Lecture 7 Modern Supply and Logistics Management

Supply Chain Logistics Management Bowersox, Closs, Cooper: Chapter 1 & 2

Some facts
Old practice is to accumulate inventory to face

lengthy and unpredictable time to market The industrialized world no more suffer from scarcity. Consumer affluence and desire for wide choice products and services continue to grow. Information technology

Supply Chain Revolution

Supply chain management consists of firms collaborating

to leverage strategic positioning and to improve operating efficiency.

The supply chain relationship reflects strategic choice among

involved firms. Supply chain strategy is a channel arrangement based on acknowledged dependency and collaboration. Managerial process of supply chain operations encompasses individual firms, trading partners, and customers.
Logistic is the work required to move and position

inventory throughout supply chain.

Logistic is subset of supply chain management and create

value by timing and positioning inventory. Integrated logistics service includes order management, inventory, transportation, warehousing, material handling, and packaging. Integrated logistics serves to link and synchronize the overall supply chain as a continuous process and is essential for effective supply chain connectivity.

Generalized Supply Chain Model

Integrated supply chain is multi-firm collaboration

within a framework of key resource flows and constraints. Supply chain structure and strategy results from efforts to operationally align an enterprise with customers as well as the supporting distributive and supplier networks to gain competitive advantage. Business operations are integrated from initial material purchase to delivery of products and services to customers. Value results from the synergy among firms composing the supply chain with respect to five critical flows information, product, service, financial, and knowledge Logistics is the primary conduit of product and services floe within the supply chain arrangement.

Generalized Supply Chain Model The Integrated Supply Chain Framework

Generalized Supply Chain Model

The integrated supply chain perspective shifts traditional

channel arrangements from loosely linked groups of independent business that buy and sell inventory to each other toward a managerially coordinated initiative to increase market impact, overall efficiency, continuous improvement, and competitiveness. Integrated supply chain has to absorb high degree of mobility and changes in typical arrangements as firms enter and exist the supply chain The overarching enabler of supply chain management is information technology. The rapid emergence of supply chain is being driven by five related forces.
1. 2. 3. 4. 5.

Integrative management Responsiveness Financial sophistication Globalization Digital transformation

Integrative Management
Change from emphasis on functional specialization to

focus on process achievement Seeks to identify and achieve lowest cost by capturing trade-offs that exist between functions. The focus of integrates management is lowest total process cost, which is not necessarily the achievement of the lowest cost for each function included in the process. Three important facets of supply chain logic resulted from increased attention to integrated management
1. 2. 3.

Collaboration Enterprise extension Integrated service provider

Collaboration
Competition is dominant business model but firms

may benefit through collaborations The increasing importance of collaboration has positioned supply chain as a primary unit of competition. In global economy, supply chain arrangements compete with each other for customer loyalty.

Enterprise Extension
Central thrust of enterprise extension expanded

managerial influence and control beyond the ownership boundaries of a single enterprise to facilitate joint planning and operations with customers and suppliers
The information sharing paradigm: voluntary share of information and jointly plan strategies 2. The Process Specialization Paradigm: commitment to focusing collaborative arrangements on planning joint operations with a goal of eliminating nonproductive or non-value adding redundancy by firms in supply chain
1.

Integrated Service Provider

Outsourcing works that specializes in functions.

Integrated service provider

Third party logistics service provider

Value added services

Responsiveness
Using the information technology, supply chain is

more responsive. Anticipatory Business Model Responsive Business Model Postponment

Anticipatory Business Model

Dominant business model has required

anticipation of what customer will demand in the future.

Responsive Business Model

Seeks to reduce or eliminate forecast reliance by

joint planning and rapid exchange of information between supply chain participants Similar to build-to-order model but difference in
Time to execute

Degree of potential customization

Customization on small orders Customer involvement sources, price, quality

Postponement
Postponement strategies and practices serve to

reduce the anticipatory risk of supply chain performance. Manufacturing of Form Postponement
Flexibility

Loss of economics of scale

Economy of scope

Geographic Postponement
Finished product/parts in warehouse and supply

when demanded

Barriers to Implementing Responsive System

Publicly held corporations to maintain planned

profits Need to establish collaborative relationship

Financial Sophistication
Supply chain ability to manage in a more timely

manner to achieve financially attractive working arrangements. Cash-to-Cash Conversion

Time required to convert raw materials or inventory

purchases into sales revenue is referred to as cash-tocash conversion.

Inventory turnover/velocity of material Dead net pricing all in selling price

Dwell Time Minimization

Ratio of time that an asset sits idle to the time required

to satisfy its designated supply chain mission

Cash Spin
Reducing assets across a supply chain in cash spin.

Globalization
About 90 percent global demand is not fully

satisfied by local supply Product Marketing: Consumers in developing nations are more interested in quality of basic life while developed nations interested in upscale consumer products. Operating Efficiency: sourcing raw materials and components; labor cost advantage; favorable tax laws Internationalization:
Export-import Local presence in foreign nations Full fledged conduct of business operations

Internalization Issues
Distance: order to delivery is significantly longer

Laws, regulations and documentations

Diversity in work practices and environment Cultural variations in consumer demands

Digital Business Transformation

A complete assessment and reinvention of a firms

overall operation to assure that the benefits of modern information technology are being fully deployed. The 6 of Going Digital
1. 2. 3. 4. 5.

Fact based management Flexible Focus on cash Fast return on investment (ROI) Fungible
Business processes are modular with maximum interchangeability.

6.

Frugal
Capital investment, cash velocity, and a flat organization structure with focused human resources

The Logistical Value Proposition

Logistics should be managed as an integrated

effort to achieve customer satisfaction at the lowest total cost. Logistics performed in this manner creates value. Service benefits
Availability
Operational Performance: speed, consistency, flexibility, malfunction, recovery time Service reliability: Quality attributes of logistics

Cost Minimization

The Work of Logistics

Order processing Inventory
1. 2. 3. 4. 5. 1. 2. 3.

Core customer segmentation Product profitability Transportation integration Time-based performance Competitive performance Cost Speed Consistency

Transportation

Warehousing, Material Handling, and Packaging Facility Network Design

The Work of Logistics

Logistical Operations
Inventory Flow
Customer

accommodatio n Manufacturing support Procurement

Information

Flow
Integrates

operating areas

Logistical Operating Arrangements

The potential for logistical services to favorably

impact customer is directly related to operating system design. Must offer a balance of performance, cost, and flexibility Global logistical system is lack similarity in structure Two characteristics
Designed to manage inventory
Logistics alternatives is limited by available

technology

Structures
Echelon: the flow of products typically proceeds through common arrangement of firms and facilities as it moves from origin to final destination 2. Direct: direct to customer 3. Combined : combination the two
1.

Echelon Structure

Combined Structure

Flexible Structure
Customer specified delivery facility

Size of customer order

Selective inventory stocking strategy Agreements between firms Consolidate products for delivery

Flexible Structure

Supply Chain Synchronization

Multi-firm operational integration across a supply

chain is referred to as supply chain synchronization. Coordinates the flow of materials, products and information between supply chain partners to reduce duplications and unwanted redundancy. Performance Cycle Structure:
Represents the elements of work necessary to

complete the logistics related to customer accommodation, manufacturing, or procurement.

Performance Cycle Uncertainty