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Chapter Outlines - Supply Chain Management 4223-002
Supply Chain Logistics Management – Bowersox – 4
Chapter 1: 21st-Century Supply Chains (page 2)

Chapter Outline:

1 – 2 – 3. Introduction
 EDI – electronic data interchange
o Telephone or fax
o Processing and delivery technique
 World of commerce was impacted by computerization, the Internet, and inexpensive transmission
 21
century is the dawn of the informational or digital age
 The frequent occurrence of service failures is being replaced by a six-sigma performance
o Six-sigma performance reflects a level of achievement having an error rate of 3.4 defects per
million or 99.99966%
 Perfect orders, which are deliveries that are at the correct location on time, damage free, and correctly
invoiced are now the expectation in today’s world.

4 – 5 – 6. The Supply Chain Revolution
 Supply chain revolution & logistical renaissance
o These two massive shifts in expectation and practice concerning best-practice performance of
business operations are highly interrelated
 Supply chain management – consists of multiple firms collaborating to leverage strategic positioning
and to improve operating efficiency
 Supply chain strategy – a channel and business organizational arrangement based on acknowledged
dependency and collaboration
o Acknowledged dependence between business firms created the study of what became known
as distribution or marketing channels
 Logistics – the work required to move and geographically position inventory
o Process that creates value by timing and positioning inventory
o Combination of inventory, transportation, order management, warehousing, materials
handling, and packaging as integrated throughout a facility network.
 Commercial trading challenges were overcome by firms developing business relationships with other
product and service companies

7 – 8 – 9. Why Integration Creates Value
 Three perspectives of value: economic, market, and relevancy value
o Economic
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 Traditional perspective
 Builds on economy of scale in operations as the source of efficiency
 About doing things as well as possible
 Customer take-away of economic value is high quality at a low price
o Market
 About presenting an attractive assortment of products at the right time and place to
realize effectiveness
 Focuses on achieving economy of scope in product/service presentation
 Customer take-away: convenient product/service assortment and choice
o Relevancy
 Value involves customization of value-adding services, over and above basic product
characteristics and physical location
 Relevancy value means the right products and services, as reflected by market value
 Customer take-away: unique product/service bundle

7 – 8. – 9. Table 1.1: Integrative Management Value Proposition
 Economic Value
 Lowest total cost
 Economy-of scale efficiency
 Product/service creation
 Procurement/Manufacturing strategy
 Market Value
 Attractive assortment
 Economy-of-scope effectiveness
 Product/service presentation
 Market/Distribution strategy
 Relevancy Value
 Customization
 Segmental diversity
 Product/service positioning
 Supply chain strategy

10 – 11 – 12. Generalized Supply Chain Model
 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
o Operations are usually integrated from initial material purchase to delivery of finished products
and services to customers
 Value results from the synergy among firms constituting a supply chain as a result of five critical flows:
information, product, service, financial and knowledge
o Logistics is the main channel of product and service flow within a supply chain arrangements
o Every firm engaged in a supply chain is involved in performing some aspects of logistics
 The generalized supply chain arrangement logically and logistically links a firm and its distributive and
its supplier network to customers
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 The integrated supply chain perspective shifts traditional channel arrangements from loosely linked
groups of independent businesses that buy and sell inventory to each other toward a managerially
coordinated initiative to increase market impact, overall efficiency, continuous improvement, and
o Ex. Many firms are extremely competitive through several different supply chains, to the
degree that supply chains become the main competition, which leads to conflicts of interests
and confidentiality issues
 A factor that adds complexity to understanding supply chain is the high degree of mobility and change
in typical arrangements
o A firm may be actively engaged in a supply chain during certain times, such as the Christmas
season. Ex. Toys R Us added 600 express stores during the 2010 Christmas season

10 – 11 – 12. Figure 1.1: The Integrated Supply Chain Framework
 The message conveyed by the figure is that the integrated value-creation process
must be aligned and managed from material procurement to end customers in order
to achieve effectiveness, efficiency, relevancy, and sustainability

13 – 14 – 15. Integrative Management and Supply Chain Processes
 Attention is always focused on achieving improved integrative management across all aspects of
 Since the industrial revolution, achieving best practice has focused managerial attention on functional
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 Accounting practices were adopted to measure departmental performance
 Eight key processes (listed in next part on outline)
 Simultaneous operational achievement of these 8 processes forms the essence of achieving both
operational integration and performance excellence
 Integrative management seeks to identify and achieve lowest total process cost by capturing trade-offs
that exist between functions
 Three important facets of supply chain logic resulted from increased managerial attention to:
 Collaboration
 Enterprise extension
 Integrated service providers

13 – 14 – 15. Table 1.2: Eight Supply Chain Integrative Processes
 Demand planning responsiveness – the assessment of demand and strategic design to
achieve maximum responsiveness to customer requirements
 Customer relationship collaboration – the development and administration of
relationships with customers to facilitate strategic information sharing, joint planning,
and integrated operations
 Order fulfillment/service delivery – the ability to execute superior and sustainable
order-to-delivery performance and related essential services
 Product-service developmental launch – the participation in product service
development and lean launch
 Manufacturing customization – the support of manufacturing strategy and facilitation of
postponement throughout the supply chain
 Supplier relationship collaboration – the development and administration of
relationships with suppliers to facilitate strategic information sharing, joint planning,
and integrated operations
 Life cycle support – the repair and support of products during their life cycle, including
warranty, maintenance, and repair
 Reverse logistics – the return and disposition of inventories in a cost-effective and
secure manner

16 – 17 – 18. Collaboration
 Collaboration of operating information, technology and risk has been encouraged by national
legislation to keep US-based firms competitive
 The increasing importance of collaboration has positioned the supply chain as a primary unit of

19 – 20 – 21. Enterprise Extension
 The central thrust of enterprise extension is to expand managerial influence and control
beyond the ownership boundaries of a single enterprise to facilitate joint planning and
operations with customers and suppliers
 Information sharing paradigm – widespread belief that achieving a high degree of cooperative
behavior requires that supply chain participants voluntarily share operating information and
jointly plan strategies
 Information sharing is essential
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 Process specilization paradigm – the commitment to focusing collaborative arrangements on
planning joint operations with a goal of eliminating nonproductive or non-value-adding
redundancy by firms in a supply chain
 Another contributing force to supply chain development is the rapidly changing managerial
attitude toward integrated service providers

22 – 23 - 24. Integrated Service Providers (ISPs)
 Firms developed the practice of outsourcing work to business that are specialists in the
performance of specific functions
 ISPs provide a range of logistics services to accommodate customers, ranging from order entry
to product delivery
 Commonly known as third (or fourth) party service providers
 Types of ISPs
 Outsourcing
 Transportation modes
 Public warehouses
 Value-added services
 Third and fourth-party service providers
 Asset or nonasset-based service providers

25 – 26 – 27. Responsiveness
 Responsiveness is essential in the supply chain
 Anticipatory (or push) is the traditional business practice to the emerging…
 Responsive (or pull) time-based business model.
 Also referred to as a demand driven

25 – 26 - 27. Anticipatory Business Model (Push)
 The key point from this model is that almost all essential work has been traditionally performed
in anticipation of future requirements
 This makes this model very risky

25 – 26 – 27. Figure 1.8: Anticipatory Business Model

 Forecast  Buy components and materials  Manufacture  Warehouse  Sell 

28 – 29 - 30. Responsive Business Model (Pull)
 Seeks to reduce or eliminate forecast reliance by joint planning and rapid exchange of
information between supply chain participants
 Similar to the “build-to-order” concept but much quicker

and Materials
Manufacture Warehouse Sell Deliver
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28 – 29 – 30. Figure 1.9: Responsive Business Model

31 – 32 – 33. Postponement
 Postponement strategies keep supply chain responsive
 Postponement strategies and practices serve to reduce the anticipatory risk of supply chain
 Types of postponement:
 Manufacturing (or form)
 Geographic (or logistics)
 Combined

31 – 32 - 33. Manufacturing Postponement
 Building directly for customer specifications
 From an integrative management perspective, the goal is to achieve desired customer
satisfaction at the lowest total cost
 The ideal application would be that the firm would manufacture the base product but
not finalizing specifications until the order is made by the customer. It is then they
would add colors or accessories

34 – 35 – 36. Geographic Postponement
 The basic notion of geographic postponement is to build and stock a full-line inventory
at one or a limited number of strategic locations
 Geographic and manufacturing types are exact opposites in practice, but have the same
 AKA logistics postponement
 Meeting customer demand quickly while minimizing inventories
 The anticipatory risk of inventory deployment is partially eliminated while
manufacturing economy of scale is retained in geographic postponement
 Many applications of geographic postponement involve service supply parts
o Critical and high-cost parts maintained in central inventory to assure
availability for all potential users
o When demand occurs, orders are electronically transmitted to the central
service center and expedited shipments are made to the forward center,
using fast, reliable transportation
o Result  highly reliable customer service with reduced overall inventory
 Geographic postponement substitutes accelerated delivery of precise order
requirements for the anticipatory deployment of inventory to local market
 Unlike manufacturing, in geographic postponement, systems retain
manufacturing economies of scale while meeting customer service requirements
by accelerating direct shipments
Buy Components
and Materials
Manufacture Deliver
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 When combined, manufacturing and geographic postponement offer alternative ways
to reduce risk associated with anticipatory distribution
 Both postpone risk until customer commitments are received
 When both are combined, the result is a highly flexible strategy

37 – 38 – 39. Barriers to Implementing Responsive Systems
 The greatest barrier to adopting responsive arrangements is the need for publicly held
corporations to maintain planned quarterly profits
o This accountability creates expectations concerning continued sales and financial
results, which drive promotional and pricing strategies to “load the channel” with
inventory to create timely sales
 A second barrier to implementing responsive operations is the need to establish and sustain
collaborative relationships

40 – 41 - 42. Financial Sophistication
 Time-based strategies are important, but the question is, “How fast is fast enough.” The managers
must understand the economics. The process of creating value says that faster, more flexible, and
more precise ways of servicing customers are justified as long as they can be provided at competitive
o Ex. With hydraulic fracturing in the oil and gas industry, the company must understand how the
economics on how much proppant to pump until the cost outweighs the production benefit

 Three aspects of financial sophistication are: cash-to-cash conversion, dwell time minimization, and
cash spin

40 – 41 – 42. Cash-to-Cash Conversion
 The time required to convert raw material or inventory purchases into sales revenue
 Generally related to the inventory turn: higher the inventory turn, the quicker the cash
 Goal of supply chain is to control and reduce order receipt-to-delivery time in an effort to
accelerate inventory turns

43 – 44 - 45. Dwell Time Minimization
 Measures the productivity of supply chain
 Dwell time is the ratio of time that an asset sits idle to the time required to satisfy its
designated supply chain mission
o Ex. Dwell time would be the ratio of time a unit of inventory is in storage compared to the
time that it is moving or otherwise contributing to achieving sales or operational objectives
 To reduce dwell time, supply chain needs to be willing to eliminate duplicate inventory and
non-value added work

46 – 47 - 48. Cash Spin
 Term for describing the potential benefits of reducing assets across a supply chain, sometimes
referred to as free cash spin

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49 – 50 – 51. Globalization
 Increase demand in developing countries leads to huge market opportunity. Individuals in developing
countries are not as interested in fashion and technology but rather quality in basic life goods, such as
refrigerators, washing machines, food, clothing, etc…

52 – 53 - 54. Summary
 Processes that create value happen within individual firms and between firms linked together by
supply chains
 Supply chain integration is hard to maintain and requires continuous redefinition. So they are viewed
as being very dynamic