MANAGING SUPPLY CHAIN AND LOGISTICS Competitive Strategy for A Sustainable Future Ling Li Old Dominion University, USA World Scientific NEW JERSEY LONDON SINGAPORE BEIJING SHANGHAI HONG KONG TAIPEI CHENNAI
Contents Dedication Preface Acknowledgements Table of Contents List of Tables List of Figures v vii xi xiii xxv xxvii PART 1: STRATEGIC ISSUES AND SUPPLY CHAIN DESIGN Chapter 1 Supply Chain Management and Strategy 3 1.1 Understanding the Supply Chain and Supply Chain Management 3 1.2 Virtual Integration in the Supply Chain 7 1.3 The Container Box 10 1.4 From Material Management to Supply Chain Management 11 1.5 The Changing Paradigm of Supply Chain Management 14 1.6 Supply Chain Management Models 15 1.6.1 Competitive priorities and manufacturing strategy 15 1.6.2 Efficient supply chain and responsive supply chain 16 1.6.3 Clock-speed of product, process, and Organization life cycles... 18 1.6.4 Pull and push manufacturing processes 19 1.7 Extending the Enterprise: Collaborative Flanning, Porecasting, and Replenishment (CPFR) 20 1.7.1 The basics ofcpfr 20 1.7.2 Major activities of CPFR 22 1.7.3 CPFR in practice 24 xiii
xiv Managing Supply Chain and Logistics 1.8 Impact of Globalization in Supply Chain Management 25 1.8.1 Supply chain Management issues in the US 25 1.8.2 Supply chain management issues in Europe 26 1.8.3 Supply chain management issues in Asia 27 1.8.4 Supply chain management issues in Latin America 29 1.9 Supply Chain Management Issues in the BRIC Countries 30 1.10 Summary 32 1.10.1 Supply chain management challenges 32 1.10.2 Road map for supply chain management 33 References 34 Chapter 2 The Right Design of a Supply Chain 37 2.1 Design the Right Supply Chain 37 2.2 Responsive Supply Chain in the Manufacturing Industry 39 2.2.1 Responsive supply chain and a fast clock-speed product: The personal Computer 39 2.2.1.1 Dell is cloning a push model 41 2.2.2 Responsive supply chain and medium clock-speed product: The automobile industry 42 2.2.3 Responsive supply chain and slow clock-speed product: Commercial aircraft 44 2.2.3.1 Boeing 787 moves to batch production and reduces cycle time 45 2.3 Efficient Supply Chain in the Manufacturing Industry 47 2.3.1 Efficient supply chain and fast clock-speed product: The apparel industry 47 2.3.1.1 ZARA does everything by itself, from procurement to delivery 49 2.3.2 Efficient supply chain and medium clock-speed product: Anheuser-Busch, Inc 50 2.3.3 Efficient supply chain and slow clock-speed product: The steel industry 51 2.4 Service Industry 53 2.4.1 The book industry: Amazon.com 53 2.4.2 The retail industry: Walmart 55 2.5 Synchronizing the Supply Chain 57
Contents xv 2.5.1 Linking manufacturer to retailer: HP and Walmart 57 2.5.2 Linking suppliers to manufacturers: Covisint 58 2.6 Lessons to Learn 60 2.6.1 Retail industry: Kmart 60 2.6.2 The PC industry: IBM 62 2.7 Summary 63 Questions for Pondering 64 References 65 PART 2: PURCHASING, PROCUREMENT, AND SUPPLY RELATIONSHIPS Chapter 3 Purchasing and Procurement 69 3.1 The Role of Purchasing 69 3.1.1 Introduction to purchasing 69 3.1.1.1 Commercial purchasing and industry purchasing 70 3.1.1.2 Purchasing and procurement 71 3.1.2 Evolution of purchasing and supply chain management 71 3.1.3 Commodity types and procurement strategy 74 3.1.4 Centralized purchasing vs. decentralized purchasing 76 3.2 Procurement Procedure 79 3.2.1 Supplier market analysis 79 3.2.2 Types of request 79 3.2.3 Purchase plan Implementation 80 3.3 Procurement in a Digital World 81 3.3.1 Electronic Integration in purchasing 81 3.3.2 Vertical and horizontal partnerships 82 3.3.3 One or many relationships 83 3.3.4 e-marketplace 85 3.3.5 Supplier-oriented marketplace 85 3.3.6 Buyer-oriented marketplace 86 3.3.7 Intermediary-oriented marketplace 86 3.3.8 Disintermediation and reintermediation 87 3.4 Green Purchasing and Supply Chain Management 88 3.5 Total Cost of Ownership Analysis in Procurement 89
xvi Managing Supply Chain and Logistics 3.6 Enhancing Value through Purchasing and Procurement 91 3.7 Purchasing Performance Metrics 93 3.7.1 Metrics for measuring purchasing efficiency 93 3.7.2 Metrics for measuring purchasing effectiveness 94 3.8 Summary 94 Questions for Pondering 95 Problems 96 References 97 Chapter 4 Choosing the Right Supply Chain Partner 99 4.1 The Basics of Supply Relationships 99 4.1.1 Types of supply relationships 99 4.1.2 Strategie sourcing 102 4.1.3 Supplier base development 102 4.2 Supplier Selection 105 4.2.1 Value analysis 106 4.2.2 Decision model for choosing the right supplier 107 4.2.2.1 Preference matrix for vender rating 107 4.2.2.2 Make-or-buy decision for making outsourcing decision 108 4.2.2.3 Decision tree for sourcing strategy 109 4.2.3 Supplier certificate ISO 9000 family of Standards 112 4.2.4 Trust and commitment of supply chain partners 114 4.3 Outsourcing 115 4.3.1 Creating outsourcing vision 115 4.3.2 Model for implementing outsourcing 116 4.3.3 Outsourcing benefits and risks 119 4.4 Offshoring and Reshoring 120 4.4.1 Offshoring 120 4.4.2 Reshoring 121 4.5 Third Party Logistics 122 4.5.1 Current State of third party logistics market 123 4.5.2 Factors that lead to a successful relationship between third party logistics providers and shippers 125 4.5.3 Select a 3PL partner in an emerging market 126 4.6 Dissolving Supply Relationships in the Supply Chain 128 I
Contents xvii 4.7 Enhancing Value through Supply Relationships and Strategie Sourcing 129 4.8 Sourcing Performance Metrics 130 4.9 Summary 130 Questions for Pondering 131 Problems 131 References 134 Supplement 4.1: Discount Cash Flow Analysis 135 PART 3: DEMAND AND SUPPLY INTEGRATION IN SUPPLY CHAIN Chapter 5 Demand Management and Customer Order Forecast 139 5.1 Demand Management through Collaborative Forecasting 139 5.1.1 Forecast characteristics 140 5.1.2 Forecast in efficient supply chain vs. responsive supply chain 141 5.1.3 A better method: Collaborative forecasting in supply chain 143 5.2 Components of Demand Forecasting 144 5.2.1 Patterns of demand 144 5.2.1.1 Spatial demand versus temporal demand 144 5.2.1.2 Regulär versus lumpy demand 145 5.2.1.3 Independent versus dependent demand 146 5.2.2 Managing the forecasting process 146 5.3 Quantitative Forecasting Methods 149 5.3.1 Moving average 150 5.3.2 Weighted moving average 151 5.3.3 Exponential smoothing 153 5.3.4 Double exponential smoothing for trended data 155 5.3.5 Holt-Winter's method for additive seasonal data 157 5.4 Qualitative Forecasting Methods 161 5.5 Reduce Forecast Variability 163 5.5.1 Sources of variability 163 5.5.2 Measure variability 164 5.5.2.1 Measure bias and accuracy 165 5.5.2.2 Tracking signal 167
xviii Managing Supply Chain and Logistics 5.5.3 Understand the product life cycle 167 5.5.3.1 Forecasting for new products 167 5.5.3.2 Managing end-of-life-cycle products 170 5.5.4 Reduce demand variability and increase production flexibility 171 5.6 Forecasting for Demand Management 171 5.6.1 Enhance value through synchronizing demand forecast 171 5.6.2 Delayed differentiation and postponement 173 5.7 Demand Management Performance Metrics 174 5.8 Summary 174 Questions for Pondering 175 Problems 175 References 178 Supplement 5.1: Synchronizing Production and Inventory Management in the Supply Chain: Introduction to Beer Game 179 Chapter 6 Transforming Demand: Flanning on Supply Flow 183 6.1 Transforming Demand through Production Flanning 183 6.2 Aggregate Production Flanning 185 6.2.1 Dimensions of production planning 186 6.2.2 Production planning alternatives 187 6.2.3 Production planning strategies 187 6.3 Master Production Schedule 188 6.3.1 The basics of master production schedule 188 6.3.2 Available to promise 192 6.3.3 Available to seil 193 6.3.4 Digital Solution: Global available-to-promise 193 6.4 Collaborative Planning 194 6.4.1 Overview of collaborative planning 194 6.4.2 Pull and push boundary in production planning 196 6.4.3 Manufacturing flexibility 198 6.4.4 Synchronization supply flow HP example 199 6.5 Demand Transformation 201 6.5.1 Enhancing value through demand and supply flow management 201 6.5.2 Demand transformation Performance metrics 202
Contents xix 6.6 Summary 203 Questions for Pondering 203 Problems 204 References 206 Chapter 7 Managing Material Flow and Inventory in the Supply Chain 207 7.1 The Importance of Managing Material Flow and Inventory 207 7.2 Inventory Concepts 210 7.2.1 Definition of inventory 210 7.2.2 Purpose of holding inventory in supply chain 210 7.2.3 Inventory for independent demand and dependent demand 212 7.2.4 The cost of holding inventory 212 7.2.5 The cost of inaccurate inventory Information 213 7.2.6 Inventory measures 215 7.3 Managing Inventory Cost EOQ-based Inventory Models 217 7.3.1 Economic order quantity 217 7.3.2 Inventory replenishment Reorder point system 220 7.3.3 Inventory replenishment Periodic review system 221 7.4 Improving Customer Service Level Managing Safety Stock 222 7.4.1 Safety stock 222 7.4.2 Cycle Service level 223 7.4.3 Fili rate 224 7.5 Innovative Approaches to Managing Inventory 226 7.5.1 Countermeasures to bullwhip effects 226 7.5.2 Push-pull strategy in inventory management 228 7.5.3 Vendor managed inventory 229 7.5.4 Inventory reduction: Lean inventory system 230 7.5.5 Issues related to Information technology 231 7.6 Enhancing Value through Inventory Management in Supply Chain...233 7.7 Inventory Management Performance Metrics 234 7.8 Summary 234 Questions for Pondering 235 Problems 235 References 240 Supplement 7.1: Quantity Discount 241
XX Managing Supply Chain and Logistics PART 4: LOGISITCS NETWORK DESIGN AND TRANSPORTATION Chapter 8 Logistics Network Design and Distribution 251 8.1 Logistics in Supply Chain Management 251 8.1.1 Facility configuration of global supply chain 252 8.1.2 Reverse logistics network 255 8.1.3 Reverse logistics network for used battery recycling 257 8.2 Data for Logistics Network Planning 258 8.2.1 Data sources 258 8.2.2 Data checklist 259 8.3 Techniques for Logistics Network Configuration 259 8.3.1 Optimization model 260 8.3.2 Computer Simulation 260 8.3.3 Henristics model 260 8.3.4 Expert systems and decision support systems 261 8.4 Facility Location and Configuration 261 8.4.1 Single facility location 261 8.4.1.1 The center of gravity method 261 8.4.1.2 The median method 265 8.4.1.3 Preference matrix method for determining distribution center 268 8.4.2 Configure multiple facilities 269 8.4.2.1 Allocating customers to existing distribution centers considering variable costs only 270 8.4.2.2 Developing a logistics system considering both fixed and variable costs 274 8.5 Warehouse 277 8.5.1 Nature and importance of warehouses 277 8.5.2 Warehouses in the supply chain 278 8.5.2.1 Public and private warehouses 278 8.5.2.2 Types of warehouses 280 8.6 New Logistic Models 280 8.6.1 Cross-docking 280 8.6.2 Merge-in-transit 281 8.7 Enhancing Value through Logistics Management in the Supply Chain 283
Contents xxi 8.8 Summary 283 Questions for Pondering 284 Problems 284 References 286 Chapter 9 Transportation Service and Distribution Systems 287 9.1 Transportation 287 9.1.1 Transportation service provider: Carriers 288 9.1.2 Customers: Shippers 288 9.2 Overview of Carrier Operations 289 9.2.1 Motor carrier 289 9.2.2 Railroad carrier 291 9.2.3 Water carrier 292 9.2.4 Air carrier 293 9.2.5 Pipeline 294 9.2.6 Intermodal service 294 9.2.7 Containerization 296 9.3 The Network of Shipper and Carrier in e-distribution 296 9.3.1 Carrier side e-distribution 297 9.3.2 Shipper side e-distribution 298 9.3.3 Shipper and carrier in e-distribution 298 9.4 The Rise of Intermediaries in Transportation 300 9.4.1 The rise of intermediaries 300 9.4.1.1 Freight forwarder 301 9.4.1.2 Transportation brokers 301 9.4.1.3 Shippers association 302 9.4.1.4 Intermodal marketing Company 302 9.4.2 Third-party logistics in transportation services 303 9.4.2.1 Last-mile delivery 304 9.4.2.2 A last-mile delivery case: The collaboration of Talbots, DHL, and US Postal Service 304 9.4.2.3 Managing less-than-truckload (LTL) shipments 306 9.4.3 Fourth-party logistics in transportation service 306 9.5 Trade-Off of Transportation and Inventory Costs 308 9.6 Vehicle Routing and Scheduling 311 9.6.1 Characteristics describing vehicle routing 312
xxii Managing Supply Chain and Logistics 9.6.2 Solution procedure for vehicle routing and scheduling 313 9.6.3 e-business tools for creating routes 319 9.7 Railway Freight Car Scheduling 319 9.7.1 Railway system 320 9.7.2 Characteristics describing railway freight scheduling 321 9.8 Enhance Value through Transportation 322 9.9 Summary 324 Questions for Pondering 324 Problems 325 References 327 Appendix 1: World Busiest Container Ports: Top 25 2012 328 Appendix 2: World Busiest Airports by Cargo Traffic: Top 25 2012 329 PART 5: EMERGING ISSUES IN SUPPLY CHAIN Chapter 10 Emerging Issues in Supply Chain Management 333 10.1 Green Supply Chain 333 10.1.1 Green sourcing and procurement 335 10.1.2 Green product design 336 10.1.3 Green manufacturing 336 10.1.4 Green packaging and distribution 337 10.2 Reverse Logistics 338 10.3 Disaster Relief Supply Chain 340 10.4 Managing Disaster Relief Material Flow and Inventory 341 10.5 Summary 343 Questions for Pondering 344 References 344 Chapter 11 Information Flow and Big Data Science in Supply Chain Management 347 11.1 Data Science in Supply Chain Management 347 11.1.1 Data collection and Organization 348 11.1.2 Information extraction and analytic models 349 11.1.3 Knowledge management 350 11.1.4 Data warehousing 351
Contents 11.1.5 Data mining 11.2 Big Data-based Supply Chain Management Decisions 11.3 Business Intelligence 11.3.1 Intelligent value chain 11.3.2 The value of business intelligence 11.3.3 Applying business intelligence to reduce bullwhip effects... 11.3.4 Effects of Information flow on material flow 11.4 Using Social Media Text Mining to Improve Customer Service in a Supply Chain 11.5 Technology Designed to Combat Fakes in the Global Supply Chain 11.6 Enhancing Value through Managing Information Flow and Big Data in the Supply Chain 11.7 Summary Questions for Pondering References PART 6: SUPPLY CHAIN PERFORMANCE AND EVALUATION Chapter 12 Performance Measures: From Order Winning to Order Fulfillment 12.1 Introduction 12.2 Order Winning in the Supply Chain 12.2.1 Identify and capture the right customers 12.2.2 Create a customer-responsive supply chain 12.3 Order Fulfilling in the Supply Chain 12.3.1 Creating a collaborative, flexible, and cost-effective order fulfillment process 12.3.2 Choosing the right technology to support supply chain Operations 12.3.3 Fulfilling customer orders in the supply chain 12.4 Using Financial Data to Measure Supply Chain Performance. 12.4.1 Metrics for material flow 12.4.2 Metrics for fund flow
xxiv Managing Supply Chain and Logistics 12.4.3 Metrics for supply chain Interactive activities using cash-to-cash cycle time 382 12.4.4 Performance analysis Kroger and Whole Foods 383 12.4.5 The Shortcomings of financial measurements 387 12.5 The Supply Chain Operations Reference Model (SCOR) 387 12.6 The Balanced Scorecard 389 12.7 The Future of Supply Chain Management 390 Questions for Pondering 392 Problems 392 References 394 Subject Index 395 Company Index. 401