Chapter 01 - 21st Century Logistics

7/30/2019 Chapter 01 - 21st Century Logistics

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Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

CHAPTER 1:1st-Century Supply Chains

McGraw-Hill/Irwin


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The supply chain revolution

Why integration creates value

Generalized supply chain model

Responsiveness Financial sophistication

Globalization

Overview of 21st-century supply

chains


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Supply Chain Management Consists of firms collaborating to

leverage strategic positioning andto improve operating efficiency

Supply Chain Strategy Is a channel and businessorganizational arrangementbased on acknowledgedependency and collaboration

Logistics The work required to move andgeographically position inventory

The supply chain revolution has reshapedcontemporary strategic thinking


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Successful supply chain strategies

A recent Andersen Consulting study revealed six different, but equally successful,supply chain strategies.

Market Saturation Driven: Focusing on generating high profit margins, through

strong brands and ubiquitous marketing and distribution.

Operationally Agile: Configuring assets and operations to react nimbly to

emerging consumer trends along lines of product category or geographic region.

Freshness Oriented: Concentrating on earning a premium by providing the

consumer with product that is fresher than competitive offerings.

Consumer Customizer: Using mass customization to build and maintain close

relationships with end-consumers through direct sales.

Logistics Optimizer: Emphasizing a balance of supply chain efficiency and

effectiveness.

Trade Focused: Prioritizing "low price, best value" for the consumer (as with

the logistics optimizer strategy but focusing less on brand than on dedicated

service to trade customers). Source: Supply Chain Management Review, March/ April 2000, p. 29.


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The total integration of the overall

business process creates value

Table 1.1 Integrative Management Value Proposition


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7/34Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Logistics activities and decisions at

each level of functionality

Figure 1.2 Information Functionality



Transaction system functionality consists of

formalized rules and procedures

Standardizedcommunications focus ontracking and regulatingday-to day logisticaltransactions

For example, Order entry

Order fulfillment Inventory adjustment

Invoicing



Management control functionality focuses on

performance management and reporting

Provides real time feedback on

supply chain performance and

resource utilization

Common performance

dimensions include

Cost

Customer service

Productivity

Quality



Decision analysis functionality focuses

on software tools to assist managers Software tools help to identify,

evaluate and comparealternatives to improveeffectiveness E.g., Excel solver

Types of analysis include Supply chain design

Inventory management

Resource allocation

Routing

Segmental profitability Also called decision support

software in MIS departments



Strategic planning functionality transforms

transactional data to assist in strategy evaluation

Organizes transaction and

performance data into a

relational database to assist in

evaluating alternative business

strategies

Examples include

Strategic alliance decisions

Development of manufacturing

capabilities Customer responsiveness

opportunities



Figure 1.4 SCIS Usage, Decision Characteristics, and Justification

More opportunities exist for improvements at

higher levels of functionality



Supply chain information system

modules Enterprise integration and administration

Enterprise supply chain operations

Enterprise planning and monitoring

Communication technology

Consumer connectivity



Application oriented perspective of SCIS

modules

Figure 1.4 Application Oriented SCIS Framework



Enterprise resource management (ERP)

The backbone of most firms logistical information systems

Maintains an integrated database of current and historical

data

Processes most (if not all) transactions across all businessfunctions

Example transactions include

Order entry and management

Inventory assignment

Shipping



Enterprise integration and administration

modules are not specific supply chain apps

Figure 1.5 Enterprise Integration and Administration Components



Enterprise operations modules support

day-to-day supply chain operations

Figure 1.6 Enterprise Operations Modules

Enterprise Operations

Customer

relationship

management

Logistics Manufacturing Purchasing

Donald J. Bowersox, Ph.D. 2005

Inventory

Deployment

Customer Relationship

Management

(CRM)

Forecasting

Demand Management

(DMS)

Collaborative

Planning, Forecasting

and Replenishment

(CPFR)

Order Management

(OMS)

Finished Inventory

Management

(FIM)

Order Processing

(OPS)

Warehouse

Management (WMS)

Transportation

Management (TMS)

Yard Management

(YMS)

Accounts Receivable

Interface

Manufacturing

Resource Planning

(MRP II)

Capacity Management

Planning (CMP)

Master Production

Schedule (MPS)

Production Execution

and Control (Shop

Floor)

Quality Management

(QM)

Purchase Order

Administration

(POA)

Materials Requirements

Planning (MRP)

Supplier Relationship

Management (SRM)

Accounts Payable

Interface

Integrated Inventory

Planning

Advanced Planning and

Scheduling\



Enterprise planning and monitoring modules

facilitate exchange of planning information

Figure 1.7 Enterprise Planning and Monitoring Modules



Integrative management requires

simultaneous achievement of 8 processes

Table 1.2 Eight Supply Chain Processes



Concepts necessary for achieving

integrated management

Lowest total process cost is the focus of integrated management Differs from lowest cost of each function in the process

Collaboration of operating information, technology and risk hasbeen encouraged by national legislation to keep US-based firms

competitive Enterprise extension includes expanded managerial influence and

control beyond traditional ownership boundaries of a singleenterprise

Integrated service providers (ISP) provide a range of logisticsservices to accommodate customers, ranging from order entry toproduct delivery Commonly known as third (or fourth) party service providers



Enterprise extension

Information sharing paradigm supply chain

participants sharing operating information can

achieve a high degree of collaboration and

enhanced strategic planning.

Process specialization paradigm the commitment

to focus collaborative arrangements on planning

joint operations with a goal of eliminatingnonproductive or non-value adding redundancy by

firms in a supply chain.


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Integrated service providers (ISPs)

Outsourcing

Transportation modes

Public warehouses Value-added services

Third- and fourth-party service providers

Asset- or nonasset-based service providers


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Forces driving supply chain

strategies

Information technology

Integrative management

Responsiveness Financial sophistication

Globalization


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Responsiveness emerges as a

competitive advantage

Figure 1.8 Anticipatory Business Model

Figure 1.9 Responsive Business Model


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Postponement strategies keep supply

chains responsive

Types of Postponement

Manufacturing (or Form)

Geographic (or Logistics)

Combined

Manufacturing and geographic types are exact

opposites in practice but have the same goal

Meeting customer demand quickly while minimizing

inventories


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Manufacturing (or form) postponement

Manufacturing one order at a time

Base modular construction of product

No customization until the exact customer specs and

financial commitment is received

Objective is to maintain products in an uncommitted status

as long as possible

Balances economy of scale with responsiveness Can build a sufficient quantity of ready to customize basic units

Requires a lot of forethought during product design


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Example of manufacturing

postponement

Keeping all the car panels a base color (white or gray) untilthe order is received, then painting to the color ordered


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Geographic (or logistics)

postponement

Build or stock a full-line inventory at one or a few strategic

locations

Forward deployment of inventory is postponed until

customer orders are received Once orders received, specific item is expedited to the local

distributor

Advantages are manufacturing economies of scale alongwith responsiveness to customer

Often used for critical, high cost parts and assemblies (e.g.

engines)


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Example of geographic postponement

Keeping full inventory in a central warehouse and releasing

customer orders to local distributors or direct shipping to

customer


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Combined postponement

Keeping the basic products centralized and

performing the customization at the destination

distributor

Historical example - Autos

Installing dealer options like sound systems, GPS, sun

roofs on new cars purchased

Contemporary example - Computers Dell Computers, doing final assembly or packaging

additional system options like printers, digital cameras at

a distribution center


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Barriers to implementing responsive

systems Need for publicly held

corporations to maintain

planned quarterly profits Expectations of continued financial

results often drive promotional andpricing strategies to load the

channel with inventory

Need to establish collaborative

relationships

Most business managers do nothave training or experience in

development of collaborative

arrangements


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Financial sophistication enables measurement of

time-based supply chain

Cash-to-Cash Conversionthe time required to convertraw material or inventorypurchases into sales revenue

Dwell Time Minimizationdwell time is the ratio of timethat an assets sits idle to thetime required to satisfy itssupply chain mission

Cash Spinreducing assets inthe supply chain can spincash for reinvestment in otherprojects


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Globalization offers firms several

attractive opportunities Demand exceeds local

supply 90% of global demand is not

fullysatisfied by local supply

Strategic sourcing Identifying and matching thesources of raw materials andcomponents to manufacturersand distributors

Offshoring Moving manufacturing and

distribution operations tocountries with favorable laborcosts and tax laws


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Chapter 01 - 21st Century Logistics

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