusing on the ones that are most beneficial, can
also give companies the leverage to negotiate lower costs in exchange for a longer contract term,
higher minimum order levels and other negotiable points.

Supply Team Consolidation
When a company and its suppliers focus on building relationships in a way that works for all parties,
companies often decide to shorten their supplier list. Working with fewer suppliers can result in
significant, lasting cost savings realized by eliminating the variables and extra processes involved with
maintaining a large roster of suppliers.
Examples of Supplier Relationship Management
Supply chain management practices vary widely across all industries. In general, large industries such
as automotive manufacturing maintain a rigid set of tools and guiding principles that dictate their
approach to suppliers. Given that supplier relationship management is fundamental to the success of
the automotive industry, it's easy to understand the critical role SRM has in this context.
Other industries such as retail and food service are equally as dependent on a solid supply chain, but
there are far more options when it comes to choosing suppliers. In most markets, companies have a
number of suppliers available, all of which offer similar products, pricing and services. While it's easy
to dismiss SRM as a practice that's only applicable to big industry, SRM is just as important to the
success of small and medium-sized enterprises.
4) Supplier Relationship Management (SRM) Scorecards
Scorecards are one of the most fundamental management tools / techniques for any vendor /
supplier relationship management (SRM) team.
Making Scorecards Comparable
Although scorecards form only one of many elements of the full suite of SRM management tools, the
maturity of an SRM team's scorecards can be a helpful first indicator of the state of a team's
processes.
Measuring Direct Supplier Performance
Manufacturing businesses are usually the most mature when it comes to objectively measuring: cost,
quality, delivery, (and sometimes, innovation and service too) of their direct materials suppliers. Best
practice though is about not only measuring each supplier's performance and feeding it back, but
about setting targets and engendering a spirit of positive competition amongst the supplier base, and
rewarding the best performers.
Mature systems for achieving this, involve a means of amalgamating the separate metrics into an
overall score and producing a "leader-board" to rank and publish, the relative positions of suppliers,
for example over the internet. This is then followed up by regular supplier conferences to establish
policy targets and encourage improvements. It should almost go without saying that for suppliers to
take such mechanisms seriously the methodology behind the measurement process needs to be well
thought through and fair.

The automotive industry, particularly the Original Equipment Manufacturers (OEMs) are very strong
when it comes to this sort of thing. A key challenge seems to be, getting the same principle adopted
to measure and compare the performance of indirect (or general expenses) suppliers.
Measuring Indirect Supplier Performance Using Supplier Relationship Management SRM Scorecards
In businesses that have a relatively formalized approach to measuring the performance of indirect
suppliers, often the construction of the scorecards used for different suppliers vary significantly.
More importantly though, there's usually no way that the performance of diverse indirect suppliers,
measured by entirely different scorecards, can be compared, which means that it’s pretty much
impossible to try to get suppliers to compete against each other in the way that mature direct
material suppliers can be encouraged to. The question that typically gets asked is something like:
"How can you legitimately compare the performance of a Hard FM supplier with the performance of
an outsourced IT service provider?" Actually though, with a little effort the answer is quite simply: "in
a similar way that you'd compare the performance of a supplier that supplier of 'widgit A' with the
performance of a supplier that provides a completely different product, 'widgit B' ".
Common Supplier Relationship Management (SRM) Scorecard
At this point it’s probably better to take a look at a spreadsheet that begins to illustrate how
comparing the performance of indirect suppliers might be achieved, from more of a practical
perspective. Developed during a Supplier Management Transformation Program, it's a quite helpful
way to illustrate suppliers' performance reasonably comprehensively, but without pushing the
scorecard beyond the point of diminishing returns and making the process unnecessarily
bureaucratic. However, in practice, the point of diminishing returns will be different for each
supplier, because it will always be more important to manage some suppliers more closely than
others. This workbook has been split into spreadsheets for each of the following performance criteria
and goes into more detail than may be necessary in practice.
- Cost
- Quality
- Delivery
- Corporate Responsibility
- Other (could be "Innovation" / "Service" etc.)
- Client/Customer Responsibilities
- The metrics are summarized in a series of standard graphs.
Setting Performance Targets for Criteria
Performance targets should be set fairly and in a consistent manner, and always with a view towards
what is necessary from the perspective of customers further down the supply chain.

XXV Learning check
Question 1
Which of the following types of lead times is related most closely to a supplier performance
measure?
• A. Fulfillment
• B. Replenishment
• C. Overall
• D. Process
Question 2
The most appropriate frequency for the sales and operations planning process typically is:
• A. Weekly.
• B. Monthly.
• C. Quarterly.
• D. Annually.
Question 3
Which of the following objectives is the primary driver in the design and implementation of lean
process management?
• A. Reducing the level of inventory
• B. Decreasing the cash-to-cash cycle
• C. Integrating processes between departments
• D. Satisfying customer requirements
Question 4
The most appropriate approach to balance supply and demand over the medium term is:
• A. Enterprise resource planning (ERP)
• B. Business planning
• C. Strategic planning
• D. Sales and operations planning (S&OP)
Question 5
A firm may use which of the following technologies to track the flow of inventory across its entire
supply chain?
• A. Distribution requirements planning
• B. Radio frequency identification
• C. Transportation management system
• D. Warehouse management system

XXV Learning check
Question 6
Effective sales and operation planning (S&OP) is most likely to result in which of the following
benefits?
• A. Better customer service
• B. Better product quality
• C. Lower product cost
• D. Lower work-in-process (WIP) inventory
Question 7
Which of the following outcomes most likely is the primary reason for outsourcing production of a
new product?
• A. Increase control of the supply chain
• B. Increase flexibility of the supply chain
• C. Reduce required capital investment
• D. Reduce the need for skilled workers
Question 8
The lowest-cost supply network design requires balancing inventory costs and which of the following
types of costs?
• A. Administrative
• B. Manufacturing
• C. Transportation
• D. Sales and marketing
Question 9
Which of the following continuous improvement methodologies focuses on reduction of defects by

reducing process variation?
• A. Just-in-Time (JIT)
• B. Kaizen
• C. Six Sigma
• D. Theory of constraints
Question 10
Which of the following factors should be considered when establishing an inventory policy?
• A. Customer demand
• B. Selling price history
• C. Historical service levels
• D. Number of customers

XXV Learning check
Question 11
Which of the following steps is first in developing a product differentiation strategy?

• A. Study customer needs
• B. Define customer segments
• C. Determine design modifications
• D. Establish competitive priorities
Question 12
Which of the following factors is the most appropriate measure of delivery performance for finished
goods?
• A. Perfect order fulfillment
• B. On-time delivery
• C. Load efficiency
• D. Available-to-promise
Question 13
Variation in upstream requirements can be reduced by increasing:

• A. Demand visibility.
• B. Production capacity.
• C. Product features.
• D. Safety stock.
Question 14
A company produces to stock and sells its products to distributors. The factor that most likely will
contribute to the risk of loss in inventory investment is the:
• A. Accuracy of demand forecasts.
• B. Replenishment lead-time.
• C. Level of product quality.
• D. Variability in supply.
Question 15
What is the appropriate supply chain strategy for a product with low demand uncertainty and high
economies of scale?
• A. Pull
• B. Push
• C. Push-pull
• D. Postponement

XXV Learning check
Question 16
When profit impact is high and supply risk is low for an item, which of the following procurement
strategies is most likely to be effective and successful?
• A. Leveraging purchasing power
• B. Forming a long-term partnership
• C. Automating the procurement process
• D. Ensuring continuous supply
Question 17
Which of the following manufacturing strategies typically generates the lowest supply chain
inventory?
• A. Make to Stock
• B. Assemble to Order
• C. Make to Order
• D. Engineer to Order
Question 18
Which of the following elements is critical to successfully using a sales and operations planning
process?
• A. Focusing on performance of the past 12 to 18 months
• B. Implementing a unified cross-functional plan and process
• C. Implementing bottom-up decision making
• D. Aligning the forecast to the annual budget
Question 19
In determining warehouse velocity, the average inventory level is calculated by dividing the annual
sales through the warehouse by the:
• A. Total square footage of the warehouse.
• B. Inventory turnover rates for the warehouse.
• C. Annual weight through the warehouse.
• D. Annual cube through the warehouse.
Question 20
Pull strategy typically would be the most appropriate strategy when customer demand uncertainty is:
• A. High, and supplier lead time is long.
• B. High, and supplier lead time is short.
• C. Low, and supplier lead time is long.
• D. Low, and supplier lead time is short.

XXV Learning check
Learning check Answers
- Question 1 - Answer : B
- Question 3 - Answer : D
- Question 6 - Answer : A
- Question 7 - Answer : C

We dedicate this book to all who work in the
fascinating field of Supply Chain, Procurement and
Operational Excellence, who make the impossible
possible for businesses and organizations all over
the world.
We all know who really makes things happen!
New York 477 Madison Avenue, New York, NY Manhattan 10022
+1 646-631-1870
Email: support@supplychaininstitute.org
www.supplychaininstitute.org

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Copyright Supply Chain Institute™ | Supply Chain Management Book 3

II. Completing your certification …..…………………………………………………………………………………………………. 8

III. Supply Chain Management……………………………………………………………………………………………………..…. 10

IV. Supply Chain and Globalization………………………………………………………………………………………………….. 24

V. Supply Chain Strategy…………………………………………………………………………………………………………………. 29

VI. Supply Chain Risk Management…………………………………………………………………………………………………. 40

VII. Corporate and Supply Chain Strategy………………………………………………………………………………………… 43

VIII. Supply Chain Performance Metrics………………………………………………………………………………………….. 48

IX. Supply Chain and Financial Performance……………………………………………………………………………………. 53

Copyright Supply Chain Institute™ | Supply Chain Management Book 4

X. Supply Chain Leadership and Management………………………………………………………………………………… 56

XI. Supply Chain Security and Compliance………………………………………………………………………………………. 61

XII. Continuous Improvement…………………………………………………………………………………………………………. 68

XIII. Demand Planning and Forecasting…………………………………………………………………………………………… 77

XIV. Collaborative Product Design…………………………………………………………………………………………………… 99

XV. Sales and Operations Planning………………………………………………………………………………………………… 105

XVI. Production Planning………………………………………………………………………………………………………………. 119

Copyright Supply Chain Institute™ | Supply Chain Management Book 5

XVII. Material Requirements Planning…………………………………………………………………………………………… 124

XVIII. Capacity Requirements Planning………………………………………………………………………………………….. 131

XIX. Inventory Management…………………………………………………………………………………………………………. 136

XX. Logistics Management…………………………………………………………………………………………………………….. 159

XXI. Transportation Management…………………………………………………………………………………………………. 175

XXII. Logistics Service Providers and Reverse Logistics………………………………………………………………….. 185

XXIII. Global Logistics and International Business…………………………………………………………………………. 193

XXIV. Customer Relationship Management and Supplier Relationship Management……………………. 199

XXV. Learning check……………………………………………………………………………………………………………………… 206

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*Certification content is not covered by this book (On Demand Content)

All the Best and Happy Reading!

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- You have 5 attempts to succeed your certification.

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1) Introduction to the Supply Chain Management

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2) Identifying Supply Chains

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3) Basic Supply Chain: Three Entities

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4) Manufacturing Supply Chain Model

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Services also have supply chains:

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5) Key Supply Chain Management Processes

Functions in a company that add value to goods or services

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Item Identification Stock Customer A Customer B Order Customer C Order

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The Five processes (ASCM)

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6) Evolution of Supply Chain Management

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7) Two types of supply chain management

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8) Stages of SCM Evolution (ASCM)

Stage 1: Multiple Dysfunction

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Stage 2: Semi-functional Enterprise

Stage 3: Integrated Enterprise