Apics CSCP

Course Overview and
Module 1: Supply Chain Design

Book 2
Section B: Design the Supply Chain ........................................................................................................... 1-133
Chapter 1: Business Considerations ...................................................................................................... 1-136

Topic 1: Market, Financial, and Product Research and Modeling ............................................. 1-136
Topic 2: Collaboration with Supply Chain Partners ........................................................................ 1-153
Chapter 2: Supply Chain Design............................................................................................................... 1-174

Topic 1: Supply Chain Design and Configuration ............................................................................. 1-174
Topic 2: Fulfillment Strategies Considering Market Requirements ......................................... 1-187
Topic 3: Product Design for New Products or Requirements ..................................................... 1-191
Topic 4: Supply Chain Network Optimization ................................................................................... 1-215
Chapter 3: Technology Design .................................................................................................................. 1-227

Topic 1: Information Technology and Supply Chain Management ........................................... 1-228
Topic 2: Electronic Business..................................................................................................................... 1-243
Topic 3: Key Technology Applications ................................................................................................. 1-255
Topic 4: Data Acquisition and Management ...................................................................................... 1-276
Chapter 4: Implementation Tools—Communications and Projects ........................................ 1-311

Topic 1: Communications .......................................................................................................................... 1-311
Topic 2: Project Management .................................................................................................................. 1-321
Cumulative Course Bibliography ................................................................................................................. 1-345
Cumulative Course Index ................................................................................................................................ 1-367
© 2017 APICS CSCP Version 4.1, 2017 Edition

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We would like to thank the following dedicated subject matter experts who shared their time, experience, and
insights during the initial development and subsequent updates of the CSCP Learning System:
Greg P. Allgair Dave Jankowski, CFPIM, CSCP Ho Dong Rhee, CSCP

Curtis Brewer, CFPIM, CIRM, CSCP Julie Jenson, CPIM, CSCP David Rivers, CFPIM, CIRM, CSCP
Jashobrata Bose, CSCP Honey Johnson, CFPIM, CIRM, Maryanne Ross, CFPIM, CIRM, CSCP
Al Bukey, CFPIM, CIRM, CSCP C.P.M., CSCP Kimber Rueff, CPIM, CIRM, CSCP,
Jesús Campos Cortés, CPIM, CIRM, Rajesh Kamat, CSCP C.P.M.
CSCP, PLS,,C.P.M., CPSM, Prakash Kanagalekar, CPIM, CSCP Frank Sabin, Ph.D., CSCP
PMP,PRINCE2, CQIA, CEI, CPF, Jack Kerr, CPIM, CSCP, C.P.M. Ignacio Sánchez-Chiappe
CS&OP, CA-AM Jose Lara Carolyn Sly, CPIM, CSCP, C.P.M.
Luc Chalmet, Ph.D, CFPIM, CSCP Paul S. Lim, CPA, CSCP, CPIM, PMP Pam Somers, CPIM, CIRM, CSCP
Prashant Choudhary, CSCP Mike Loughman, CSCP Chad Stricklin
David N. Dadich, CSCP, LSS Giuseppe Lovecchio, CFPIM, CSCP Shashank Tilak, CPIM, CSCP
Blackbelt
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Sudripto De, CSCP CSCP, PMP CDDL
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CPM, CPSM C.P.M. CSCP
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CSCP Rosemary Van Treeck, CPIM, CIRM,
Paulo Mondolfo, CPIM, CSCP
Laura E. Gram, CSCP CSCP
Peter W. Murray, CIRM
Janice M. Gullo, CFPIM, CSCP Wout Verwoerd, CFPIM, CIRM, CSCP,
Mike Okrent, Ph.D., CIRM, CSCP
Amit Kumar Gupta, BE, CSCP SCOR-P
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Kasthuri Rengan Ponnambalam,
Joni Holeman, CFPIM, CIRM, CSCP CSCP Eddie J. Whitfield, CPIM, CIRM,
Eric P. Jack, Ph.D., CFPIM, CSCP CSCP
Gautam Chand Pradhan, CPIM,
Rajesh Kumar Jagadeeswaran, CSCP Vivek Wikhe, CSCP
CPIM, CSCP Blair Williams, Jonah, CFPIM, CSCP
© 2017 APICS Version 4.1, 2017 Edition

Section B: Design the Supply Chain
Once a supply chain has an approved strategy for enabling and
complementing the organizational strategy, it is time to get to specifics.
Network design is about specifying who, what, where, when, and why
for every detail of a supply chain, not only the location and number of
facilities but also how products will be designed to facilitate
organizational strategy and how information systems will make the
network transparent.
Processes for The key processes that supply chain managers need to be able to
designing the perform related to designing the supply chain are
supply chain  Identifying customer and business requirements
 Identifying the current and future states
 Performing a gap analysis between the current and future states
 Developing an action plan to close gaps.
The following is a general overview of these processes. The

information required to plan and execute these processes is presented
in this section’s chapters.
Identifying customer The process of identifying customer and business requirements

and business involves the following steps:
requirements  Researching organizational and supply chain strategy for
customer and business requirements
 Clarifying what degree of responsiveness and efficiency is
required by stakeholders
 Performing market research
 Gathering information on customers’ product or service
requirements
 Developing an understanding of how customer and business
requirements will change over the product’s life cycle
 Understanding when customer and business requirements
necessitate development of reverse or specialized supply
chains
 Determining when business requirements need to be satisfied
through collaboration with supply chain partners
 Determining business requirements for technology, data, and
communication channels internally and between partners
© 2017 APICS 1-133 CSCP Version 4.1, 2017 Edition

Identifying the The process of identifying the current and future states involves the
current and future following steps:
states  Collecting historical data for several periods up to the present on
 Actual inventory levels per location and in transit
 Inventory ordering methods and communications
 Actual transit times and costs
 Facility costs
 Efficiency, responsiveness, and other metrics and key
performance indicators
 Technology usage, usefulness, and administrative costs
 Mapping process flow for manufacturing and logistics for current
products
 Analyzing inventory trends and ordering methods
 Modeling the supply chain in its as-is state using mathematical
models, process flowcharts, and descriptive techniques
 Developing a product or service design future state that will
accommodate customer and business requirements and supply
chain strategy
 Using supply chain network optimization tools such as network
modeling and operations research to design a supply chain that
meets strategic goals including responsiveness and efficiency
 Developing a technology model for desired information flows,
analytic support, and electronic business
 Communicating the product/service and supply chain designs to
stakeholders and gathering feedback
 Getting approval for the finalized designs
 Documenting the finalized designs
Performing a gap The process of performing a gap analysis between the current and future
analysis between states involves the following steps:
the current and  Comparing the as-is to the to-be state to determine needed changes to
future states
 Suppliers
 Supplier contracts and expectations
 Collaboration agreements and processes
 Facilities (e.g., opened, closed, modified, relocated)
 Product or service design
 Production process flows and production lines
 Processes, policies, and procedures that incorporate continuous
improvement and other forms of responsiveness
 Transportation modes or providers
 Inventory policy and ordering methods
 Technologies (adding or retiring)

 Communications policies or procedures

 Metrics to provide incentives to align with strategy
 Estimating the scope of the changes and time and cost involved
 Performing a feasibility study and financial analysis to determine the
return on investment
 Preparing a business plan and getting executive approval for it
Developing an The process of developing an action plan to close gaps involves the
action plan to close following steps:
gaps  Planning how to develop continuous improvement philosophies in
ongoing operational processes, policies, and procedures
 Planning how to communicate and manage change initially and
over the long term
 Developing project charters for all changes to be implemented as
projects
 Getting approval and funding for each project charter, including the
authority to plan projects and expend funds
 Planning each project to define the integration, scope, schedule,
budget, quality, and how to manage human resources,
communications, risks, procurements, and stakeholders
 Planning the execution, monitoring and controlling, and closing
process groups for each project
Note that implementing action plans involve the following steps:

 Communicating and receiving feedback
 Executing, monitoring and controlling, and closing projects using
project management
 Using change management to change the culture and ensure that
project results become standard operating procedure
Change management is an important part of planning and

implementing action plans but is addressed only in Module 3, Section
C, Chapter 3, “Continuous Improvement and Change Management.”

Chapter 1: Business Considerations
This chapter is designed to

 Describe the importance of understanding the marketplace as it
relates to the supply chain
 Discuss market research, demand generation, and the role of the
four Ps of marketing in a customer-focused organization
 Explain the factors used to select strategic partners
 Enumerate the building blocks of collaborative relationships
 Describe how to use collaboration skills to get the most out of
relationship management
 Identify the features and benefits of collaboration
 Describe how to overcome obstacles to collaboration.
This chapter on business considerations addresses some of the tools

used when identifying customer and business requirements, how
product life cycle stage affects requirements and supply chain design,
and how to establish collaborative relationships with supply chain
partners.
Topic 1: Market, Financial, and Product Research and Modeling

At the end of the previous section, we looked at market research as a
tool for strategic analysis. Here we revisit the subject from supply chain
design and product design perspectives. Financial modeling involves
ensuring that solutions are likely to have a positive return on
investment. Product research and modeling refers to determining how
to adapt the supply chain to different stages of each product’s life cycle.
Market When engineers design a product, they don’t necessarily have anything
research in mind other than overcoming technical challenges. They assume that
others will appreciate the beauty and usefulness of their creations. This,
however, is not necessarily the case.
Someone must act as a liaison between the manufacturers (product

specialists, technicians, engineers) and the potential consumers who
either will, or will not, buy their products, and marketing is all about
customers. Marketing plays a role in finding, forecasting, influencing,
and sustaining demand—from the product concept to the end of the
product’s life cycle. Marketing and sales have different but
complementary objectives. Marketing translates the external

perspective for internal audiences (What does the market need?), while
sales translates the internal perspective for external audiences (Why do
you need what we have to offer?)
As noted in the previous section, market research is “the systematic

gathering, recording, and analysis of data about problems relating to the
marketing of goods and services.” Marketing can do these tasks with in-
house personnel and/or by contract with an outside company. Market
research can begin when the product is merely a sketch or the inkling of
an idea. It can also take place for an existing product or service, especially
one that seems not to be living up to its sales potential.
Demand Demand management relates to business and customer requirements in

management that one purpose of demand management is to influence the
organization to produce a product or service that satisfies actual
customer requirements and expectations. Demand management will be
addressed in detail in Module 2, Section A, Chapter 1, but, very briefly, it
includes planning, communicating, influencing, and managing and
prioritizing demand. If marketing professionals succeed in influencing
the organization to produce products and services that meet customer
requirements, the product/service package should have certain
competitive characteristics that enable demand-influencing activities to
have a chance to succeed. The following marketing terms from the
APICS Dictionary, 15th edition, relate to a product or service’s ability to
compete for a customer’s business:
Order qualifiers: Those competitive characteristics that a firm

must exhibit to be a viable competitor in the marketplace.
Order winners: Those competitive characteristics that cause a

firm’s customers to choose that firm’s goods and services over
those of its competitors.
Order losers: Capabilities of an organization in which poor

performance can cause loss of business.
If marketing has successfully influenced the organization to produce a

product or service that has the capability of being an order winner,
marketing professionals can use demand management tactics to get
customers to buy that product or service.
Another purpose of demand management is to convince customers to

purchase an organization’s products and services in a manner that
supports business requirements, organizational strategy, and objectives

(i.e., in a profitable manner). Marketing professionals utilize the

elements of demand management to accomplish these goals.
Purposes of The purposes of market research include finding potential markets,

market research analyzing markets, and refining product design to fit the markets.
 Finding potential markets. The most basic question about a

product is “Does anyone care?” Is there a significant and unmet
need out there for the better product? In an existing company, the
sales force may provide the first clue that current customers have
unmet needs that seem compatible with the company’s mission.
Market research can begin from that point to quantify the need. The
process can also begin among the engineers—the folks who look at
the current products and see a way to improve them. In that case,
marketing and sales can present the idea to current customers to
see if there are any signs of interest. They can also begin a wider
research campaign to identify the potential for new markets for the
suggested product.
 Analyzing markets. As product design gets underway, marketing

can ask more detailed questions about the potential market to
divide the market into segments, as will be discussed in Module 2,
Section B, Chapter 1, “Segmentation.” As stated there, the basic
questions are the best questions: Who? Where? When? Why? What?
How many? The answers to such questions constitute market
segmentation.
Once you know who and where the likely customers are, you can
ask how best to reach them with news about the product. Do they
shop at a large retail chain store or at the local hardware store? Do
they buy from catalogs or over the internet? Is telemarketing the
best way to reach them?
Marketing personnel can find out why and how prospects are
interested in your product by using phone surveys, online
questionnaires, focus groups, analysis of past customer complaints
or feedback, or a combination of those approaches. Marketers also
want to know when prospects are likely to start buying. Are they
ready for the new product, or will market penetration take some
time as your prospects get used to the new idea? Will the product
have a long or short life cycle? How often will it need to be
replaced? How soon will customers demand an upgrade?

Demand forecasting, as discussed in Module 2, Section A, Chapter 1, is

a marketing and sales activity. In collaborative arrangements, such as
vendor-managed inventory (VMI) and collaborative planning,
forecasting, and replenishment (CPFR), the forecasts need to be
shared with cross-functional and intercompany teams to ensure that
everyone works from the same forecasting information.
Remember: When it comes to forecasting demand, marketing has a

natural bias toward optimism—a bias that may be magnified by top
management policies. (Management seldom looks favorably on
cautious estimates.) Demand plans based on overly optimistic
forecasts can lead to problems. Most obviously, it can cost money if
the company increases capacity to meet the demand plan and winds
up with unnecessarily large capital expenses and/or inventory
hangover. An optimistic bias in marketing can also lead supply areas
to distrust the demand plan and compensate by coming up with their
own plans, which may well be biased in the other direction. Cross-
functional teams and supply chain collaboration can overcome such
problems.
 Refining product design. As market researchers learn more about

market segments, the information should contribute to the product’s
design. Market research into customer attitudes can help identify
features of the product, including a strategic price that will be most
attractive to the various market segments. Some prospects may
strongly feel that the new product should contain certain features,
while others desire the opposite features. The features that positively
contribute to the profit margin should be adopted, and unprofitable
variations should be avoided.
In some cases a product’s features can be varied to match differences

in market requirements. For example, computers can be assembled
with different components to meet the specialized needs of various
segments. A basic version will appeal to customers with limited funds
or limited computing needs. Add a powerful processor and
sophisticated subsystems, and your basic computer appeals to “power
users.” Add a choice of colors and shapes, and you add value for the
style-conscious buyer. Other products will not be as profitable with
multiple variations, and the marketing input to design will be
identification of the most profitable segments.
At this point, researchers can also contribute to the reverse supply

chain aspect of product design. What sort of support will be necessary

to satisfy end users and keep them as loyal customers? Will they need
product documentation? How many languages will be necessary in
the pamphlets? Will phone, text, or email support options be
necessary? What will be the return policy? What is the attitude of
potential customers to ease of disposal and impact on the
environment?
Demand Demand generation is part of the influencing demand element of demand

generation management. (See Module 2, Section A, Chapter 1.) Demand generation
involves translating latent demand identified during market research into
active demand for a product or service using various forms of
communications with potential customers.
Demand generation is critical for new product introductions since most

new products fail. The market could either stay with the product they
already know or just not notice the new product. With no historical data
to guide forecasts, marketing and sales have to operate on instinct,
experience, connections to past products, and market research. A great
deal depends upon that research. And the rest depends upon what the
marketing experts do with that research, both in the product design
phase and during the introduction.
Most of all, the product really has to give the market what it wants.
If market analysis has correctly identified the needs and desires the
new product can satisfy, marketing at least has a good chance to
develop a campaign that triggers robust sales. Of course, all those sales
have to be matched by production and delivery so your supply chain
doesn’t run out of stock and have to turn away eager buyers.
Marketing’s major responsibilities when developing a campaign for a

new product or rebranding an existing product include educating
customers and supply chain partners.
 Educating customers. The potential buyer has to know that your

product is out there. Marketing has to know where buyers are and
how to reach them. This means crafting the right message, one that
emphasizes the product’s unique benefits and connects them to
customer needs and desires that were uncovered during market
research. Generating product and brand awareness are activities
that often take longer and require more effort than is planned and
budgeted for. Therefore, a longer planning horizon and regular

feedback on marketing progress are necessary to increase the

chances of a successful product introduction.
The message also has to be conveyed through the appropriate

media: print ads (Which periodicals?), television or internet
commercials (Which programs and time slots or websites? Which
ad agency? Which style of presentation?), email, telemarketing, in-
person visits, public seminars, and so on.
Finally, marketing has to know who the buyer is. That’s not always
as obvious as it sounds. For example, a new type of exterior junction
box may have to be marketed to, and accepted by, developers,
general contractors, carpenters, and electricians as well as
regulators and inspectors. Getting the word out will probably
require personal visits and demonstrations. The end user, the
homeowner who may eventually plug some outdoor lights into that
box, is actually of no importance in the marketing campaign.
 Educating supply chain partners. Part of getting a product

accepted is getting it understood by those who have to design, build,
transport, and sell it. Working in conjunction with engineers,
suppliers, logistics managers, retailers—and whoever may be
involved along the way (like those carpenters in the preceding
junction box example)—marketing has to be certain that the product
is produced, carried, stored, and sold by people who understand it.
Training and job aids may have to be designed and delivered at
multiple levels.
The four Ps of The APICS Dictionary, 15th edition, defines the four Ps as
marketing and
demand shaping a set of marketing tools to direct the business offering to the
customer. The four Ps are product, price, place, and promotion.
The four Ps are part of what is called demand shaping. The Dictionary
defines demand shaping as
the practice of using the four Ps…and other market variables to

influence the demand of a product or service so that the demand
better matches the available supply.
Customer-focused marketing, customer segmentation, and customer

relationship management (CRM) philosophies have transformed these
components of traditional marketing to respond to the changes in
today’s marketplace. In traditional marketing, there was a product

aimed at a single targeted audience. There was one price, one channel of
distribution, and one marketing message. In customer-focused
marketing, a product/service package might be marketed to a
particular niche segment or customized to appeal to the needs and
wants of several market segments.
A customer-focused strategy may contain all of the traditional

components of a marketing program or may, depending on the
situation, focus on one or two components. We will therefore continue
to use the terms of traditional marketing to describe the components of
a customer-focused program.
Product
“Product” for our purposes includes both products and services or
product/service packages. In traditional marketing, a product or service
was designed to appeal to a large group of consumers. The product was
essentially static—perceived in much the same way by all customers.
Consumer needs were important, but they were not the starting point.
For example, electricity was offered to the public before the public
expressed any specific needs that it would address. The technology was
what was being sold; marketing and time would create the need.
Similarly, the first home computers were introduced before there was
broad consumer need; it took at least 10 years and the growth of the
internet to create the need.
In a customer-focused world, the starting point for a product/service

package is often customer need. Food products are often designed by
specialized companies to appeal to the needs of certain groups. For
example, a highly engineered cooked turkey may deliver improved taste
to a consumer who doesn’t want to spend the time required for the
traditional cooking methods that produce that taste. A new dessert
might result not from a combination of flavors to create excellent taste
as much as a combination of ingredients to deliver a nonfattening, good-
tasting treat that can remain fresh for months.
Increasingly, product/service packages may be designed to be

customizable for specific customer segments. This allows the seller (or
supply chain) to add desired value and competitive differentiation to
the product and ideally sustain or grow profit. For example, a
manufactured building like a barn or storage facility may have elements
(like windows, doors, partitions, porches, or trim) that can be combined
in various ways to create structures that meet very specific needs and
tastes. The same credit card may actually be multiple card programs

distinguished by features that offer values to specific groups, such as

low transfer rates, frequent flier mileage, waived fees for checked bags
in air travel, bonus rewards, or co-marketing partners.
Value-added products have various implications for a customer-focused

program:
 The product itself must be designed to fulfill customer expectations

and pose few challenges for customer use. This necessitates
extensive research and/or customer involvement.
 The product must be manufactured or created to meet quality levels

that satisfy customer expectations and business profit margins.
Performance must be continuously and scrupulously measured.
 Promotion and distribution must be customized as well to address

the distinctive needs of a segmented audience. The performance of
the program must be tracked so that the program can be retooled
for higher performance.
 Sales methods may need to be customized and measured for

effectiveness. The sales force must be thoroughly familiar with each
product for which it is responsible—with its intended audience and
use as well as with the marketing goals for the product. Ideally, they
should be aware of what the customer has bought before.
 Customer care personnel must also be familiar with each product

variation, its use, and its potential problems. Ideally, they should be
familiar with what the individual customer has bought and the
status of the order without having to be told by the customer.
Price
Pricing is generally a strategic decision, based on competition, perceived
value, and brand identity. While some businesses may still calculate
profit by adding an acceptable and competitive price margin to the total
costs of creation, sales, and overhead, many take a more nuanced
approach to pricing. If the market is highly competitive and a product
has become a commodity, price will be dictated by the competitive
situation, but in a more differentiated marketplace, pricing becomes
more subjective.
In pricing a new drug, for example, a pharmaceutical company may

consider not only their research and development, marketing, and
manufacturing costs but also the value of the drug to patients. How
much would a person pay for a drug that enabled him or her to return to

work or that caused fewer side effects? How much would a person pay if
there were no other products on the market that could do this?
In the customer-focused business model, price and product are tightly

connected. Price may be another way to differentiate products for
specific customer segments. For example, a credit card company may
waive annual fees for highly desirable customers who use their cards
often and carry a balance from month to month. A computer company
may create product/service packages for different customers.
Customers who buy more frequently or who buy more expensive
systems may receive free upgrades to higher-performance features or
may receive free in-home repair service.
Obviously, strategic pricing must be carefully and frequently analyzed to

ensure that the pricing structure is attractive to customers but still
profitable to the business. Specific sales data for customer segments are
invaluable, as they can help automate delivery of messages intended to
move customers into different pricing groups.
What pricing is too high to penetrate the market? What pricing is too low
to cover salaries and bonuses and still return a profit? Demand is not an
absolute; it increases and decreases depending on many factors, and price
is often the major variable. Demand may rise as the price falls, but even
that correlation has its limits. Some products sell better at a price slightly
more than that of the competition, because a higher price adds to their
status appeal. A light bulb may be perceived as a better value due to a
higher price and a recognized brand name, even if its generic equivalent
is produced on the same production line and is identical but for the name.
But for some products, and in some markets, the “everyday low price”
draws customers in. Synchronizing the selling price with the costs of
design, manufacturing, and logistics is an area in which marketing can
effectively collaborate across functions and companies.
Placement
Placement, or distribution, is another task that falls to the marketing
department. Where is the right place—or right combination of places—to
sell the product to the target market in sufficient quantity to meet the
demand forecast?
Placement has traditionally referred to the way in which a product is

sold—how the product or service gets into the hands of the customer. A
company might decide, for example, to distribute its product through
warehouses and retail outlets, through a direct sales force calling on

customers, or through a catalog. It’s worth noting that placement has

traditionally been seen as a one-way form of communication: Product is
placed by shipping to outlets or being sold through a sales force, or
customers call in orders.
In the most traditional location—retail store shelves—placement can

include the design of the display. While this might seem to fall naturally
within the competence of the retailer, in VMI partnerships the supplier
may design and construct the display as well as manage the
replenishment.
In the customer-focused model, placement is often referred to as the

contact channel strategy. It is a means to increase profitability, first, by
ensuring that the most cost-effective and customer-preferred channel is
used to distribute products and services and, second, by securing
lifetime customers through highly effective customer care and customer
research activities.
Customer-focused placement may be determined by customer segment.

Essentially identical product may be distributed through different
channels that have been chosen because they match the communication
and contact preferences of different customer groups. Airline tickets
may be sold on the internet, at automated kiosks, at counters, over the
phone, via mobile device app, or through intermediaries (agencies).
Different means of placement may affect pricing, however. High touch
customer service methods may command a premium price.
Improved transportation has made placement itself a key element in a

product/service package. For example, placement may be customized
according to the customer’s need for fast delivery (regular speed, faster,
overnight). Other transportation may specialize in consistent delivery
that is neither early nor late.
Customer-focused placement requires a more interactive form of

communication than traditional placement does. Since customers must
be satisfied and since information about the customers’ actions and
attitudes is critical to the business, information must flow back and
forth between the business and the customer. Thus, in the customer-
focused model, placement includes the way in which the customer gains
information about the product and post-purchase support. Interactive
contact channels include call centers, online repositories that allow
customers to find desired information, websites that incorporate live
dialogue or email communication, and chat rooms for users.

One-way channels may also be used in customer-focused placement;

these include direct marketing (direct mail, mass mailings by fax or
email, telemarketing) and media-based marketing (television, radio,
newsprint, periodicals, trade publications, banner ads, billboards, etc.).
Throughout the communication process, information is continually

being gathered. This information may point out commonalities and
trends that suggest future product crafting, promotion, and support.
Technology has greatly changed customer care. It’s hard to imagine a

new product introduction campaign that doesn’t use e-commerce as
part of the mix. A website is necessary even if only for informational
purposes. Many products can be both advertised and sold online
through one’s own site or through third-party sites. Customers can
download software and hardware documentation and manuals, refer
problems to automated expert systems, consult information databases,
and communicate with technical support or even other customers
about problems or questions. Digital products can be advertised,
ordered, and shipped via the web: software applications, music, movies,
and written materials are examples.
The channel strategy must be continuously evaluated to ensure that it

is fulfilling the needs of both the customer and the business. From the
customer’s perspective, an effective channel has the following
characteristics:
 Accessible. Are help lines toll-free numbers? Do the hours of

operation allow access at different times of the day to meet
different schedules? Are websites kept current, and do they reflect
real-time changes? Can the customer contact the organization by
chat or text?
 Reliable. Are materials or services available within the expected

time frame without exception? Is the social website always
operational?
 Complete. Can the customer get accurate, current, and complete

answers?
 Secure and error-free. Is e-commerce adequately encrypted? Are

orders taken accurately?

 Direct. Can the customer reach someone who can assume

ownership for the issue, has decision-making authority, and can
resolve a problem? Are questions easily answered by phone or
automation?
 Convenient. How many telephone handoffs does the customer have

to pass through before reaching someone who can actually solve a
problem or answer a question? How much hunting on the website is
necessary? How long is the customer on hold when calling?
 Fast. Does the customer have to repeat account and problem

information or can all the customer care personnel access this
information automatically? Does the customer receive a quick
response to emails or phone messages?
 Flexible. Can the business be reached easily by those with and

without computers? Are there accommodations for non-native
speakers?
From the business’s perspective, the channel must allow the following:
 Control and consistency. Does the channel promote the intended

values, ideas, or content? Is every customer’s experience the same?
 Profitability. Does the channel minimize the use of expensive

human resources, for example, by using automation whenever
possible?
Promotion
The last of the four Ps, promotion, includes such marketing activities as
consumer research and market analysis; segmentation of customers or
audience; setting of strategy for targeted segments; planning, creation,
and placement of advertising; and creation of brand image. It also
involves determining and communicating the timing of marketing and
promotional activities and collecting feedback on their impact.
All of the traditional promotional activities are still valid in a customer-

focused business model. What is different is the level of research,
segmentation, and customization of the promotional message or offer
that is possible. With customer relationship management technology,
businesses can capture information about every interaction with
customers. This enables unparalleled opportunities to study buyer
motivation and behaviors and to segment customers into groups with
distinctive CRM programs. Printing technologies allow for cost-effective

customization of advertising materials. The explosion of communication

channels—including not only the web but also satellite radio, podcasts,
and email—allows businesses to select alternative channels that offer
clear advantages for specific audiences.
Let’s look more closely at two factors related to promotion: branding and
packaging.
 Branding. Customer-focused promotion helps to create the brand. As

defined in the APICS Dictionary, 15th edition, branding is “the use of
a name, term, symbol, or design, or a combination of these, to identify
a product.”
An organization’s or product’s brand can be worth a considerable

sum to market analysts. Google’s and Facebook’s brands were worth
billions at the time of this printing. The worth of such brands is based
partly on current market share and total number of customers and
partly on image, which is an intangible quality that sums up a brand’s
awareness, popularity, and reputation. As is said about reputation,
brand image is something that takes years to build up but that could
be destroyed in an instant. Therefore organizations take great pains
to protect their brand image.
Part of educating customers about a new product is choosing a name

and logo that emphasizes product characteristics that will attract
targeted segments. If the initial research accurately measures
customer needs and attitudes, and if the product’s design successfully
incorporates those selling points, then the name should follow suit.
The Apple Computer name and logo supports the company’s strategy
of putting computers into classrooms by suggesting the familiar
association of apples and learning (“an apple for the teacher”).
Automobile names often highlight concepts that appeal to a target
market. Dodge Ram emphasizes toughness and power; Jaguar
suggests grace, speed, and elegance; Honda Civic incorporates, in its
name, the strategy of building a sensible, economical city car.
A new product’s name and the logo that represents it visually can
either link the product to an existing product family or set it apart.
The name Macintosh kept the familiar association with Apple but
also signaled the advent of a new line of products. Sometimes a
new model can be created from an existing model simply by
acquiring a different name, as when Chrysler rechristened the
Mitsubishi Eclipse as the Plymouth Laser and the Eagle Talon.

Perhaps because of the rate of change in product availability,

customers are increasingly transferring their loyalty from specific
products (e.g., a line of jeans) to the provider of those products
(i.e., the retailer who keeps those jeans available in the right size).
They grant their business to these organizations because they
trust that they will find the products they are looking for and that
they will be taken care of if any problems occur. This means that
businesses must keep in close touch with what customers want
and are buying so that they can continually upgrade, alter, or
customize product and supply chain options to meet customer
expectations. They must also ensure customer satisfaction. If
customer care is ignored, the implications can be catastrophic.
Because customers are more aware of service, products, and the
personal experience they should receive, a single failure may
undo the brand image and drive customers to a competitor.
Dissatisfied customers also have the means to make their
disloyalty well known. Complaints posted on websites, blogs,
tweets, chat rooms, or other media can have a significant impact
on today’s internet-savvy customer and can destroy a once-strong
business relationship.
 Packaging. The package that contains a product also serves a

marketing purpose. The more obvious marketing elements of
packaging—colors, images, words, even the textures of the
wrapping—are marketing devices.
The package should command attention and reinforce the features

and benefits that sell the product (market research again). Some
packages are educational—like the boxes containing microwave
meals on the inside and cooking instructions on the outside.
Quaker Oatmeal comes in a round container. A marketer’s
inspiration—or focus groups—no doubt lay behind that decision.
Packages can be functional as well as visually appealing. Some

microwave pizzas come in boxes with one reflective interior
surface for cooking the pizza. Hewlett Packard’s laser cartridges
are packaged in a box that can be used to return the spent
cartridge, thus solving the end user’s reverse logistics problem and
protecting the environment. Market research likely determined
that such a box would increase the number of cartridges that were
returned, which would reduce net costs even after the free
shipping expenses were included.

Services, too, are “packaged” for sale. Presentation of meals, design

of hospital waiting rooms, and the uniforms worn by many service
personnel—all these matters of style and appearance serve a
marketing purpose.
This completes our look at market research. While this research is

useful for figuring out what the market needs, the next subject, financial
modeling, is useful for figuring out what the organization can provide to
the market at a profit.
Financial Financial modeling involves determining the financial feasibility and

modeling return on investment (ROI) of a product/service strategy or supply
chain strategy.
Recall that Section A, Chapter 3, “Tools and Techniques,” introduced

network modeling and operations research as well as marginal
analysis. Optimized network models supply cost estimates for financial
modeling. Since it is just the increase in costs and the increase in
benefits that are important to a decision to create, change, or improve a
product and/or supply chain, financial experts use marginal analysis to
study the marginal costs and benefits of the option being considered.
Marginal costs include constructing, leasing, or contracting out all of the
parts of the supply chain that need to be improved, reworked, or
developed. They will compare these to the marginal benefits received
from new or increased demand and the resulting increases in sales
revenues. For the benefit side of a benefit-cost analysis, market
research provides information on projected demand for the products
and services that will be produced as well as target pricing. This
information can then be used to estimate revenues for future periods.
Financial modeling has more nuance than just taking the benefits and
dividing them by the costs, though this is the basic formula for ROI.
Since money that is borrowed requires interest payments and money
that is earned can be invested to earn interest, financial analysts factor
in the time value of money. Briefly stated, money to be received in the
future is discounted to the value that it would be worth if received
today at current interest rates, called the present value. If you will get
US$100 a year from now and interest rates are 10 percent per year, and
if someone gives you US$90.91 now, the principal plus interest is
calculated as US$90.91  1.1 = US$100, so getting US$90.91 now is the
same thing to a financial analyst as getting US$100 a year from now at
that interest rate.

This concept is used in a number of financial metrics, including net

present value (NPV) and discounted payback period.
With net present value, each year’s future cash inflows are discounted
back to their present values and the present values of all cash outflows
are also calculated. The difference between these amounts is a
measure of profit in today’s money. Any NPV equal to or greater than
zero is a positive sign, but, obviously, the higher it is, the better.
Discounted payback period determines how long it will take the

recoup the initial investment or break even. It also discounts the future
cash flows to the present value before applying them. A supply chain
investment that will take three years to break even is better than one
that will take six years. This was a key reason that Target decided to
close its operations in Canada in 2015. An analysis determined that the
Canadian operations would not become profitable until 2021, and
apparently this six-year payback period was not acceptable. What
constitutes an acceptable payback period may have to do with
alternative investment opportunities and the product being offered.
For example, if a product will be obsolete quickly, it will need a fast
payback period or the capital investments will need alternate uses
such as a follow-on model that can be produced with minimal further
investment.
There are a large number of other metrics that financial analysts can
compile and help interpret. One of these is economic value added. The
APICS Dictionary, 15th edition, defines economic value added (EVA)
as follows: “In managerial accounting, the net operating profit earned
above the cost of capital for a profit center.” EVA is useful because it
specifically accounts for the capital investment cost before it calculates
profit.
The results of financial modeling will indicate what level of capital

investment will be possible. Knowing this information up front can help
supply chain managers propose product, service, or supply chain
designs that are likely to meet business requirements for profitability.
Product life The product life cycle can be defined as “the stages a new product goes
cycle stages through from beginning to end.” (Refer to the APICS Dictionary, 15th
edition, for more information.) As illustrated in Exhibit 1-26, the
traditional product life cycle from a classic marketing view includes
development, introduction, growth, maturity, and decline.

Exhibit 1-26: Product Life Cycle
Development
Introduction
Maturity
Decline
Growth
Sales
Time
 Development. Product (or service) development is the incubation

state of the product life cycle. There are no sales at this point, as the
organization prepares to introduce the product. Traditionally, this is
the period when market research, product design or service
definition, testing, and finalization are accomplished.
 Introduction. During the introduction stage, sales of the product or

service will be low until customers become increasingly aware of it
and its benefits. The organization is likely to have additional costs
associated with establishing distribution of the product or service.
The higher costs added to the low sales volume typically make this
stage a time of negative profits.
 Growth. The growth stage is a time of rapid revenue growth. Sales

increase as more customers become aware of the product and its
benefits. Once the product has proven success and customers begin
seeking it, sales will continue to increase as retailers become
interested in offering the product. Distribution may be expanded at
this point. During this stage, competitors may enter the market. The
organization’s promotional costs may increase in order to sustain
market share.
As the base of customers and distributors grows, businesses must

commit increased resources to both satisfying the market’s needs
and gathering and analyzing data in an ongoing manner. Production
and inventory levels must be managed to avoid stockouts or delays
that could lead to customers switching brands. A make-to-stock
strategy may work well for many products in the growth stage.

 Maturity. The maturity stage is the most profitable. While sales

continue to increase, they do so at a slower rate. Competition will
result in decreased market share and/or prices. The competing
products may be very similar at this point, making it difficult to
differentiate them from that of the organization.
 Decline. Eventually sales begin to decline as the market becomes

saturated, the product becomes technologically outdated, or
customers’ tastes change. If the product has developed brand loyalty,
profitability may be maintained longer, but with the declining
production volumes and increased unit costs, eventually no more
profit will be made. Organizations that used a make-to-stock strategy
may need to transition to a make-to-order strategy to prolong
profitability as long as possible. Ideally, new products have been
developed and the cycle will continue.
The purpose of learning the differences between these phases is to enable

product life cycle management. The APICS Dictionary, 15th edition, defines
product life cycle management as
the process of facilitating the development, use, and support of products

that customers want and need. PLM helps professionals envision the
creation and preservation of product information, both to the customer
and along the reverse-logistics portion of the supply chain.
Topic 2: Collaboration with Supply Chain Partners

Information technology has enabled collaborations among participants
in supply chains, undreamed of a decade or two in the past, that have
become essential strategies for the present and future success of the
organizations involved. These partnerships are being forged both across
thousands of miles and with local suppliers, creating virtual
organizations that extend beyond the physical boundaries of a company.
The APICS Dictionary, 15th edition, defines virtual organizations as
short-term alliances between independent organizations in a

potentially long-term relationship to design, produce, and distribute
a product. Organizations cooperate based on mutual values and act
as a single entity to third parties.
Virtual organizations use point-of-sale data to replace make-to-stock

(i.e., make-to-forecast, or push) with make-to-order (pull) or go even
further and provide these data to suppliers, who consult with the

organization on product design and perform significant manufacturing

tasks.
Virtual organizations build trust between partners by sharing

information. The more information each partner offers, the more robust
the relationship becomes. And the faster the flow of information, the
more efficient and agile the virtual organization becomes. For some
chains, speed and accuracy become the differentiators that allow the
virtual organization to win customers.
When sellers have access to greater detail about purchasing history and
buyer preferences, they are able to provide enhanced service. For
example, a pharmaceutical wholesaler has designed a virtual
organization by providing multiple independent pharmacies with an
internet-based system for ordering, accounting, and inventory control.
The wholesaler gets a large set of captive accounts, information on
actual customers, and a portion of the improved returns in exchange for
its information technology investment. The independent pharmacies
improve customer satisfaction, and all partners reduce inventories.
The speed at which virtual organizations can adapt to new business

situations is the key to their success. Many virtual organizations have
this speed because they are a constantly adapting network of informal
relationships enabled by communications that are flexible and easy to
set up. Some members of the network remain at a commodity level,
while those who share better information or provide greater value for
the whole gradually become partners.
Virtual organizations may need to weaken their formal hierarchical

organizational structures and instead empower individuals and even
teams who represent a particular core competency to informally work
with others outside the organization as if they were employees, make
decisions, and refine strategies. By empowering individuals to act
outside formal organizational structures, virtual organizations work to
achieve the benefits of both centralization and decentralization.
A virtual organization has its risks. If the organization fails to design in

informal controls, incentives, and training, individual decisions could
cause the organization to revert to locally optimal but overall
suboptimal decisions. Another risk is a backlash from organizational
hierarchies, potentially leading to a return to functional silos. However,
technology that did not exist when traditional organizational
hierarchies were formed can help these new disaggregated, informal
control structures to survive and even thrive.

What do these strategic partnerships look like in action? Suppliers,

manufacturers, and customers all come together on design teams to
create products that will not only satisfy customer demand but will be
efficient to produce, assemble, transport, and store. Planners gather
from all functional areas and from multiple supply chain partners to
discuss anticipated demand, demand planning, and appropriate
forecasting methods. The operations people plan and manage
manufacturing priorities, capacity, and inventory; the logistics people
determine the most effective warehousing and the appropriate means of
transportation to optimize customer satisfaction and profits.
Requirements But how does a business select its strategic partners? Jordan Lewis,
for success author of Partnerships for Profit, has developed a comprehensive
framework of criteria for evaluating potential partners for strategic
alliances. Seven factors need to be carefully researched and considered
when forming a supply chain strategy.
 Adding value. Can a company add value to your company’s existing

products? Does the potential partner create products that are
complementary to those of your organization? For example, Liberty
Mutual sells auto insurance but a third-party auto glass company
processes all glass-only claims. Liberty Mutual reduces its
administrative costs, and the auto glass company gets significant
new business (even after stating that the customer is free to choose a
different auto glass company). Other examples of value-added
benefits include shortening time to market, speeding up distribution
times, or enhancing the product repair process; these all contribute
to a higher perceived value of the company.
 Improving market access. Will a partnership with this company

lead to increased access to new markets? Does the partner company
have better, more effective advertising? Again here a company that
has products that complement your organization’s offerings might
make a good partner. You might decide to offer a package deal,
combining products from both companies, as a promotion.
 Strengthening operations. Will an alliance with this company

improve your operations by lowering costs and cycle times? If yes,
then resources and facilities can be used more efficiently and
effectively. Companies with complementary seasonal products, for
instance, can effectively share warehouses and trucks throughout the
entire year.

 Adding technological strength. Does the company use the same

technology or is it willing to share new technology with your company?
Does the potential partner have internal expertise to facilitate the
transition between new and old technologies? And is your organization
prepared to handle those challenges?
 Enhancing strategic growth. Are there significant barriers to working

with this company? Will its strategy align with your organization’s? Is
the company heading in the same general direction? Pooling expertise
and resources from both companies can provide new opportunities for
growth.
 Sharing insights and learning. Is the company willing to share its

insights and key learning with your company? Alliances where that
occurs yield a wealth of information that can be used by both
organizations. It also encourages partners to learn more about
themselves and increase their desire to be more flexible in the
partnership.
 Increasing financial strength. Is the potential partner willing to

share administrative costs for shared activities? Is the company
willing to share in the risk? Sometimes administrative costs can be
reduced due to the expertise of one or both partners, and strategic
alliances can limit investment exposure if the other company will
agree to share in the risk.
Every potential partner organization has its strengths or core

competencies. These should not be diminished by the alliance with your
organization; this can happen if the company’s resources are diverted
from its strengths. It can also occur if the company’s strategic or
technological strengths are compromised in the process of making the
partnership successful. Remember that it’s only a successful strategic
alliance if the partnership results in a “win-win” for both parties.
Creating relationships that produce meaningful results requires

commitment by both parties and hard work. Effective partnerships are a
combination of shared risks, resources, rewards, vision, and values.
Without these elements, strategic alliances often are unbalanced and
unaligned. The more unbalanced a partnership is, the more likely that key
objectives will not be met.
Building So once you have analyzed potential partners according to these criteria
collaborative and have chosen those that objectively match your needs, how do you go
relationships about building a collaborative relationship? How will you generate a

supply chain strategy that can develop and grow trust, manage risks,
overcome barriers, communicate, and collaborate effectively?
Building these partnerships depends upon the following:

 Auditable information exchange and technology for connectivity
 Deterrence-based arrangements such as formal contracts that make
adherence to proper behavior a matter of self-interest
 Incentive-based arrangements such as aligning sales and
management goals to collaborative objectives
 Process-based arrangements such as long-term trust building based
on constant communications and feedback that spiral out into
greater trust over time
 Assignment of leaders with the appropriate level of authority to
enforce the relationship
 Focus on the entire supply chain
 Networkwide visibility and measurement of the bullwhip effect to
assess the impact of collective management of inventory
 Sharing of knowledge, not just data
 Clearly visible sharing of both the benefits and the burdens of the
relationship
 Varied types of commitment, depending upon factors such as length
of relationship, feedback, and amount of added value by each
potential partner
In order to build the foundation of the collaborative partnership, the

partners must
 Initiate management tasks.
 Overcome barriers to collaboration.
 Build levels of communication.
 Determine levels of collaborative intensity.
 Examine strategic importance versus difficulty to determine
product categories.
Initiate Once the collaboration is official, it’s critical that top management
management demonstrate their enthusiastic commitment to the partnership. Since
tasks. actions speak louder than words, management should publicly model
relationship-building efforts. The managers of both organizations need
to work together from the start: sharing information with external
parties and with internal staff, modifying incentives to match
collaborative goals, enforcing agreements by departments and staff,
stabilizing pricing and ordering, and improving operations. They must
develop good working relationships and strive for personal
communication to develop mutual trust. They need to develop

supportive relationships that foster team spirit between the partner

companies.
Division managers throughout the network must place the interests of

the whole above their local interests. These managers may be asked to
make major changes in how they operate to facilitate collaboration.
Top management may need to change the individual incentives for
their managers and consistently encourage them to make the needed
changes. This may require internal team discussions during which
senior management enumerates the benefits of the collaboration and
discusses the negative impact of the division managers not being on
board with the required changes.
Management can start building the collaboration by jointly discussing

and designating relationship goals and planning the steps necessary to
reach them. This process begins with determining the specific
contribution of each party and the criteria for measuring that
contribution. Obviously, total profits should be one of the criteria, but
there should be other specific measures, including nonfinancial
contributions. The criteria should be flexible enough to allow each
party to use innovation to meet its goals. In the early stages,
relationships should emphasize equity in profits among all parties.
Equity will help motivate all parties to work toward the good of the
whole.
The next task is to define roles for each party, taking care to avoid
redundant efforts. Conflicts can occur if these roles make one party
more dependent upon another than they wish to be. To alleviate this
common problem, networks should avoid sequential interdependence,
in which the second party cannot begin work until the first party is
done. Instead, they should establish reciprocal or mutual
interdependence, in which the exchange of tasks and services occurs in
both directions. Examples of this include CPFR (collaborative planning,
forecasting, and replenishment), which you will learn more about in
Module 2. Although mutual interdependence is more complex to
manage, it can also yield much greater rewards.
Since no contract can cover all contingencies, the next task is to create a
policy for resolving conflicts. If a conflict is serious enough to require
amending the contract, negotiations to do so should include all affected
parties. Many organizations prefer to resolve differences through
informal negotiation rather than by revisiting the contract. All parties
to the contract should agree upon a plan to govern such negotiations to

ensure that they aren’t too informal. The plan should call for regular
meetings among key managers and cross-enterprise teams, and it
should include guidelines for referring problems to the highest level
necessary to resolve the conflict. Either the contract should specify how
finance and information technology establish rules for transactions, or
a policy and procedures guide should do so. Contracts, policies,
procedures, and informal conflict resolution must be sensitive to
cultural differences. In the United States, courts can resolve conflicts
without detriment to long-term relationships among parties to a
contract. The opposite is true in most Asian countries.
Finally, managers must stay involved. Without management

commitment, each party tends to revert to its own self-interests.
Weaker parties in the relationship may bear the brunt of problems;
without an effort to maintain equity, the relationships may fall apart.
The partnership’s benefits and areas needing improvement will be
easier to identify and improvements can be made in a timely manner if
the relationship is monitored and cared for. Top management must
follow through on its responsibility for adhering to the collaborative
arrangements.
Overcome barriers Building successful collaborations requires overcoming predictable

to collaboration obstacles, including the following challenges.
 Suboptimization. Suboptimization refers to a solution to a problem

that is best from a narrow point of view but not from a higher or
overall company point of view. When supply chains are not truly
connected at the planning level, each partner in the supply chain will
work to maximize its own profits or to increase other measures at
the expense of the other supply chain partners. When this occurs
despite the recommendations of a holistic optimization tool, it is a
double loss because the investment in global planning is being
wasted. For example, when a product is available in limited amounts,
retail orders must be monitored across the supply chain. If each
store is allowed to determine its own order quantity, the result
might be overstocking of locations that order early and stockouts
elsewhere. Transportation cost is another area commonly
suboptimized.
 Individual incentives that conflict with organizational goals.

Incentives such as sales force bonuses that are structured
without thought for the supply chain strategy can often be
counterproductive. For example, sales quotas for distributors or

manufacturers are often based on monthly or quarterly targets

for sales to retailers instead of on those retailers’ actual sales.
While the distributor doesn’t actually control retail sales, this
practice can lead to channel stuffing (intentionally selling too
much inventory) and is aggravated by promotions intended to
increase sales at the end of a period. These practices create a
great deal of excess inventory as well as variability in demand
that the manufacturer must deal with. Instead, sales goals must
be aligned with actual demand. Many companies have stopped
giving sales incentives and instead have turned to other metrics
that more effectively align sales with company objectives.
 Working with competitors. Supply chain management books

tout the success of collaborations among competitors, but many
of these ventures fail. This is partly due to lack of trust and
cultural rigidity, but it also reflects the reality that one company
is trying to win market share at the expense of the other. Such
relationships should be kept at arm’s length to ensure fairness,
and extra caution must be devoted to sharing information.
Companies may pretend to embrace collaboration when they
really only want access to information for their own benefit.
 Bottlenecks caused by weak or slow partners. The slowest or

least integrated partner in a network will often limit the
technological collaboration level of a company as well as the level of
trust that can be built. If the company is not willing to invest in a
technical and social change process, the only alternative may be to
find a more willing or able partner who can keep up with the
network’s collaboration curve.
 Technology barriers. When potential partners have incompatible

systems, it increases the difficulty of sharing data, especially when
one or more companies use very old legacy or ERP systems that do
not adapt well to the newer integration solutions such as process-
oriented middleware (like business process management [BPM], or
web services, discussed in Chapter 3). Incompatible and/or
antiquated hardware infrastructures can also prove a barrier to
collaboration.
 Power-based relationships. Rather than building relationships

based upon trust and mutual benefit, the nucleus company may use
its leverage to dictate the terms of relationships to the other
members. While the profits of the nucleus company increase, other

members of the network may suffer losses. When this occurs, the
disadvantaged partners may rebel. Resistance may result in
redundancy, loss of overall profitability for the supply chain, or an
actual reversal of the power relationship. Once in power, the
mistreated party may retaliate instead of using the opportunity to
develop equitable relationships along the supply chain.
 Underestimated benefits. When collaboration is viewed as

another type of process reengineering, the partners generally
measure the results in reduced cost and cycle time rather than
return on investment, which is a better long-term indicator. Simply
measuring efficiency increases will fail to account for some of the
true long-term benefits of collaboration. This may lead managers to
reject a collaborative venture based on a failure to see gains like
removal of reduplicated efforts, enhanced innovation, and better
use of total system assets and processes.
 Culture conflicts. Cultures tend to be egocentric and thus tend to

resist external collaboration. They feel that their ways are the best
ways of doing things and will often reject a different way without
even considering it. Culture conflicts are increased when each
company relies on its own sources of information and is unable to
see the impact of its choices on other areas of the network. When
companies don’t see the negative results of their actions, they can’t
learn from their mistakes.
Another potential culture conflict can arise when managers delay or

prevent collaboration. Such managers generally have safeguarded
their positions by not sharing information so that they must be
sought for their expertise. Others feel that collaboration is a fad or a
bad idea altogether. Still others talk about collaboration but are
only interested in receiving the benefits from a partner without
reciprocating.
Build levels of Communication between partners can take place on different levels;
communication. not all collaborations depend upon the same degree or intensity of
communication. We’ll consider four levels of communication.
 Transactional with information sharing. At this level of

communication, each partner has access to a single source of data
about matters such as workflow, forecasts, and transactions.
Contracts are generally medium term.

 Shared processes and partnership. At this level, partners

collaborate in specific processes such as design. They share
knowledge across the network. Contracts are longer term.
 Linked competitive vision and strategic alliance. At this level,

supply chain partners function as a virtual entity, working out even
the highest level of strategy together. The partners develop
considerable trust and achieve social and cultural understanding as
well as information sharing. Strategic alliances may last for decades.
 Mergers and acquisitions (backward and forward integration).

Outsourcing current functions isn’t the only way to forge links in a
supply chain. Mergers or acquisitions may involve two companies in
the same tier rather than horizontal supplier-customer partners.
The merger of Gillette with Procter & Gamble is one such merger, as
is the purchase of Chrysler by Fiat. There has been a great deal of
amalgamation among service companies, including mergers of
banks with other financial providers to create “one-stop shopping”
for consumers of financial products, and mergers in heavy industry.
Although mergers would seem to provide the deepest level of trust
and communication, the sudden clash of business, regional, and
national cultures involved often requires years of work to align
attitudes, technology, and business practices.
Determine levels Determining the level of collaborative intensity that each relationship
of collaborative requires depends on cost, quality, delivery reliability, precision, and
intensity. flexibility. Cost speaks for itself, but cost and quality often are inversely
proportional. Quality and delivery reliability are usually measured by
number of defects allowed or late orders and are often collectively
rated by members of an exchange using supplier history. Precision is
measured as degree of variance from specifications. (Small variances
in components from different vendors may actually prevent assembly.)
Flexibility is the ability of the supplier or manufacturer to deliver in
varying quantities when given a specific number of days’ notice. These
criteria are strongly influenced by four factors related to the product
or service: strategic importance, complexity, number of suppliers, and
uncertainty.
 Strategic importance. The primary sourcing consideration is the

strategic importance of the product or service. If the company
cannot afford to make mistakes, it should produce the item in-
house, even if this is more expensive. If the company lacks internal
capability, it should form an alliance with one or more companies

that can make the item or perform the service. Multiple sources
provide a backup. Commodity products, by contrast, are widely
available, have little strategic importance, and can be purchased at
the lowest available price. This includes modular products and
overhead items such as electricity.
 Complexity. The next factor is the complexity of the item and of the
process steps required to produce it. Strategic alliances may be
needed for very complex items simply because of the level of
collaborative planning needed to get the item right in the necessary
time frame. Examples include military technologies such as missiles.
Many contractors may need to form strategic alliances to get all of
the components to work together and to provide the appropriate
level of security. Airplanes also require alliances for many major
systems, although minor systems can be sourced through lower-level
relationships.
 Number of suppliers. The number of suppliers available for a

product or service will also determine how much the company
should escalate the relationship. When one or very few suppliers are
available to produce a required component, the company may need
to form a strategic relationship in order to guarantee continued
availability of the item. For example, Canon is one of the only
producers of high-quality engines suitable for use in laser printers,
so Hewlett Packard has a strategic alliance with them for this part
even though the two compete on printer sales directly. Focusing only
on price or time to market with such a supplier would be a mistake.
 Uncertainty. Finally, uncertainty is a primary concern in building

relationships. Supply uncertainty is the risk that the good or service
may not be available or may have strong fluctuations in price or
quality. Even if there are hundreds of suppliers of finished lumber on
the market, there may be great variability in quality and in precision
of milling. If a manufacturer that uses this lumber advertises its
superior quality of lumber as a selling point, then it is well advised to
not simply buy from the lowest-price supplier but to develop a
partnership with one or more suppliers who can meet these
stringent levels of quality.
Examine strategic If a partnership requires more than one of the intense collaboration
importance versus levels noted above—for example, when there is a limited number of
difficulty to suppliers and uncertainty about an item’s availability—then the need
determine product
for higher collaborative intensity can be termed as “high strategic
categories.

importance.” Strategic importance can be considered one half of the

overall equation. Difficulty, which includes the supply chain challenges
of complexity, number of suppliers, and uncertainty, is the other
portion of the equation.
Exhibit 1-27 shows how this creates four basic categories of goods.
Exhibit 1-27: Strategic Importance versus Supply Chain Difficulty
Bottleneck Materials Direct/Core Competency

High
 Suppliers have strong bargaining Materials

power.  There are one or a few suppliers.
 There is a high impact on value to the
Difficulty (Supply Risk)
customer.
 Price is a large percentage of the
total system/product cost.
Commodity Materials Leveragable Materials

 Suppliers’ relative bargaining power  There are many suppliers.
is not strong.  Supplier competition is ample.
 A small percentage of cost savings
over a broad base of items can have
a large impact on profitability.
Low
Low High
Strategic Importance (Profit Impact)
Source: Adapted from Designing and Managing the Supply Chain, third edition, Simchi-Levi et al.
This model can be used to determine which suppliers are most

appropriate for each of the four types of goods:
 Commodity materials are of low strategic importance and low

supply chain difficulty. They require suppliers whose priority is
cost reduction. These items are best purchased at arm’s length.
Which of your suppliers can provide the best cost reduction on the
commodity items you need?
 Bottleneck materials are also of low strategic importance but

are of high supply chain difficulty. Efforts must be made to
ensure that the need for these items is fulfilled. Therefore some
level of ongoing relationship with a particular supplier may be
called for.

 Leveragable materials have high strategic importance but low

difficulty. They call for collaboration to maximize both cost savings
and reliability through means such as bulk purchasing by multiple
members of the supply chain.
 Direct/core competency materials are of high strategic

importance and high difficulty. They require strategic
partnerships for longer periods of time to ensure availability and
quality.
Sometimes companies do not heed these factors and end up buying

at arm’s length to get the lowest price for items that are critical in
one or more of these ways. Sometimes the cost of the process of
checking goods for defects or repairing them or for resolving
problems with customers after resale is quite a bit higher than the
cost savings found by switching from supplier to supplier. Some
damage to reputation may be irrevocable but hard to measure.
Companies must add these costs to the cost of the product when
determining how much they are actually spending.
While much of the advice in this topic so far can apply to upstream
and/or downstream collaboration, some additional considerations
apply primarily to downstream collaboration, as is discussed next.
Collaboration Collaboration may take the form of a closer business relationship or

with customers an alliance between a supplier and one of its intermediate customers.
For example, intermediate customer representatives could be
informally or formally included in the product design process. In
terms of end-customer collaboration, customers could provide their
time and opinions to improve the organization’s offerings, such as in
the voice of the customer technique. (The voice of the customer, or
VOC, is discussed in Module 2, Section B.)
Collaboration with intermediate or end customers can take place

when both parties find strategic value in the relationship and when
there is enough trust and loyalty to encourage this higher level of
commitment. Therefore, collaboration is a natural continuation of
relationship building for some types of loyal customers.
As Exhibit 1-28 suggests, if customer satisfaction and loyalty can be

increased, the nature of that relationship will evolve past mere
attention to price, to a growing recognition of the product’s or
service’s value, and then to a dependency on the product or service

that signals the creation of a win/win relationship between customer

and business.
Exhibit 1-28: Evolving Relationship with Lifetime Customers
High
Strategic value Dependency

(win/win)
Lifetime Value for

Retention
Value money
Acquisition Commodity
(cost only)
Low
Low Medium High
Customer Satisfaction and Loyalty
It is the potential value of lifetime customers that has driven the shift
toward customer-centric organizations.
Increased customer retention is the primary benefit of customer

collaboration efforts, which, in turn, should lead to increased profits
for the organization and the supply chain. When these relationships
work, they can improve relationships from the perspectives of both
the customer and the company. Customers gain an improved
experience—one tailored to their needs. Businesses gain increased
customer visibility (awareness of actions involving the customer),
with resulting increases in the ability to satisfy the customer, focus
marketing to win new customers, create lifetime customers, and
realize the profit potential of each customer.
Organizations also gain greater control over customer relationships

and are better able to measure profitability and their own
performance. Some customer-supplier relationships will become
more transparent so that each party knows the motivations and
requirements of the other, which can draw the partners into closer
collaboration. Organizations can also turn dispute resolution into an
opportunity to improve customer loyalty through innovative problem
solving.

The importance of developing relationships with customers has also led

to two basic shifts in today’s business culture:
 Greater focus on the customer. This focus is on both internal

customers (the recipients of another person’s or department’s
output) and external customers (recipients of goods, services, or
information who are not part of the organization supplying it). A
shift to a customer-centric corporate culture is an opportunity for
growth, but it requires extensive organizational change
management.
 Greater integration. This integration occurs both internally (as

might be seen in process reengineering within an organization
aimed at increasing communication and collaboration among all
departments) and externally (greater sharing of information and
processes between parallel departments of supply chain partners).
The movement is away from boxes on a hierarchical organizational
chart to graphics that indicate the involvement of multiple teams
and their mutual involvement in the process.
How are these customer-centric businesses created? Exhibit 1-29

illustrates a five-step process that begins with redefining and
redirecting the organization and ends with measuring the success of
this corporate initiative. Note that part of this process involves
implementing a customer relationship management (CRM) strategy,
which is primarily discussed in Module 2, Section B, Chapter 2. Here
CRM is discussed at the level of setting strategy.
Exhibit 1-29: Creating and Maintaining a Customer-Centric Business
Align Create Implement Monitor,

Identify
business customer CRM measure, and
customer
to segment map. strategy. report.
customer needs.
focus.
 Align mission statement, goals, organizational structure, and

jobs to support a customer focus. Moving the organization from a
product-focused to customer-centric orientation requires changes
in the way companies manage everything from product design to
customer service. This means that every customer contact point
(e.g., where the customer learns about the product, where they
purchase it, whom they contact with questions or when there are

problems) must be analyzed to identify key players within the

organization who can affect customer satisfaction and to determine
what they can do to maximize the customer’s experience. This
requires a high level of collaboration across sections of the
organization and a clear articulation throughout the organization, to
every member, of this new priority.
To achieve greater customer focus, some organizations have

instituted the position of chief customer officer. This person is
responsible for identifying customer touchpoints, defining and
enforcing service standards, researching methods to enrich the
customer experience, and helping customers navigate within the
organization. From a high-level perspective, this position is
responsible for integrating and leveraging customer information
across the organization.
 Identify the customer’s perspective and needs. One of the goals

and benefits of developing a distinct CRM strategy is increased
customer visibility. Information about the customer’s desires,
buying habits, and experiences are captured at every point of
contact and may be analyzed to support decisions. Products,
services, and communication infrastructure will ultimately create
customer loyalty by meeting and exceeding customer needs and
wants. To begin this step, an organization might compare the
perspective of its customers with high lifetime value against those
with low value. The gap in fulfilled expectations can suggest
changes in products, services, or communication. For example, a
credit card company may discover that high-value cardholders use
their cards heavily because of their frequent flier partnerships but
that many low-value cardholders are located in cities not served
by those air carriers. Consequently, these cardholders see little
value in using this card rather than another. The credit card
company may consider creating other air carrier partnerships or
other types of partnerships that would reward the low-value
group and move them toward higher value. By determining what
constitutes true customer satisfaction, the organization can
identify its competitive advantage factors and leverage this to
enhance customer value at every customer interaction throughout
the internal supply chain organization.
 Create a map of customer segments. Customer-centric

businesses recognize that they have more than one type of
customer and use their qualitative research to segment their

customers so that they can satisfy each segment’s distinctive needs

more fully through individualized CRM programs or supply chains.
Businesses may prioritize their CRM efforts according to the value
of these different segments. Different characteristics of the
segments may also shape CRM programs. For example, a
technologically proficient customer group may prefer that all
contact points be electronic. A highly affluent, demanding segment
may require human contact that is always available.
 Implement the most appropriate CRM strategy. Factors

that influence the shape of a CRM program include position in
the product life cycle, value of the customer’s potential
business, targeted customer needs, or preferred channels of
communication or product/service acquisition. As Exhibit 1-
30 illustrates, a CRM strategy is cyclical. The process begins
with targeting the desired customer and acquiring that
customer’s business. For the relationship to continue, first, the
promised terms of the purchase of the product/service
package must be fulfilled. Continued customer care helps
ensure satisfaction. The company can then capitalize on its
customer’s satisfaction by setting new goals for this customer.
This may mean increasing the volume of the customer’s
purchases, increasing the value of the purchases (up-selling),
or cross-selling additional products or services.
Exhibit 1-30: The CRM Cycle of Business
Set CRM goal for

targeted customer.
Provide
continuing Acquire
customer business.
care.
Fulfill business.

 Monitor, measure, and report. This step in the process is iterative

and is based on the measures arising from ongoing customer contact
and exchange. In the CRM model, the business is constantly learning
more about its customers and the way they prefer to do business, and
this information constantly reshapes CRM. It is also important for
organizations to research continuously and document what is
working and what is not working. The research provides data about
buying patterns, customer attitudes, and levels of customer
satisfaction, and the information should be shared across all points of
contact within the organization.
Features and Exhibit 1-31 summarizes the benefits to the supply chain of collaborative
benefits of relationships.
collaboration
Exhibit 1-31: Features and Benefits of Collaboration
Collaborative Relationship Features Benefits
 Joint development of shared processes  Lower costs

 Open sharing of information and  Improved quality
knowledge  Better customer service
 Jointly developed performance metrics  Reduced inventories
 Open two-way communications  Rapid project results
 Networkwide visibility  Reduced cycle times and lead times
 Clear roles and responsibilities  More effective working relationships
 Joint problem solving  Enhanced commitment to one
 Commitment to the relationship another

Progress Check
The following questions are included as study aids and may not follow the format used for
questions in the APICS CSCP examination. Read each question and respond in the space provided.
Answers and page references appear on the page following the progress check questions.
1. True or false? The role of marketing is limited mostly to advertising and promoting the
product.
( ) True
( ) False
2. True or false? Market research ends after a product hits the store shelves.
( ) True
( ) False
3. What factors should an organization consider when selecting its strategic partner?
( ) a. Does it improve market access?
( ) b. Will it enhance strategic growth?
( ) c. Does it strengthen operations?
( ) d. a and b
( ) e. a, b, and c
4. True or false? Suboptimization often occurs in global planning and transportation costs.
( ) True
( ) False
5. True or false? Communication between supply chain partners can’t take place on different
levels because the level of collaboration and intensity does not vary.
( ) True
( ) False
6. Place the name of the type of good in the appropriate quadrant below.
High
Difficulty (Supply Risk)
Low
Low High
Strategic Importance (Profit Impact)

7. List the five steps an organization can follow to implement CRM.

Progress check answers

1. False (p. 1-136)
2. False (p. 1-137)
3. e (p. 1-155)
4. True (p. 159)
5. False (p. 1-161)
6. Compare your answers to Exhibit 1-27 on page 1-164.
7. An organization seeking to implement CRM aligns the business to a customer focus,
identifies customer needs, creates a map of customer segments, implements the CRM
strategy, and monitors, measures, and reports. (p. 1-167)

Chapter 2: Supply Chain Design

 Explain how business strategy is translated into supply chain
network design
 Explain how strategic decisions are made concerning customers
and markets, technology, key processes, and sourcing
 Describe the design process and identify the contribution of
design to product and delivery costs
 Contrast traditional over-the-wall design with collaborative
design for the supply chain
 Explain the features, benefits, and tradeoffs of various
approaches to design, including design for logistics and design
approaches that focus on standardization, simplification,
customization, quality, and sustainability
 Describe the levels of supplier involvement in product design
and explain the trend toward supplier integration
 Show how supply chain network optimization depends on a
company’s stage of supply chain development and has
implications for the types of technology a company can use.
When it comes to designing a supply chain, there are standard factors

to take into consideration, shown here by how they are broken down
into the topics in this chapter:
 Topic 1: Translating strategy into design, supply chain network
design, network configuration, metrics design
 Topic 2: Balancing efficiency with responsiveness
 Topic 3: Product design
 Topic 4: Network optimization
Collectively, the decisions made regarding each of these factors

should always support the organizational strategy and the supply
chain strategy.
Topic 1: Supply Chain Design and Configuration

Translating Moving forward from the various business considerations covered in
strategy into the prior chapter, the next step is to translate the supply chain strategy
design discussed in Section A of this module, “Develop the Supply Chain
Strategy,” into a more tactical, granular level of planning: supply chain
design and configuration.

The APICS Dictionary, 15th edition, defines supply chain design as
the determination of how to structure a supply chain. Design

decisions include the selection of partners, the location and
capacity of warehouse and production facilities, the products, the
modes of transportation, and supporting information systems.
After developing business, organizational, and supply chain strategies,

the organization—or the trading partners collectively—need to
support the broad strategies by defining measurable objectives for
each manager along the supply chain. To borrow from the SCOR model,
the process is still in the plan phase, when objectives are defined. This
phase sets the direction for all the other processes—source, make,
deliver, return, and enable. Strategy and objectives are developed first
at top management levels and filter down through the levels of
management on each trading partner’s organizational chart.
It’s tempting to say that all decisions affecting the supply chain should
be based on organizational and supply chain strategies. But it’s more
realistic to say that the decisions and the strategy should be consistent,
because this is analogous to the “which came first—the chicken or the
egg” puzzle. Whichever way you look at the matter, however, priorities
must be set strategically. We’ll look at the way strategic decisions are
made in regard to customers and markets, technology, key processes
and flows, and sourcing.
Customer and Supply chains should be configured to reflect customers’ needs as well
market decisions as trading partners’ capacities. There is no universally appropriate
supply chain strategy. One example of this variability is Inditex, which
holds several fashion brands including Pull & Bear, Massimo Dutti,
Stradivarius, Oysho, and notably the Spanish clothier Zara, with its two
distinct supply chains: one for its more functional products and the
other for its fashion products. A company with multiple product lines
needs to conduct a careful market assessment and match multiple
supply chains to the strategy that is right for each market.
Technology Since technology has become the powerful force that extends supply
decisions chain visibility across multiple tiers while providing world-shrinking
velocity, it deserves serious consideration as an aid to achieving
strategic objectives. It’s beneficial to weigh the advantages and
disadvantages of technology or conduct a benefit-cost analysis. Since
technology is expensive to install or lease, sometimes difficult to learn,
and, for some, downright threatening, it’s important to make informed
choices.

There is a lot to choose from, including technology that can increase

the velocity and accuracy of information flows, cash flows, checkout
processes, inventory tracking, production scheduling—virtually any
process of any length inside the supply chain. Whatever the process
you’re aiming to improve, technology can almost certainly help. But it
has to be selected by specialists who know what is current and can
guide process stakeholders in choosing the right hardware and
software at the right price to conform to overall strategy. The
collateral effects of new technology have to be taken into account as
well. The theory of constraints tells us that there is no point in buying
expensive hardware and software to speed up the flow of information,
materials, or payments if they will just be sent speeding into a
bottleneck (or constraint) that will stop their progress. Most
importantly, each organization needs the right technology applied to
the right process by the right people.
A little later in this topic we’ll look at technology architecture decisions

that relate to supply chain design. Other important considerations in
this area include
 Determining how frequently data should be transferred and
analyzed
 Deciding how data will be analyzed and used
 Determining the impact of the internet and e-commerce
 Designing and setting up infrastructure internally and between
supply chain partners
 Integrating IT and decision support systems into competitive
strategy.
Technology is the subject of the next chapter in this section.
Process decisions A supply chain is a set of processes, and they can be fine-tuned to suit
and inventory, funds, each customer segment. When planning improvement initiatives,
and information select the processes that are central to the supply chain strategy,
flows
measure and benchmark them, and focus your attention on one
process or a small manageable number of processes.
We learned in Section A about the four basic flows in supply chains: the
flow of information, the primary product flow, the primary flow of
cash, and the reverse flow of products. Customer information flows
through the organization and the extended enterprise via orders, sales
activity, and forecasts. As products and materials are procured, a
value-added flow of goods begins. Understanding how these flows
touch many internal and external parties helps supply chain managers

determine who will be affected by a supply chain design and thus who
needs to be involved in the design effort.
Sourcing The APICS Dictionary, 15th edition, defines sourcing as “the process
of identifying a company that provides a needed good or service.”
Sourcing involves complex, challenging decisions. Manufactured
goods, components, and services can be acquired by purchasing from
a company that delivers them by an arm’s length transaction or by
outsourcing.
The trend in the latter decades of the 20th century and early in this
century has been toward contracting non-core activities to supply
chain partners. These partners may be located near at hand or
offshore. As supply chains grow in length and global dispersion, they
can locate each partner in the country or region best suited by
climate, culture, resources, tax policy, etc., to support each specific
activity.
Outsourcing was initially a strategy in manufacturing supply chains.

However, advances in computer hardware and software and global
broadband networking have enabled global outsourcing of service
activities, such as help desks, accounting, and medical testing. Accounting
activities, for example, can be carried out across multiple time zones.
Working half a world away with immediate internet file transfers, a day-
shift accountant can perform services during the customer’s nighttime
hours. Documents can be emailed across oceans faster than they can be
printed out and carried to an office down the hall.
You will learn more about contracting (including outsourcing) in Module

2, Section A, Chapter 4, “Supply Management.”
Supply chain Supply chain network design and configuration include information
network design flow design and major sourcing decisions. The goal of network design
and configuration is to promote efficiency. This is done by positioning
and managing inventory effectively and utilizing resources
appropriately. Since the information system architecture enables
various departments and external partners to become a unified whole,
supply chain network design is addressed here first. However, since
information strategy is closely tied to network design and
configuration, this section will show how organizations may go in
different directions with their information systems depending on
whether their competitive basis is efficient (i.e., cost-basis or lean),
responsive, customer-focused, and/or some other mix of priorities.

Information system Exhibit 1-32 provides an overview of how the elements of the
architecture information systems are designed in parallel to the organization’s
strategic and tactical plans for the organization and extended supply
chain.
Exhibit 1-32: Organizational and Information System Architectures
Organizational Architecture Information System Architecture
Organizational strategy Information strategy

 Mission, vision, strategy  Commitment, principles, goals
 Core competencies  Priorities: efficient, responsive, customer-focused
 Segmentation  Vision of information system structure
Extended supply chain strategy Extended supply chain information strategy
 Efficient, effective, flexible system  Vision and model of extended architecture
 Partner core competencies  Gap analysis
 Levels of trust and integration
Information content definition Information policies and controls

 Data entry, accuracy, and how long to store  Specific policies and controls, including
 Where to store, who can access, how to access governance methods and standards to
 How it is used and analyzed to make decisions ensure data integrity and system usefulness
Extended supply chain business model Extended supply chain communications

 Strategic model of technology integration  Required level of networking and communica-
 Market segment and product/service goals tion enabled by each channel partner
 Financial goals/measurements, profit allocation  Integration of partner policies, work processes,
 Distribution strategy (logistics and integration) and tasks and roles
Information infrastructure design Database, networks, software, configuration

 Database design  Specific number/type of databases
 Networking  Networking specifics (e.g., data communications)
 Software  Specific software
 Configuration (e.g., hardware, client/server)  Configuration specifics (e.g., interfaces)
Extended supply chain process model Extended supply chain networking, etc.
 Details of daily external processes  Technology prerequisites
 Which partner does which processes  Interfaces to bridge technologies
 Degree of process interaction (e.g., virtual  System reengineering and change management
organization)
Information infrastructure change Action plan, schedule, prioritization
IT change requirements IT action plan

Extended supply chain IT requirements Extended supply chain IT action plan

The APICS Dictionary, 15th edition, defines the information system

architecture as
A model of how the organization operates regarding information.

The model considers four factors: (1) organizational functions,
(2) communication of coordination requirements, (3) data
modeling needs, and (4) management and control structures. The
architecture of the information system should be aligned with
and match the architecture of the organization.
Let’s look at each of the categories in Exhibit 1-32 more closely.
Organizational Like all other parts of the supply chain, supply chain network design
strategy for all information systems and technology should be based on, and
align with, the organization’s overall strategy. If a company’s focus
changes, the information system architecture should then be changed
or upgraded to facilitate the new supply chain strategy.
Setting strategy is the subject of Module 1, Section A, “Develop the

Supply Chain Strategy.”
Information strategy The information strategy translates the organization’s strategy into
commitments to treat information systems as strategic investments, and
it sets guiding principles, priorities, and common goals for network
design. The results of the information strategy are reflected in a high-
level end-to-end vision of the information system structure. Similarly, the
extended supply chain strategy is translated into a strategic vision for the
extended supply chain. A gap analysis is performed with key willing
partners to compare the existing systems of supply chain partners with
what is envisioned, and a model for the extended enterprise is developed
in consultation with partners to resolve existing gaps.
A case study involving a razor blade manufacturer will illustrate the

stages of supply chain network design.
Case study: Generic razor blade manufacturer

Razex is a (fictional) razor blade manufacturer that supplies major
retailers with generic shaving products, so Razex’s strategy is to be the
lowest-cost provider in the marketplace. Razex has currently
completed internal department optimization and intends to develop
integrated planning along with sales and operations planning (S&OP)
and other organizationwide endeavors. Therefore it is at Stage 2 of
supply chain development and wants to reach Stage 3, the integrated
enterprise. However, its five-year strategy includes steps that will

eventually help the organization reach Stage 4, the extended enterprise.

It has three major goals for its supply chain strategy:
 Efficiency (lean). Razex wants to manage costs and increase

productivity and value using the lean philosophy. To meet this goal,
Razex develops a vision of an end-to-end supply chain information
system that retains only those processes that customers perceive as
valuable and that can be changed in response to continuous
improvements. Part of this lean effort will include developing
demand management and S&OP functions to ensure that the
organization as a whole is lean. Razex will realign department
management incentives to encourage internal collaboration.
 Responsiveness (customer focus and agility). Razex wants to

transform from a push to a demand-pull system. To meet this goal,
its system should supply long-term competitive differentiation by
actively responding to actual demand and keeping retailers as
lifetime customers. Razex also wants to manage demand variability
by being flexible and adaptable in supply (i.e., agile). To meet this
goal, its information system should adapt to changes in customer
demand for products or services by providing operations
management, demand management, S&OP, outsourcing, and
flexibility to alter supply chains.
Razex sets each goal as a sequential phase in a five-year strategy. Its

initial information infrastructure investments must be capable of
eventually achieving all of these goals. It starts working with its steel
and plastic suppliers on point-to-point planning integration as well as
with its retailers to agree on information infrastructure investments
and overall strategy. Since they are starting with only transactional
interactions with suppliers and corporate customers, their first steps
involve relationship building, including plant tours and meetings
between executives and key contacts. These meetings generate mutual
interest for closer partnerships. Several key suppliers and customers
agree to develop their own long-term strategies for closer integration
and data sharing. Even though the organization is not yet internally
ready for full external integration, it plants the seeds for closer
integration now so that their potential collaboration partners also
have time to grow.
Information content Information content definition involves making decisions on what

definition data needs to be collected, how it will be collected, how its accuracy
will be maintained, and how it will be stored, accessed, controlled,
and analyzed. For the extended supply chain it involves business

modeling, which maps the dynamics and interactions of each supply

chain partner. Extended supply chain business modeling includes
decisions such as what market segments are being targeted, how
performance will be measured, how profits will be shared among
partners, and how products will be distributed.
Supply chain infrastructure is evaluated based on these decisions;

this includes determining
 The appropriate number of facilities (warehouses, plants)
 The size and location of each facility
 The allocation of space for products within the facility
 Sourcing requirements
 Distribution strategies.
These decisions will be addressed in greater detail later in these

materials.
Information policies Information policies and controls are the agreed-upon methods to be
and controls used in information infrastructure design, daily operations, and
continual improvement initiatives to ensure that the organization’s
data and software systems perform as expected. Information systems
use data and cost collection to see if the supply chain is an efficient
channel for product or service distribution. Controls provide
oversight against system misuse and assist with auditing. Governance
of information systems and policy compliance will require training
and ongoing management support.
For the extended supply chain, the issue is enabling the desired levels
of communications and security. Collaboration between partners
involves coming to agreement on how networking and data sharing
will occur by settling on common information policies and work
processes and determining the roles of partners in establishing data
repositories and communications methods. Plans should be designed
to be reviewed and adapted as situations change.
Case study
Razex sets policies and controls to support each of its system goals.
 Efficiency
 Create comprehensive data integrity policies and train users.
 Pursue policies to promote systemwide cost savings over
suboptimization.
 Ensure that feedback is used to improve S&OP processes.

 Use six sigma (a defect reduction methodology) to ensure

process quality.
 Follow industry standard processes whenever possible.
 Identify bottlenecks such as batch and queue processing.
 Responsiveness (customer focus, agility, resilience)

 Develop information policies that require timely analysis and
response to actual customer demand signals from specified
business units and partners.
 Integrate information system policies with risk management
policies so systems can quickly respond to changes in
business risks.
 Set policies to promote information visibility and velocity,
which should reduce supply chain variability.
 Create a policy exception process for emergencies to add
resilience (ability to recover quickly after disasters, etc.).
For extended supply chain business modeling, the organization plans

to form a collaboration committee once its internal S&OP processes
are in place. The collaboration committee will start by pursuing
external lean objectives among willing suppliers and customers. The
long-term strategy is to agree on incentives and penalties that are
aligned with the organization’s systemwide process cost
minimization strategy, including profit sharing, department manager
performance measurements, and scorecards.
Information Information infrastructure design involves determining how to

infrastructure design translate policies and controls into a cohesive and cost-effective
information system that minimizes data duplication and errors,
provides access to information at all necessary internal and external
points, and supports effective analysis and efficient transaction
processing. This is the level at which detailed decisions are made on
how to perform networking, what software to use to best achieve
strategic goals, and how to configure the hardware and software for
optimum flexibility and growth. Decisions may include how to
leverage existing systems; analysis of the costs and benefits of leasing
versus purchasing, upgrading, or replacing software; and decisions on
the use of interface devices and communications tools.
Databases, Specific decisions on databases, networks, software, and

networks, software, configuration are made following design approval, including use of
and configuration existing systems, decisions to upgrade or add technologies, specific
vendor search and selection, etc.

Decisions on databases and database management systems are

critical to the ability of the organization to maintain the integrity,
availability, and usefulness of data for decision making. Data for
extended supply chains must allow fast access while remaining
synchronized. Depending on how databases are designed, they can
enable or hinder internal and external integration and external
collaboration. Quality data repositories can be a true source of
competitive advantage; poor data can cause users to distrust and
discredit otherwise useful software systems.
Similarly, networking, software choices, and configuration decisions

should be selected to fulfill business requirements while providing a
positive ROI.
Case study
Razex pursues lean philosophies in its information infrastructure
design and finds that it has some internal database consolidation to
do. It currently has an enterprise resources planning system
database, a customer relationship management database, and
databases for other systems. It develops a plan with a database
vendor to consolidate the information in these databases, to cleanse
and validate the data, and, once these steps are complete, to improve
data-sharing ability among external partners using special
distributed servers (cloud computing), web services, and service-
oriented architecture (SOA). This will leave its information
architecture poised to pursue its later goals of being responsive
(customer-focused and agile).
For extended supply chain process modeling, it pursues lean by

mapping the end-to-end processes internally and plans to repeat the
process for all supply chain partners. When this process occurs, the
collaboration committee finds a number of redundancies. Some of
these redundancies are eliminated by one partner agreeing to take
responsibility for the process. One supplier agrees to make upgrades
so that it will be able to communicate using web services and SOA.
Razex promises its primary retailer that it will adopt radio frequency
identification at the pallet and case level as part of their agreement to
use vendor-managed inventory.
At the software level, Razex decides to upgrade its ERP system to a

newer version and install an advanced planning and scheduling
system at the same time. When this is complete, they and their
partners agree to subscribe to supply chain event management

(SCEM) software and warehouse and transportation management

systems (WMS and TMS) available as software as a service (SaaS, i.e.,
leased software) to speed up their goals to be responsive and
customer-focused. These technologies are covered in Chapter 3 in
this section.
Information Supply chain network design should include plans for continual
infrastructure system change and improvement for the internal and extended supply
change networks. For more information, see Module 3, Section C, Chapter 3,
“Continuous Improvement and Change Management.”
Action plan, The results of regular strategy update sessions, tactical system
schedule, and improvement sessions, and operational gap analyses should result in
prioritization IT action plans for both the organization and the extended supply
chain. These plans should prioritize development efforts and
expenditures, create projects and tasks, and include feedback
mechanisms to assess project success.
Case study
Razex uses its supply network technologies first to keep its costs low
enough to stay profitable despite continual cost pressure from the
stores that place their names on its generic products. It works hard
to overcome resistance to internally integrated planning by
emphasizing formal communications channels in addition to its
technology improvements to drive this integration.
Its continual improvements relate to becoming more responsive

(agile and customer-focused). For example, it finds that it can
leverage the SaaS network it contracts with to supply its WMS and
TMS. It uses this network to create new supply chains by finding
new material and transportation suppliers quickly. It works to
create the capabilities to accept automated bids on some supply
contracts.
Network Supply chain network configuration is a complex strategic decision

configuration that concerns the comprehensive organization of suppliers,
production factories, distribution centers, and manufacturing
resources. Supply chains should be configured to reflect customers’
needs as well as trading partners’ capacities. Planning a network
that provides an optimal return on all investments requires long-
term, strategic thinking. Each decision must be weighed based on its
impact on the entire supply chain, not only on the single matter
under consideration.

Among the many considerations to be factored into the optimal

network configuration are
 Location of plants and production levels for each product
 Number, location, and capacity of warehouses
 Transportation between all facilities.
For example, supply chain managers in manufacturing enterprises

must consider the stocking of warehouses with an optimal level of the
right kinds of inventory and must establish transportation links that
ensure timely arrival at, and departure from, warehouses. In the ideal
network, raw materials, components, and resources might never be
at rest in a warehouse. Instead, they would always be in motion until
arriving, just in time, at each location along the chain. One reason this
ideal state is difficult to achieve is the fluctuation in demand that
occurs all along the supply chain, beginning with the ultimate
customer. Unpredictable demand, along with other factors such as
accidents and adverse weather conditions, means that maintaining
some levels of inventory at various locations along the chain is
generally necessary. The supply chain manager’s challenge is gauging
future demand as accurately as possible and keeping inventory as low
as possible without disruptions in delivery to customers. (In Module
2, you will learn more about planning and controlling inventories, the
related cost categories, how inventory impacts an organization’s
financial statements, and inventory management and control.)
Another example is warehousing for customer goods. Adding to the

number of warehouses may have the benefit of putting goods closer
to the customer and thus reducing delivery time. It may also have the
drawback of adding to total inventory and increasing the square feet
of warehouse space necessary to store a given amount of goods. Up to
a point, putting goods closer to retail outlets or within customer
shipping zones tends to benefit the supply chain by reducing
transportation costs.
Transportation costs are a function of several variables, including

total distance between production facilities, warehouses, retail
outlets, or customers; bulk discounts for transport; and types of
transportation required. To solve the optimization problem for the
entire network, supply chain managers must rely upon the most
powerful technology available to them.
As supply chains grow in length and complexity, facilities may be spread

out among numerous regions, countries, and continents. A variety of

statistics demonstrate how global sourcing and offshore manufacturing

can reduce supply chain costs. Employing skilled labor at relatively low
wage levels, establishing worldwide or regional centers of competence
near major specialized talent pools, savings on materials, and finding
new sources of supply are but a few possibilities.
While global expansion is attractive, offshore expansion requires

sufficient due diligence to help ensure success. Specifically, from a
logistics perspective, there are many issues related to getting business
done and getting a product shipped. This means being aware of local
infrastructure issues in the country being evaluated, as summarized in
Exhibit 1-33.
Exhibit 1-33: Infrastructure Considerations in Global Expansion
Issue Considerations
Port facilities, airports Specific details on the size and quality of port
facilities and airports
Highway conditions The size and condition of roads as well as
the extent of the highway system
Rail lines The availability of routes that will minimize
any delay in movement of products
Source: APICS Global Sourcing Workshop Series
The condition and capacity of port facilities, airports, and roads can be
major factors in getting goods and supplies shipped reliably and on a
timely basis. Different rail track gauges and capacity issues can adversely
affect lead times. Additionally, crossing borders involves high volumes of
paperwork.
Metrics design You get what you measure. When designing metrics, it is important to
understand that people are motivated to improve what the organization
chooses to measure and to ignore or deprioritize what the organization
fails to measure. The second part of this statement references the
unintended consequences lurking behind the statement “you get what
you measure.” To ensure that businesses are getting the results they
want while minimizing unintended consequences, organizations often
turn to well-established process-oriented measurement models because
they are thorough yet not overly complex or cumbersome. One of the
more widely accepted and used process-oriented models is the Supply
Chain Operations Reference (SCOR®) model. This model and other
information on metrics is covered in Module 3, Section C.

Topic 2: Fulfillment Strategies Considering Market Requirements

Balancing Organizations often need to balance efficiency (least-cost manufacturing
efficiency with and supply chain) with responsiveness. Responsiveness implies being
responsive- responsive to changing customer requirements. This can take the form of
ness investing in high customer service and/or agility. Supply chain agility is
measured in SCOR using metrics for flexibility and adaptability (these are
defined more formally in Module 3, Section C, Chapter 2), but they
basically measure an organization’s ability to ramp up or down in
production volume without a major impact on cost or organizational
disruption.
Since customer focus, flexibility, and adaptability come with a cost, for
example, redundant capacity, one cannot generally maximize both
efficiency and responsiveness simultaneously. One also cannot ignore
these factors entirely. An organization that competes on low cost will
maximize efficiency but will still need some amount of responsiveness to
mitigate demand risk. An organization that is adaptable to large
fluctuations in demand or to disruptions in the supply chain will still
need some efficiency or it will go out of business.
The variables that differentiate efficient and responsive supply chains

are inventory volume and demand uncertainty. As you review the
following descriptions of the two types of chains, you will likely
recognize and associate certain attributes that are integral to the
production of different types of products.
An efficiency-focused supply chain generally strives to have a

combination of these attributes:
 Customer demand is stable and does not fluctuate significantly.
(There is low demand uncertainty.)
 The number of forecasting errors is low.
 There is little or no adaptation to changes in structures of markets.
(That is, the locations of demand and vendors do not change.)
 There is a long product life cycle.
 Product introductions are infrequent.
 There is limited product variety.
In an efficiency-focused supply chain, the supply chain manager is

typically focused on proactively managing customer demand and may
use time series forecasting methods to predict future demand. Customer
orders are filled with inventory, and any unpredicted interruptions are
usually managed by proactive demand management.

A responsive supply chain has the following attributes:

 Customer demand is not stable and can fluctuate significantly.
(There is high demand uncertainty.)
 The number of forecasting errors can be high.
 There is adaptation to changes in structures of markets. (The
locations of demand and vendors may change.)
 It uses real-time systems for customer data and purchases.
 There is a short product life cycle.
 It may use multiple warehouses for close proximity to customers.
 It may maintain extra or redundant capacity in the form of
geographically diversified operations or contracts with suppliers.
 It may use third-party transportation providers for speedy product
delivery.
 It may require its manufacturer(s) and suppliers to have a high
degree of agility (ramping up or down without cost penalties).
In a response-focused supply chain, the supply chain manager usually

develops forecasts based on system flexibility and capacity cushions. (A
capacity cushion is extra capacity that is added to a system after
capacity for expected demand is calculated. It is also called safety
capacity or protective capacity.) Extra capacity may also take the form
of redundant manufacturing capabilities at different plants or
contractually obligated backup suppliers to safeguard against supply
failure risks or to shift capacity in response to demand. From a demand
planning perspective, a responsive supply chain that has both high
demand variability and sales volumes will probably focus on forecasting
parts and components so that it can postpone final assembly until a
customer order “pulls” production of the final product.
Being solely focused on either efficiency or responsiveness has proven

fatal for some companies. Most supply chains fall somewhere in
between the endpoints of the efficient-responsive spectrum. As supply
chains strive to improve their performance based on the metrics that
are important to their key audiences, they should also evaluate their
ability to strike the right balance between efficiency and
responsiveness. A supply chain should identify the appropriate level of
service. Level of service is defined by the APICS Dictionary, 15th
edition, as
a measure (usually expressed as a percentage) of satisfying demand

through inventory or by the current production schedule in time to
satisfy the customers’ requested delivery dates and quantities.

Supply chain How do you determine the best balance of efficiency and responsiveness
fit with for a specific supply chain? In the Harvard Business Review article
organizations’ “Triple-A Supply Chain” by Hau Lee, the author states that intelligent
market organizations tailor their supply chains to the nature of the product
requirements markets for the optimum manufacturing scenario and best distribution
capabilities. Supply chain management needs to research and identify
how to optimize the supply chain based on the types of products or
product groups that are manufactured within the chain. What exactly do
the customers value in terms of each purchase they make? Is it based on
low price, convenience, or customizable features? The answers to such
questions should have been answered during market research.
The success of the supply chains of Gap Inc. is a testimony that tailoring
supply chains can be the right solution. Gap Inc., which owns three major
brands, Old Navy, the Gap, and Banana Republic, has three separate but
overlapping supply chains on three different continents in order to fit
each one to the types of products it produces:
 The Old Navy brand targets cost-conscious consumers, and therefore
its manufacturing and sourcing are located in China, where labor and
material costs are lower.
 The Gap, which caters to more trendy buyers with midpoint prices,
has its supply chain in Central America, where speed and flexibility
are most important.
 Banana Republic draws customers who want better quality and are
willing to pay for it, so its supply chain is located in fashionable Italy,
where there’s a plethora of finely made fabrics and fashions.
Because it has these three supply chains, Gap Inc. does have higher
overhead, lower scale economies for purchasing and production, and
higher transportation costs than if it had just one supply chain. Since
these brands require different strategies, it also uses different supply
networks. These networks can provide backup for each other if any
experiences a disruption to its supply chain.
Gap Inc. isn’t the only company in which the supply chains are tailored to
meet market requirements. Callioni’s Harvard Business Review article
“Inventory-Driven Costs” describes how in the 1990s Hewlett Packard
realized that its struggling PC business was barely profitable, suffering
from short product cycles and decreasing prices for its products. They
concluded that a mismatch between demand and supply was resulting in
excess inventory and driving PC costs, and they decided to redesign the
supply chain to remedy this and other inventory-related issues. They
developed five supply chain options for consideration and used their

inventory-driven cost metrics to pinpoint the solution, a centralized one-

step manufacturing configuration that would best support the product
line.
Supply chain managers need to determine which type of supply chain is

most appropriate for a particular product. It may require some data
analysis to do this accurately. Exhibit 1-34 shows how supply chain types
can be fitted to products based on volume and demand uncertainty.
Exhibit 1-34: Fit Supply Chain Type to Product
Efficient Supply Chain Responsive Supply Chain

High
Make-to-stock products Assemble-to-order products
Volume
Make-to-stock products Make-to-order products
Low
Low Demand Uncertainty High
Organizations that focus primarily on efficiency may select a make-to-

stock manufacturing strategy (goods are produced and held in
warehouse/retail locations before customer orders are placed).
Organizations that focus on responsiveness may use a make-to-order
manufacturing strategy (goods are manufactured only after customer
orders are placed) or an assemble-to-order strategy (product
components or modules are produced based on forecasts and are
assembled when customer orders are placed).
Making supply Once you identify where a product falls in regard to the variables of
chains resilient volume and demand uncertainty, you can research and identify
potential changes that will enhance the fit of the supply chain to the
product. But some researchers don’t think that in itself will be
sufficient. Author Lee states that although supply chain efficiency is
necessary, it isn’t sufficient proof that a company will outperform its
competitors. He argues that in order to develop or maintain a
competitive edge, supply chains also need to become agile, adaptable,
and aligned with other entities in the supply chain. In other words,
they need to become resilient. Supply chain resilience is defined by
the APICS Dictionary, 15th edition, as “the ability of a supply chain to

anticipate, create plans to avoid or mitigate, and/or to recover from

disruptions to supply chain functionality.”
Authors Sheffi and Rice echo a similar message in their article “A Supply
Chain View of the Resilient Enterprise.” They point out that a company’s
resilience is determined by its competitive position and its supply chain’s
ability to be responsive to changes or disruptions. Companies that respond
successfully to unpredicted disruption will reinforce their competitive
advantage and gain market share. They can increase their resilience by
building in redundancy or flexibility. Redundancy can be created by
establishing safety stock, using multiple suppliers (even when more
expensive), and intentionally setting low capacity utilization rates. To
increase an organization’s flexibility, mechanisms or indicators need to be
put in place that can sense threats and react quickly and accordingly.
In summary, no matter what type the supply chain is, if the appropriate
metrics and key performance indicators are being used and the supply
chain fits with the market and the product requirements for the company,
that supply chain has the potential to create a sustainable competitive
advantage for the manufacturer.
Topic 3: Product Design for New Products or Requirements

Product design is a “process [that] consists of translating a set of
functional requirements into an operational product, process, or
service” (APICS Dictionary, 15th edition).
Design spans all the work between marketing and production.

Depending on the industry, the business, and the product, design may
involve models and prototypes as well as sketches and plans.
Automobiles are sketched, rendered as models, and constructed in
prototype for test driving and are subject to design revision at each
step in the process. Each component of the finished vehicle must be
designed with more than looks and function in mind but also raw
materials, sourcing, manufacturing, labor costs, and regulations
regarding safety and environmental impact.
Services, too, go through a design phase. Investment portfolios, for

example, were once custom-designed for wealthy clients. Today,
prepackaged mutual fund portfolios tailored to specific customer
desires and sourced from “raw materials” such as stocks, corporate
and government bonds, and traded commodities are marketed to a
much wider customer base. Bank accounts, guided tours, and personal

services such as manicures are all similarly subject to careful design

and packaging to make the best use of resources and provide benefits
customers desire.
Is good design important? Expenses related to design account for

about 5 to 15 percent of product cost. But about 70 percent of delivery
cost results from choices made during design. A poor design process
can kill a product by forcing its price to unacceptable levels for the
quality delivered or by slowing its design cycle and time to market
until the competition has the market share.
What aspect of product design needs to be considered when designing a

supply chain? The answer is every aspect—because the traits and features
of every product will impact the supply chain process in some manner.
Design has implications for all the stakeholders in the supply chain, and it
should be approached with the supply chain’s key indicators in mind.
Traditional Ideally the design process should be collaborative, involving all the
over-the-wall functions and partners that are impacted by the product’s design.
design versus However, in reality, sometimes the design of a product or service is
collaborative carried out in isolation by one or two departments and without involving
design supply chain partners. Traditional design takes this over-the-wall
approach.
Traditional design The traditional sequential design process, once almost universal and
process still used in some companies, incorporates the corporate organization
of separate functional areas separated by imaginary walls. This process
often goes like this:
 Marketing sends customer needs and attitude information to
engineering.
 Engineering incorporates the information into design drawings and
schematics and “tosses those over the wall” to production and
purchasing, perhaps having created a design incorporating the
finest materials and extra engineering features.
 Purchasing sources the materials necessary for production,
discovering that some specified parts are not available and others
are not affordable.
 Production looks at the design and realizes that it would require
expensive process modifications and costly additions to staff and
equipment.
 Production and purchasing send the designs back to engineering
for revisions.

 After several rounds of sending the designs back and forth to

various areas, engineering delivers a workable design and
production creates a product that logistics is expected to deliver.
 Logistics discovers that packaging and shipping costs exceed the
original budget and that the system lacks capacity to get the
product to market on time.
 And so it goes until the finished, packaged product arrives at the
distributor.
This traditional process can result in problems being unknowingly

built into the product design. For instance, certain product designs may
increase inventory holding or transportation costs relative to other
design options, while other designs may require a shorter
manufacturing lead time.
Collaborative Collaborative design breaks down walls between departments and

design process supply chain partners. Here’s how the design team project commonly
unfolds:
 A design team forms, including members from engineering plus other
departments and, perhaps, other supply chain partners.
 The design team considers issues that will arise along the supply
chain from raw material to the final stage of the product’s life cycle,
making rough approximations of cost differences between
alternatives.
 Once all functions and partners have agreed upon a design,
purchasing and production go to work to bring the design to fruition.
How much collaboration?

Because organizations can choose the level of involvement they desire
from any given supplier or customer, collaborative efforts in product
design extend along a continuum. Exhibit 1-35 expresses the range of
supplier or customer integration as going from over-the-wall design, to
informal collaboration, to formal collaboration.
Exhibit 1-35: A Spectrum of Approaches to Design
Over-the-wall approach: The supplier/customer plays no role in design.
Informal collaboration: Design includes information from conversations or

informal consultation with the suppliers/customers but no formal collaboration.
Formal collaboration: The design team involves representatives of the supplier/

customer in a formal collaboration. This may involve anything from using the voice of
the customer (VOC), to getting regular formal input on a design, to asking a supplier
to design a subcomponent due to specialized expertise.

Once the decision is made to forego the over-the-wall approach

and instead develop a collaborative approach to design, the
question becomes “How much collaboration?” Contributions can
be as casual as tips provided in conversation or as formal as fully
integrated inter-organizational teamwork with assigned roles and
responsibilities.
In a study of supplier integration funded by the National Science

Foundation and the Global Procurement and Supply Chain
Benchmarking Initiative at Michigan State University, researchers
identified several general levels of supplier integration and
assessed the value of each. The results of a survey conducted
during the project showed that greater levels of supplier
involvement produced, on average, greater improvements in cost
and quality.
While one study doesn’t constitute a definitive analysis, it’s fair to

say that the trend in designing for the supply chain is toward
formal supplier collaboration and away from the over-the-wall and
informal approaches. This is true for the involvement of customers
in design as well. Involving representatives of key customers in
design or collecting the broad input of many smaller customers
using the voice of the customer and other methods will benefit
from a formal process to ensure that customer requirements and
expectations are represented in the design. It makes sense that the
more functions and partners contribute to a design, either casually
or in formally organized teams, the better chance you have of
getting a product or service that is actually desired by the market
into production at a reasonable cost and on time.
Note that while suppliers or customers may be asked to be part of

a design team, the organization whose brand is at stake should
retain responsibility for the overall design rather than allowing
anyone else to take the lead.
Implementing design collaboration

Busy managers have tight deadlines, and designers and marketing
managers often have performance scorecards that fail to reward
supply chain cost reductions. Therefore, a process is needed to gain
both internal and extended partner acceptance for design process
improvements.

Cargill and Fry describe such a process used at Hewlett Packard, which
is paraphrased here:
 Proof of concept. Small projects are performed, harnessing

experts and internal staff to test the concept. Successes are
celebrated and internally advertised. Simple graphics are used to
make the goals easy to understand and accept.
 Formalize concepts. Terms are standardized, concerns are

addressed, case studies are shared, and formal training and online
at-will training are created to educate staff and partners.
 Formalize processes. Cross-functional teams are created, and

individuals are assigned to work a percentage of their time on the
teams. Performance metrics, scorecards, and rewards such as
formal praise are implemented. Experts are made available.
 Prioritize opportunities based on best value to encourage

adoption. Concepts that have proven the most effective are
pushed to other teams.
In this way, internal teams and external partners can be led a step at a
time toward appreciating the financial and other benefits of
collaborating on design, finding real ways to make these concepts
work for them, and finally incorporating collaboration into normal
processes so that efforts can turn to sustaining and continuously
improving the effort.
Benefits of design collaboration

Integrating suppliers and customers into the design process provides
many potential benefits, including those that follow:
 Fewer cost overruns. Collaboration with the supplier brings

greater clarity about manufacturing processes and materials,
reducing the likelihood that designs will be impractical to
manufacture. Collaboration with customers can help prioritize
which design elements to include or exclude.
 New and improved approaches to design. The supplier brings

special expertise in processes, materials, and technologies that
can give the designers new ideas and avoid problems caused by
reliance on expensive or hard-to-find parts. Customers can
indicate if a new process would be perceived as value-added.

 Improved customer satisfaction. Collaborating with the supplier

in the testing of prototypes, models, and preproduction samples
reduces the number of product failures. Involvement of customers
aligns products with actual customer needs.
 Improved efficiency (faster to market). The supplier’s

experience in manufacturing and logistics can lead to products that
are more easily manufactured, assembled, shipped, and stored.
Customer involvement can keep the focus on actual requirements.
 Higher product quality for the price. Sharing quality

requirements with the supplier before final selection of parts and
processes results in higher quality and more affordable pricing.
Customers can indicate the price/quality level they are willing to
pay for.
By including perspectives such as those of marketing, production, and

supply chain management, designers can develop products that are
better matched to customer needs, cheaper to build, easier to
transport and store, and easier on the environment.
Now we’ll look at some approaches to design collaboration. These

include both broad-based and more specific methods, as shown in
Exhibit 1-36.
Exhibit 1-36: Summary of Design Methods
Broad-Based Methods
Standardization Design for supply chain Modularization
Component commonality Design for logistics Modular design
Universality
Design for X (DFX)
Simplification Quality Customization Sustainability

Design for Design for the environment
Concurrent engineering Mass
quality
customization
Design for manufacture Design for six sigma Design for reverse
and assembly (DFMA) Postponement logistics
Quality function
deployment Design for remanufacture
Design for service
(QFD) Glocalization
Broad-based There are a number of broad-based approaches to product design, all

design methods of which are focused on improving different aspects of the supply
chain design. We’ll take a closer look at three broad-based design

approaches: design for the supply chain, design for logistics, and
design for excellence (or everything).
Design for the Design for the supply chain refers to “enhancement of a firm’s
supply chain product design in consideration of the issues that will arise in the
supply chain, from raw materials to the final stage of the product’s life
cycle” (APICS Dictionary, 15th edition).
The need to meet supply chain goals of faster inventory turnover,

lower inventory costs, reduced inventory transit time, and quicker
time to market has inspired modifications to the design process in
recent decades. Design for the supply chain incorporates concepts of
design related to supply chain standardization, simplification,
customization, quality, and sustainability, each of which is discussed
later.
Design for logistics A term closely related to design for the supply chain is design for
logistics (DFL). Adding logistics to the design agenda assumes that the
supply chain and the product are designed simultaneously to optimize
efficiency, affordability, and quality.
Design for logistics is concerned with minimizing supply chain costs by

 Designing to minimize transportation and storage costs: efficient
packaging for fast loading/unloading and higher density of items
per pallet
 Designing to minimize manufacture and assembly time
 Designing to maximize standardization.
The first of these principles is discussed next, while design for

manufacture and assembly and standardization are discussed later in
this topic.
Design to minimize transportation and storage costs may involve

designing products to fit into standard box sizes (full size, half size,
quarter size, etc.) so that different boxes can fit in a master carton or
on a pallet efficiently. This process is called unitization or
containerization. For example, four six-packs of beer can be designed
to fit into a master carton that holds 24 cans and stacked along with
24-packs. This process allows different assortments to be shipped
together. Master carton design should also facilitate loading and
unloading by hand without mechanical assistance when feasible.
Changing product designs and how items are packed can also reduce
overall box sizes. For example, designers could reinforce a product’s

internal frame so it requires less cushioning material or store a cable

within a printer output tray rather than requiring the packaging to be
designed with an additional tray. Such size reductions can have huge
cost savings, for example, being able to fit an additional row of goods
on each pallet.
Examples of design for logistics abound in retail stores. Plastic garbage

pails that can be stacked one inside the other are a result of DFL. Since
they are made of plastic rather than metal, they are lightweight for
ease of transport. When nested, they occupy much less storage space
and are more economical to ship. Many other products now come in kit
form for similar reasons. Ikea’s scalable bookshelves, for example, are
shipped as unassembled boards and connectors in flat cartons for
efficient handling and storage. One unit in each size can be set up in the
store for viewing, and customers have easier transportation, too,
because they can take away the flat cartons to assemble at home. In a
sense, the customer becomes the final work site in the manufacturing
process.
Benefits
Benefits of the transportation and storage component of design for
logistics include the following:
 Lowering transportation and warehousing costs increases profit
margins.
 Warehouses can store more goods, relieving capacity pressures.
 Recognizable master carton design helps retailers when looking
for a particular item to restock from storerooms.
 Packaging design can allow some retailers to sell directly from a
pallet.
Tradeoffs
Tradeoffs of the transportation and storage component of design for
logistics include the following:
 Maximizing items on a pallet needs to be balanced against the
needs of retailers; slow-moving goods may not be desired in
larger quantities.
 Product requirements may make standard box sizes
problematic.
 The density of items may need to be altered to balance between
maximum vehicle volume (“cube out”) and vehicle weight
restrictions (“weigh out”).

Design for X (DFX) The APICS Dictionary, 15th edition, defines design for X (DFX) as
follows:
Also referred to as design for excellence, a design process that

ensures the outcome is manufacturable, maintainable, cost
effective, and high quality.
Design for X is sometimes called design for everything to describe a

need to design a product or service with all of the design
considerations that an organization determines are of strategic
importance. For example, a particular organization could decide that
its critical design goals include universality, design for manufacture
and assembly, quality function deployment, postponement, and design
for reverse logistics. Each organization will set its own priorities.
Standardization Standardization is “the process of designing and altering products,

parts, processes, and procedures to establish and use standard
specifications for them and their components” (APICS Dictionary, 15th
edition).
A related term is standardized product, which is “a product that

can be made in large quantities, or continuously, because of very
few product designs” (APICS Dictionary, 15th edition). When the
standardized product is production equipment, it is called
procurement standardization, meaning that equipment is designed
to allow for design variance and adaptation to new customer
demands.
An important step for design teams to take when pursuing

standardization is to look at existing product families. Creating a
common component that will work for an entire line (or using one
that was already created for those lines) will multiply the savings
from standardization. For example, when Hewlett Packard merged
with Compaq, it found that its server racks had incompatible
shapes, needing 12 varieties of rail kits. Customers didn’t place any
value on the difference. They reduced this number to five types of
kits, for an estimated product lifetime savings of US$32 million.
Types of standardization include component commonality and

universality.
Component Component commonality is a form of design standardization where a

commonality single part is used to replace a variety of similar parts. For example,
instead of using a variety of bolt sizes in an assembly, the assembly can

be designed in such a way that the same size bolt will work for all
purposes.
Benefits
Common components can increase efficiency and lower costs in
several ways:
 Lower purchasing costs because less variety allows economies of
scale
 More streamlined production because of fewer shifts between
different processes and tools
 Simpler, cheaper storage
Tradeoffs
Tradeoffs include the following:
 Cost of product modifications required to accept the new part
 Less flexibility for designers, who may prefer a variety of similar
parts
 Reductions in quality if the greater variety of parts would, for
example, allow closer tolerances or more attractive design
Universality Universality is “the strategy of designing a product initially intended

for one market in such a way that it can also be sold in other markets”
(APICS Dictionary, 15th edition). Being a form of standardization, “one-
size-fits-all” items exemplify universal, or standardized, design, as do
unisex clothes. Sometimes astute marketing can convert a specialized
product into a universal one. For example, restaurant-quality kitchen
appliances have become popular in homes. Universality can be used
for product components, too. For example, power supplies can be
made to accept either 110 or 220 power for use in different countries
with only a different end cable.
Benefits
Benefits of universal design include
 Increased sales volume
 Reduced design and manufacturing cost compared to market-
specific items.
Tradeoffs
On the debit side, universal designs may be less suited to any given
market than a specialized product would be. And this can translate to a
shorter product life cycle and less customer loyalty.

Modularization The APICS Dictionary, 15th edition, defines modularization as
In product development, the use of standardized parts for flexibility

and variety. Permits product development cost reductions by using
the same item(s) to build a variety of finished goods.
A module is a part that can be used in multiple products. According to

the Dictionary, a modular design strategy is
planning and designing products so that components or

subassemblies can be used in current and future products or
assembled to produce multiple configurations of a product.
Modular design is a type of component commonality, and the terms are

sometimes used interchangeably.
In addition to design for component reuse, modular design can start by

considering existing products on the open market to avoid design and
manufacture costs for those parts.
Computers provide a perfect example of modularity. RAM, hard drives,

and graphic and audio subsystems are interchangeable among many
different computers. Some computer parts—hard drives and RAM, for
example—can be added to a machine as upgrades, or they can be
replaced with new, improved components. Modular bookshelves that
can be stacked vertically or integrated horizontally to fit different
spaces provide another example.
The opposite of modularity is integral design, in which all components

are designed to work together in one specific product. Apple computers
focus on integral design, while PCs are modular. Clothing can also
illustrate the two types. Trousers, shirts, ties, and sport coats can be
mixed and matched because they are modular. A uniform, on the other
hand, is an example of integral design.
Services can be modular, too. An à la carte menu exemplifies modular

design; the special of the day, with all courses determined by the chef
and the price set by the house, is an integral design. Breaking down a
process can allow various components to be outsourced. For example,
some McDonald’s restaurants rely on (possibly offshored) call centers
to take drive-through orders to decrease the time involved in filling
orders. The call center relays the order to the kitchen with a customer
photo to assist in accurate delivery at the drive-up window.

Benefits
Benefits of modular design include the following:
 Reduced cost of design and manufacturing when using modules to
create a family of products, possibly leveraging postponement
strategies (described later in this topic)
 Increased efficiency and decreased cost of production, since
multiple products can be created simultaneously from the standard
components
 Expanded customer base, because products can be customized
closer to the end user (and sometimes by the end user)
 Easier, more cost-effective shipping, warehousing, and display of
the product if it is designed with packaging in mind (e.g., boxed
furniture kits)
Tradeoffs
There are potential tradeoffs involved in taking a modular approach to
design:
 While modular design may reduce logistics costs, the cost of each
product in a family may go up.
 Errors in module assembly can create a poor end user experience.
 Integral design generally allows more emphasis on style, beauty,
quality, “fit and finish,” user experience, and customization. Costs
can be higher.
Simplification Simplification is “improving quality and cutting costs by removing

complexity from a product or service” (APICS Dictionary, 15th edition).
Less complex products and services have shorter lead times, fewer
quality issues, and higher profit margins. Simplification provides
synergy with other design approaches such as standardization or
customization as well as with manufacturing approaches such as build-
to-order.
Types of simplification include concurrent engineering, design for

manufacture and assembly, and design for service.
Concurrent One of the first steps along the path toward supply-chain-oriented
engineering (CE) design is sometimes called concurrent engineering (CE). Originating in
the 1980s, CE has also been called simultaneous engineering or
participative design. Whatever the name or particular tactics,
concurrent engineering starts from the premise that the product
design processes can be shortened and simplified when stakeholders
other than the engineers contribute. Variations on that theme are
known as early manufacturing involvement and early supplier

involvement (ESI); of course, manufacturing and supplier

representatives can both be assigned to a design team to work with
customers and representatives from other functions and other
partners, including marketing and sales, service, and purchasing.
Benefits
Benefits of concurrent engineering include the following:
 Emphasizes design collaboration
 Shortens the design cycle when events are parallel rather than
sequential
 Can make use of newer collaborative design tools for interactive
design participation in virtual meetings
Tradeoffs
Concurrent engineering has been replaced by more complete
methodologies such as design for manufacture and assembly.
Design for According to the APICS Dictionary, 15th edition, design for
manufacture and manufacture and assembly (DFMA) is
assembly
a product development approach that involves the manufacturing
function in the initial stages of product design to ensure ease of
manufacturing and assembly.
DFMA is essentially a further development of concurrent engineering.

A related term in the Dictionary is design for manufacturability,
which is the “simplification of parts, products, and processes to
improve quality and reduce manufacturing costs.”
In the traditional sequential approach to design and production,

manufacturing engineers get design drawings from the design
engineers and determine an efficient way to build the product as
designed. DFMA acknowledges the benefits of including suppliers,
manufacturing engineers, and warehouse managers responsible for
assembly in the design process. When these other stakeholders review
the design as it is being created, they can draw upon their experience
and firsthand knowledge of existing manufacturing/assembly
processes to catch unrealistic assumptions about production while
amending the design is relatively easy. (Correcting flawed design
assumptions becomes much more costly and time-consuming after the
design has been completed.) The result is a high-quality product that
remains affordable and is ready for market in a reasonable length of
time.

The goals of DFMA are as follows:

 To select materials for ease of production as well as product
function
 To design components so that they do not require extremely tight
tolerances
 To reduce the number of parts
 To reduce the number of instances parts need to be handled
 To use concurrent and parallel processing to reduce work-in-
process time
 To make assembly obvious and easy
 To simplify the process steps for assembly
 To design in easy product testing
For example, a U.S.-based pinball machine manufacturing company

followed DFMA principles by creating a completed internal assembly
harness that could be rotated 360 degrees, giving troubleshooters
access to all of the internal wiring for fast repair when performing
product testing. Such innovations help them stay competitive with
lower-cost labor markets.
Benefits
The benefits of DFMA include the following:
 Confusion, complexity, and variability are reduced, in turn
reducing production delays, long setup times, and extensive
training requirements.
 Standards and policies, such as requiring evaluation of existing
equipment before resorting to a new production line, can enforce
DFMA.
 DFMA makes use of standardization, such as common parts for
product families or off-the-shelf parts, whenever possible.
 It assists lean philosophies, modular design, and mass
customization.
 Software automates many features of DFMA.
Tradeoffs
The main tradeoff of DFMA is that it could be at odds with customer
demand and marketing desires if simplifications result in some
demanded features being omitted. (Usually these are features that fail to
increase marginal profits.)
Design for service Design for service is the “simplification of parts and processes
(design for to improve the after-sale service of a product” (APICS Dictionary,
maintainability) 15th edition). It is also called design for maintainability.

Once a purchase has been made, customers’ opinions of a

product often hinge on their most recent experiences with it, so
serviceability or maintainability strongly impact customer
satisfaction and retention of lifetime customers. For products
that require regular maintenance, this may involve changing
cartridges, filters, or other replacement parts. Parts that need to
be replaced frequently should be easily accessible and
replaceable by someone with no training. Even when the parts
are designed to be replaced by professionals or service teams,
faster service reduces maintenance charges.
Benefits
 Design for service lowers the total cost of ownership. For example,
if a facility manager can replace all air filters in a building in a day
rather than two days, it saves the organization a great deal of
money over the life of the building.
 Design for service also extends to logistics, since a ready supply of
replacement parts must be available. Replacement parts can be a
significant source of profit. If the ordering experience is easy, it can
be a source of customer satisfaction.
Tradeoffs
Design for service may compete with other design goals such as
aesthetics or minimizing development cost.
Quality Quality is defined by the APICS Dictionary, 15th edition, as follows:
Conformance to requirements or fitness for use. Quality can be

defined through five principal approaches: (1) Transcendent
quality is an ideal, a condition of excellence. (2) Product-based
quality is based on a product attribute. (3) User-based quality is
fitness for use. (4) Manufacturing-based quality is conformance to
requirements. (5) Value-based quality is the degree of excellence at
an acceptable price. Also, quality has two major components: (1)
quality of conformance—quality is defined by the absence of
defects, and (2) quality of design—quality is measured by the
degree of customer satisfaction with a product’s characteristics and
features.
In other words, quality is a critical issue in product design and

manufacture that can be measured and controlled in multiple
ways. Methods of incorporating quality into design include
design for quality, design for six sigma, and quality function
deployment.

Design for quality The APICS Dictionary, 15th edition, defines design for quality as
a product design approach that uses quality measures to capture the

extent to which the design meets the needs of the target market
(customer attributes), as well as its actual performance, aesthetics,
and cost.
Design for quality uses a number of measurements to control quality,

such as those addressed in Module 3. Each organization will determine
the measurements they wish to use and then set requirements for
acceptable quality and goals for exceptional quality. Some of these
measurements will be subjective, such as for aesthetics.
Benefits
Benefits of design for quality include the following:
 Fewer defects reduces waste and increases customer satisfaction.
 High quality can move the product from an order qualifier to an
order winner if the organization’s strategy is to compete on quality.
Tradeoffs
Tradeoffs of design for quality include the following:
 Quality may involve significant initial expense.
 Over time it usually lowers total costs, but these savings may be
hard to trace back to the quality program.
Design for six Design for six sigma is defined by the APICS Dictionary, 15th edition,
sigma as
an approach to designing products and processes that attempts to

ensure the firm can provide products or services that meet six
sigma quality levels. These quality levels correspond to
approximately 3.4 defects per million opportunities.
Six sigma is addressed in Module 3, Section C, Chapter 3, “Continuous

Improvement and Change Management.”
Quality function Quality function deployment (QFD) is defined by the APICS

deployment (QFD) Dictionary, 15th edition, as
a methodology designed to ensure that all the major requirements

of the customer are identified and subsequently met or exceeded
through the resulting product design process and the design and
operation of the supporting production management system.
QFD is more than just a design for quality philosophy; it extends to

operations and support functions. However, QFD must start with

design by translating customer segment demand data and the voice of

the customer into design requirements. QFD uses precise steps and a
methodology such as the “house of quality,” which is essentially a
comparative spreadsheet that ranks how a product or service stands
up to customer wants as well as to what the competition is offering. All
of this is translated into a set of technical specifications to meet
customer priorities. The philosophy uses group decision making to
make sure that conflicts are resolved with the customer in mind.
Benefits
Benefits of QFD include the following:
 Provides all of the benefits of design for quality
 Improves customer service
 Shows relative levels of interactions between desired product
characteristics so they can be prioritized when in conflict with one
another (e.g., light and sturdy or fast acceleration and low gas mileage)
Tradeoffs
One issue with QFD is that, like any complex methodology, it requires the
organization to wholeheartedly champion, adopt, and maintain it.
Customization Customization is a design goal that allows products or product families

to be adapted to changing customer demand over time. Customization
that requires engineering-to-order has a very high product cost and
long lead times. While this is appropriate for some markets, it cannot
be profitable for many products and services. Therefore, methods of
customization have been developed to harness mass production as
much as possible.
Customization methods include mass customization, postponement,

and glocalization.
Mass Mass customization is the practice of moving final product

customization configuration closer to the customer. The APICS Dictionary, 15th
edition, defines it as
the creation of a high-volume product with large variety so that a

customer may specify an exact model out of a large volume of possible
end items while manufacturing cost is low due to large volume.
It’s also known as delayed differentiation, which is a description of the

process that leads to mass customization. That is, a basic product or
set of components remains in undifferentiated form as long as possible
before being converted or assembled into a customized, or

differentiated, configuration. Sometimes differentiation doesn’t occur

until the end customer selects the specific components to be
assembled-to-order.
A classic example of mass customization is Hewlett Packard’s decision to

stop sending completely assembled, regionally differentiated printers
from one plant to all geographic markets and instead to ship modular
parts to each regional distributor for assembly closer to the customer.
Mass customization benefits from modular design, as shown in this HP

printer example. The fewer the modules to be shipped, stored, and
assembled, the more efficient the supply chain—and the more easily the
final differentiation can be accomplished. University education,
investment portfolios, and restaurant meals are all customized for the
individual end customer. In fact, the customer may do the customizing.
Making mass customization work efficiently depends upon establishing

instantaneous communication among the units that build or supply each
module. It may also require the availability of considerable expertise at
the point of differentiation. In the HP example, the regional distributors
had to acquire the equipment and expertise necessary to assemble
printers; before this they only had to warehouse and distribute the
printers.
Mass customization may also require more expertise by employees at

the point-of-sale, since customers may have to be guided in their
selection of custom products. Moreover, the retail salesperson may be
the final assembler. It takes greater training, and perhaps aptitude, to
build items to order in a retail setting than to sell them supplied as a
finished product.
Benefits
Benefits of mass customization include the following:
 Savings due to economies of scale
 Increased efficiency and expertise of workers who create
assembled-to-order modules
 Increased sales volume because of the appeal of differentiated
products to different market segments
 Reduced inventory costs, because aggregation of demand increases
the accuracy of forecasts and allows each region to reduce its
inventory
 Creation of semiskilled jobs to benefit local communities

Tradeoffs
Tradeoffs of mass customization include the following:
 Costs of investing in equipment and training to enable distributors
to assemble the product
 Potential friction with distributors who don’t want the added tasks
 Potential for quality issues if assemblers are poorly trained or
designs fail to make assembly foolproof
Postponement Postponement is very similar to mass customization. As defined in the

APICS Dictionary, 15th edition, it is
a product design or supply chain strategy that deliberately delays

final differentiation (i.e., assembly, production, packaging, tagging,
etc.) until the latest possible time in the process. This shifts product
differentiation closer to the consumer to reduce the anticipatory
risk, eliminating excess inventory in the form of finished goods in
the supply chain.
The Dictionary defines product differentiation as
a strategy of making a product distinct from the competition on a

nonprice basis such as availability, durability, quality, or reliability.
Postponement is an excellent example of a push-pull strategy, where

the organization designs the product and manufacturing process so
that differentiation can be delayed as long as possible. A generic
product is produced at the start of the manufacturing process and,
when demand is determined, only then is it differentiated to a specific
product. With this strategy, production starts can be based on
aggregate forecasts or actual orders. Thus postponement addresses
the uncertainty relative to final demand even if forecasts can’t be
improved.
Benefits
Benefits of postponement include the following:
 Postponement is useful as a countermeasure against the bullwhip
effect because it reduces the need for safety stock in multiple
varieties.
 The amount of in-transit (pipeline or transportation) inventory is
reduced, lowering insurance and handling costs and increasing
cash flow.
 Materials needed only locally can be locally sourced and produced
to assist with corporate social responsibility initiatives.

Tradeoffs
Tradeoffs of postponement include the following:
 Requires process, equipment, product, and packaging redesign
capital expenditures
 Can actually increase costs if there are few varieties of the end
product
Glocalization As international companies strive to educate their employees on

cultural protocols around the globe, they are also indirectly
contributing to their knowledge about the types of products that
would be embraced by these various groups. How can they work
toward meeting the particular needs and wants of different markets
around the globe—by designing new products or services, or by
redesigning existing ones? Glocalization is a hybrid term based on the
words globalization and localization, coined by Japanese economists in
the 1980s and popularized by sociologist Roland Robertson. According
to the APICS Dictionary, 15th edition,
When used in a supply chain context, glocalization is a form of

postponement where a product or service is developed for
distribution globally but is modified to meet the needs of a local
market. The modifications are made to conform with local laws,
customs, cultures or preferences.
Here are some examples of glocalized products from international

companies:
 Some fast-food restaurant chains are “glocalizing” their menus. For

instance, McDonald’s offers different menus to correspond to the
tastes of the community or region. In India, they offer more
vegetarian options; in Israel, they serve kosher food. Pizza Hut in
Macao, China, offers squid rather than pepperoni to match their
customers’ palates.
 General Electric’s handheld electrocardiogram device and a

portable PC-based ultrasound machine were developed for rural
India and China to provide improved quality, increased access, and
less cost. Rural patients no longer have to choose between going to
urban medical providers and going without medical care.
 Yahoo!, an international internet company that is headquartered in

California, successfully markets its web portal in 25 countries by
offering localized versions of its website and related services. A

Yahoo! website visitor can view customized content and the latest
local news, entertainment, and sports from their area 24/7.
 MTV, an international cable and satellite television channel,

customizes its broadcasts of popular music and promotional music
videos to appeal to audiences of all ages and tastes in about 150
countries and nearly 20 languages.
 Unilever has created more than 400 brands of food and health
products that it markets around the globe. One product in
particular, mayonnaise, is formulated differently for the variations
of tastes preferred by people in the Netherlands, Belgium, and
France. Unilever’s food scientists and marketing teams have been
able to pinpoint the preferences of the mayonnaise connoisseurs of
these countries.
Glocalization is similar to a multicountry strategy, which has, as we

learned in Section A, self-contained country markets in which
“customers have unique product expectations that are addressed by
local production capabilities” (APICS Dictionary, 15th edition).
Need for reverse innovation

According to a Harvard Business Review article, “How GE Is Disrupting
Itself,” glocalization was successful when wealthy nations comprised
the majority of the market and less-developed countries didn’t have
much to offer. The authors state that this 30-year time period of
glocalization is over and multinational corporations now need to put
effort and funds into global reverse innovation, because success in
developing countries is contingent on ongoing sales in these countries.
Reverse innovation involves developing innovative new products that
meet specific needs and budgets of customers in particular markets
using a decentralized, local-market focus.
According to the article, the following are two glocalization

“assumptions” that General Electric learned are in fact not true and
that need to be updated:
 GE had assumed that emerging economies would evolve the same

way as wealthy economies. In fact, developing countries don’t
evolve the same way, because they are more willing to adopt
breakthrough innovations and they have less money to spend. So,
for instance, innovations in low-cost medical devices, alternative

wind and solar power, and water desalination are becoming more
abundant in emerging markets.
 GE had believed that products that address developing countries’

unique needs would not be sellable in developed countries.
Instead what has been demonstrated is the ability of these
products to create brand-new markets in developed nations. They
are able to do this successfully due to their significantly lower
price points and novel new applications.
GE has embraced reverse innovation and has experienced positive

results: It created and placed numerous local growth teams. These
teams have helped GE better customize product objectives, customer
training, and key metrics. For example, using reverse innovation, it
doubled the number of low-cost ultrasound machines made in China
from 2006 to 2010.
Sustainability Sustainable supply chain management was mentioned a couple of

times in Section A of this module (and is covered in detail in Module 3,
Section A). This section looks at some sustainable design processes,
including design for the environment, design for reverse logistics, and
design for remanufacture.
Design for the Design for the environment (DFE) requires “considering health,
environment safety, and environmental aspects of a product during the design and
development phase of product development” (APICS Dictionary, 15th
edition). It has become a feature of product design due to customer
demand for sustainability, increased government regulations, and a
greater organizational focus on corporate social responsibility. DFE
aims to create a product that lives and ends its life cycle economically,
with the least damage to the customer, the company, and the
environment.
Design for the environment includes the following considerations:
 Provision for reuse or recycling. Rapidly increasing garbage is

one unfortunate feature of the consumer society. Good end-of-life-
cycle design takes into account the potential for reuse (at best) or
recycling (at least). Service stations and other businesses that sell
motor oil in the United States must agree to receive used oil and
recycle it—for a fee. Germany requires domestic beer brewers to
use refillable bottles. Reuse is generally easier on the environment
than recycling, since it involves less (or no) processing, but using

recyclable materials is friendlier to the environment than design

for the landfill.
 Reduced energy consumption. Collaborative teams can design

products that use less energy—such as the hybrid gas/electric
automobile or an energy-efficient appliance. Manufacturing
engineers and logistics specialists can also contribute to designs
that take less energy to build and transport.
 Avoidance or mitigated danger of hazardous materials. Design

can make some products less hazardous—taking lead out of paint
and gasoline, for example. For products that remain inherently
dangerous, designers can consider all possible ways to mitigate the
hazard. Cars, for instance, can be designed to lessen the likelihood
that gasoline in their tanks will explode in a collision—and all
along the supply chain, right up to the pump that dispenses
gasoline in the service station, careful design of facilities and
instruction of handlers can reduce product hazards.
 Use of lighter components and less material. When it comes to

environmentally friendly products, less is definitely more. A
lighter-weight car gets better mileage. Lighter products have fewer
materials in total and lower transportation costs.
Benefits
Potential benefits of design for the environment include the following:
 Consistent with supply chain management’s attention to all phases
of the product life cycle
 Enhanced corporate reputation and resulting goodwill
 Limits on corporate liability and legal costs that can result from
harm to the environment or violation of regulations
 Increased marketability among ecology-minded consumer
segments (ads can emphasize a product’s benefits for health, clean
air, etc.)
Tradeoffs
Tradeoffs of design for the environment include the following:
 Increased manufacturing expenses and higher price to the
consumer
 Reduced safety and convenience when some products are small
and light
 Reduced longevity of natural, less-processed products

Design for reverse Supply chain managers have for some time been paying an increased
logistics amount of attention to reverse logistics, or the reverse supply chain,
which begins with the customer and moves toward the manufacturer
or suppliers. The reverse chain handles products that need to be
returned, repaired, replaced, or recycled.
This implies several imperatives for the design team. Product

packaging can be designed to account for common consumer
frustrations such as not knowing to install a memory chip before a cell
phone will start working. Clear instructions or a help line can reduce
the number of returns based on user error.
If the product has to be returned for repairs or replacement, the

process of doing so should be simple for the user. This might include
ease of disassembly for repairs, an affordable warranty program, a box
that can be used for shipping and return, well-trained and accessible
customer service personnel, and comprehensible instructions—as well
as a product designed to endure.
Benefits
Potential benefits of design for reverse logistics include the following:
 Enhanced customer loyalty resulting from ease of repair,
replacement, return, and recycling
 Lower cost of returns
 Improved product designs through attention to reasons for returns
Tradeoffs
An issue in design for reverse logistics is that this is a complex system
that can often be underestimated. It may not be able to use the forward
supply chain logistics infrastructure and has added costs such as
warranty expenses and restocking fees.
Design for Design for remanufacture is defined in the APICS Dictionary, 15th
remanufacture edition, as
products developed in a manner that allows components to be

used in other products. This process is associated with green
manufacturing.
Design for remanufacture involves a strategic decision during the

design phase of a new product to remanufacture the product for
resale. In general, 70 percent of the cost to build something new is in
the materials and 30 percent is in the labor. By implementing
remanufacturing, companies can effectively address the larger cost

component of reclaiming products after they have been used for one or
more life cycles.
With material and resource costs expected to increase, the cost

advantage of remanufacturing lies in the fact that items normally
discarded can become raw material for the next product life cycle,
eliminating waste and closing the loop on the system. In addition,
environmental laws that are being instituted in the European Union
and are expected to follow in the U.S. may force companies to embrace
remanufacturing as a sustainable practice.
Remanufacturing is a service business as well as a product business.

For the process to work, companies have to form a replacement
relationship with customers. For example, Caterpillar, the heavy
equipment company, has created a separate division for
remanufacturing. When a customer replaces a product, they are offered
a remanufactured one for about half the price. However, the customer
will be charged full price until he or she turns in an old product—one
that is inspected and certified as remanufacturable. Thus, customers
benefit by becoming Caterpillar’s partner. Customers are actually
creating assets, in the form of returned products, for their supplier. In
return, they receive less expensive replacement parts, so they can keep
their fleets running with minimal downtime.
Benefits
Proven characteristics of design for remanufacturing include lower cost
to the customer, lower impact on the environment, and lower product
development costs. Also, the increasing costs associated with materials
and resources and impending environmental laws make
remanufacturing an attractive option for various companies.
Tradeoffs
The primary tradeoff of remanufacturing is that rather than receiving
full cash, the manufacturer receives parts as partial payment, so cash
can be tied up in inventory longer. Note also that in the U.S. and
possibly elsewhere a remanufactured product cannot be sold or
marketed as a new product.
Topic 4: Supply Chain Network Optimization

Let’s wrap up this chapter with a look at supply chain network
optimization. Once data are collected, tabulated, and verified, the next
step is to optimize the configuration of the logistics network.

Optimization often involves developing the capabilities to find and

enact the least-cost solution for the entire network (efficient or lean)
or developing the ability to manage demand and respond to actual
demand (responsive) through some combination of customer focus
and/or agility.
This can be accomplished by implementing network modeling and

operations research planning tools that employ two techniques:
 Mathematical algorithms to determine least-cost or best solutions
 Simulation models to evaluate design alternatives
These tools were discussed in Section A, Chapter 3, “Tools and

Techniques.”
As noted in the Razex case study earlier in this chapter, an

organization can design optimization into its information system
plans. However, optimization requires a dose of reality. An
organization’s staff may loyally and optimistically assume that the
organization is at a high level of development, and this assumption
may engender a failure to work toward optimization. Therefore,
understanding what constitutes being in a particular stage of supply
chain network optimization is critical.
Stages of supply In Chapter 2 of Section A in this module, we learned about the stages
chain network of supply chain evolution. Supply chain network technology
technology optimization can be mapped to these stages, existing on a continuum,
optimization ranging from traditional disconnected companies with adversarial
external relationships (Stage 1) to highly efficient virtual networks of
companies (Stage 4).
Supply chain optimization can be thought of as evolutionary rather

than linear. Starting with basic material requirements planning
(MRP), a supply chain continuously increases its sophistication in
terms of manufacturing resource planning (MRP II) and ERP, internal
integration, supply chain planning, production scheduling, external
integration, and so on. A company’s stage of supply chain
optimization is important for benchmarking the firm against its
competition.
Exhibit 1-37 lists the levels of supply chain optimization at each of the
stages of supply chain evolution.

Exhibit 1-37: Stages of Supply Chain Network Technology Optimization
Stage
1: Multiple 2: Semifunctional 3: Integrated 4: Extended
Dysfunction Enterprise Enterprise Enterprise
Capability
Internet Static websites Online catalogs Intranets across all E-commerce
functions
Integration None; no Batch Internal process Supply chain
teamwork integration; design networks; process
teams integration across
entity boundaries
Supply chain Little information Informal demand Formal global Integrated global
planning exchange of any planning; inventory demand planning; planning; supply
kind reduction; no enhanced chain vs. supply
coordination of warehousing, chain competition
initiatives logistics,
forecasting, etc.
Production Basic MRP (time- MRP II MRP—ERP Externally
scheduling phased order (manufacturing integrated ERP
point) resource planning)
Integration Fax/phone EDI/fax/phone; Electronic data VMI, online

with suppliers low-price interchange (EDI) requests for
purchasing with all large quotation (RFQs)
strategies suppliers
Customer Research Local inventory Available-to- Capable-to-
delivery promise (ATP) promise (CTP)
Stage 1: multiple At the multiple dysfunction stage, firms may have multiple
dysfunction disconnected legacy MRP systems performing various transactional
functions. These divisions follow the departmental barriers within the
company. Communication often requires paperwork and data reentry.
Note that MRP indicates the simplest process for determining net
component requirements—a bill of material, a master schedule, and
current on-hand/on-order data, and nothing more.
Drawbacks of Stage 1 include multiple system bottlenecks, no supply

chain leadership, minimal web capabilities, and little process flexibility.
Systems cannot produce timely information, such as order status or
lead time. Performance is either not measured, is inadequately
measured, is measured but not applied, or is not aligned to company
goals.
Organizations at this stage should focus on standardizing internal

processes, becoming internet- and mobile-device-capable, and
leveraging past continuous improvement efforts. Phased approaches

are best, starting with the areas that can generate the greatest savings,
such as procurement and logistics, each of which typically generates
five to eight percent savings at this stage. Functional areas will resist
change, so change management is a must.
Stage 2: At the semifunctional enterprise stage, many companies have

semifunctional completed manufacturing resource planning (MRP II) implementation
enterprise and can demonstrate cross-functional integration of planning
processes involving automated capacity planning. Internal
optimization and corporate excellence break down functional silos,
leading to interdepartmental trust and cooperation. Some companies
have outsourced areas outside their core processes, and these
outsource providers are their main external ties.
Stage 2 companies use documented processes and align key

performance measures to goals. However, many companies at this
stage have not leveraged their web capabilities. At most, they have
functionally focused electronic business solutions such as an intranet
site or trading in commodities and office supplies.
To move forward, companies at Stage 2 should appoint a supply chain

leader with experience in external integration. This leader needs
executive support and the authority to break down barriers. The
leader should start in areas that can be altered without reducing
market performance, such as aggregating purchasing across the
organization to get volume discounts. Early successes will help when
the leader is championing more painful but necessary process and
culture changes. Optimization at this level usually focuses on lean
strategies to cut transportation, warehousing, inventory, and
equipment costs.
Stage 3: integrated At the integrated enterprise level, companies have started point-to-
enterprise point planning integration with the extended enterprise. They share
real-time or near real-time information and collaborate on forecasts
between multiple divisions and first-tier customers and suppliers.
Interactions with trading partners are usually still on a one-to-one
basis. Some share best practices and the risks and rewards of
collaboration. They likely use ERP and may use customer relationship
management (CRM) or supplier relationship management (SRM) or
both. The firm brings functional areas together in processes such as
sales and operations planning with a focus on companywide
processes.

Getting to Stage 3 requires overcoming cultural and technical

resistance to change. On the culture and process side, each party may
view any ideas from external sources as inferior to internal ideas. On
the technology side, many managers don’t know much about the
technology enablers and fear loss of key data and the difficulty of
linking to multiple different legacy and ERP systems.
To progress to and past this level often requires a visionary leader

from a business unit to strengthen the efforts of the supply chain
leader and the IT officer in developing these external integrations for
the leader’s business unit.
Stage 4: extended In Stage 4, the supply chain becomes more of a supply network. Stage
enterprise 4 networks engage in e-commerce and have automated and seamless
information sharing, linked competitive vision, and common business
objectives. They may also use collaborative planning, forecasting, and
replenishment to make plans jointly and may employ vendor-
managed inventory for components or finished goods. New products
are brought to market faster. Partners in these networks have risk-
and reward-sharing contracts and other safeguards to ensure that
everyone is motivated toward common goals. End-to-end integration
provides total visibility and allows the network to function as a
virtual company.
Companies at Stage 4 use public or private internet exchanges to buy

materials and services from and sell them to multiple sources. Much of
the trading is automatic and unattended. They establish more formal
partnerships and share talent.
Getting and staying at this level requires sustained executive

leadership and development of human and technological supply chain
expertise. Another key to sustaining collaboration is a fully integrated
performance measurement system that expresses the supply chain
strategy and goals and can identify counterproductive elements.
Technology links between partners should be seen as a continuous
improvement initiative, and adaptable and scalable software solutions
should be used when possible.
Moving between Many companies become bogged down in their evolution through the
optimization stages of optimization, especially between Stages 2 and 3 and Stages 3
stages and 4. While companies may find it easy to see the value of working
toward internal integration, they may be unwilling or unable to make
the leap of trust involved in external integration.

Different divisions or businesses within a supply chain may be at

different levels. Many companies move one or two business units into
the next level and only move more of the company or network if
successful. The lowest common denominator in the network may
become the bottleneck preventing the system from advancing to the
next level. For example, most large organizations now have an ERP
system, but this alone may not be enough to place an organization at a
higher level. Rather, a majority of the items must be present to reach a
higher stage of optimization.
To move between stages, companies must continually refine their

strategies and develop new technologies. Optimization and
innovation are never-ending goals. Competitive analysis may play an
important role in motivating continued investments in supply chain
network optimization.
As supply chains attain new stages of sophistication, the collaborative

capacity of cross-enterprise management teams will mature in
proportion to their stage. These teams will be better at soft skills such
as building consensus as well as with the technologies involved. This
maturity cannot be gained except through experience. Because of this,
and because of the great complexity involved in the planning and
execution required to pass from one stage to the next, supply chains
cannot skip stages.
The higher the collaborative capacity, the greater the demand for
more enabling technology and new processes. Recognizing and
responding to this demand drives further collaboration. It may be that
the next opportunity for collaboration lies beyond linking the
network and will only be clear when more companies have reached
Stage 4.
Supply chain Evolving from a Stage 3 to a Stage 4 company begins with top
network management’s deciding to permit exchange of pertinent information
optimization across the supply chain. The starting point for getting to Stage 4 is
strategy often one partnership that points the way toward the completely
networked system. Internal resistance to change must be broken
down. Only then can the company approach prospective partners
with an inter-enterprise strategy. If other prospective members are
also willing to explore collaboration, they establish a technical
infrastructure.

Strategy is set in several steps:

1. Determine the goals and the desired end state of the supply chain.
2. Create cross-functional and cross-business teams.
3. Organize the supply chain’s operational processes and IT’s
mission.
4. Design in change management and training with stringent
timetables for all parties. Measure results and provide feedback.
5. Create a conceptual model that will adequately explain the
process and all of its elements.
6. Establish technical infrastructure.
Because cross-functional or ad hoc teams will be making more

decisions, a culture shift and a shift in individual employee skill sets
must occur. Supply chain network optimization requires that
centralized and decentralized approaches be mixed to optimize the
decision-making process. Teams perform collaborative centralized
planning, but execution will be decentralized. Multiple management
levels create integrated organizational structures.
Organizations wishing to form a strategy to get to the next stage first

need teams to stay abreast of supply chain technology developments.
This thinking should include how the technology would benefit them
if they had it as well as if a competitor had it first. Second,
organizations wishing to move to an inter-enterprise strategy must
build a wide and deep knowledge base of all members of the supply
chain network. Third, team-building training should stress a holistic
viewpoint; that is, they should think of all members of the supply
chain as if they were all in the same lifeboat. When cross-functional
teams come from different nationalities and cultures, supply chain
managers may need to educate team members to show proper
sensitivity to cultural differences.
Role of nucleus Moving from a Stage 2 company to a Stage 3 company, or from a Stage
firm and cross- 3 company to a Stage 4 company, is often facilitated by a nucleus firm
functional teams or channel master. Because the nucleus firm is most likely the best-
known name in the partnership or has its name on the products, it is
ultimately responsible for customer satisfaction. Therefore, the
nucleus firm will champion the cause, contact potential partners,
perform a technology audit, and form teams with qualified partners
across both functional and enterprise boundaries. This firm must also
measure, monitor, and manage the supply chain across companies to
make it appear seamless.

Common cross-functional and cross-business teams formed to support

a supply chain management initiative include the following.
 Executive team. The executive team led by the nucleus firm sets
the pace and strategic goals for collaboration and examines mutual
strategies for market penetration.
 Technology team. The technology team examines requirements for

databases, networking, software, and configuration, especially as
regards communications and security for safe collaboration. It
should be the first team formed, because the team must agree on
methods of connecting systems and make these connections before
other teams progress past the conceptual stage of network planning.
The technology team works with the other teams to find types of
information that would build mutual advantage. They analyze
existing systems to determine actions to support strategic goals.
 Buying team. This team examines leveraging combined network

purchasing, procurement, and sourcing strategies.
 Making team. The making team examines collaborative

improvements to manufacturing. Members may feel that their
process is already optimal, and incremental steps must be taken to
show the benefits of production collaboration.
 Selling team. The selling team examines marketing, sales, and

customer service synergies to reduce cycle times and optimize
order fulfillment and safety stock. Each partner’s customer base
and segments reveal potential for cross-selling.
 Inventory team. The inventory team determines optimal total

inventory and inventory turnover to show the benefits of
collaboration.
 Delivery team. The delivery team examines total space against

actual inventory. The team builds a consensus on logistics best
practices, total asset use, use of Just-in-Time (JIT) or other
inventory strategies, and network safety stocks.
External relationships will start out with collaboration meetings,

followed by partial or pilot endeavors, and will move forward only
when the technical foundations are in place and each party is given
reasons to trust the others.

Once the initial connectivity project is complete, the network is at the

beginning of Stage 3. Thereafter, the teams work toward continuous
improvement. At Stage 4, teams see the results of their labor, as real-
time network communications are actively used by all cross-functional
teams.

Progress Check
1. What factors should be taken into consideration when designing a supply chain?
( ) a. Network configuration
( ) b. Network optimization
( ) c. Product design
( ) d. All of the above
2. True or false? In the ideal supply chain, product design is best managed by the engineering
department without input from other functions.
( ) True
( ) False
3. A design team modifies an existing clothing line by making the buttons used on one item
work for all the other items. This exemplifies which of the following?
( ) a. Integral design
( ) b. Component commonality
( ) c. Design for logistics
( ) d. Mass customization
4. A company manufacturing a product containing hazardous materials redesigns the

packaging so that the box containing the product can be used to return the product to the
manufacturer. This is an example of which of the following?
( ) a. Modular design
( ) b. Quality function deployment
( ) c. Standardization (universality)
( ) d. Design for reverse logistics
5. A motorcycle manufacturer redesigns a line of bikes to allow customers to put together a

variety of gas tank styles, fenders, motors, and wheels to create models for different
purposes. This exemplifies which of the following?
( ) a. Integral design
( ) b. Component commonality
( ) c. Design for logistics
( ) d. Mass customization
6. Mass customization provides several benefits, but one tradeoff is

7. Comment on the following statement: Design for the environment adds to product cost and
provides no benefits other than compliance with regulations.
8. Supply chains at Stage ____________ engage in e-commerce; have automated and seamless
information sharing, linked competitive vision, and common business objectives; and may
also use CPFR.
9. A ____________________________________________ is a firm that takes the initiative in moving an

extended supply chain network to a higher stage of development.


1. d (p. 1-174)
2. False (p. 1-192)
3. b (p. 1-199)
4. d (p. 1-214)
5. d (p. 1-207)
6. Tradeoffs mentioned in the text are (1) the costs of investing in equipment and training to
enable distributors to assemble the product, (2) the potential for friction with distributors
who don’t want the added tasks, and (3) the potential for quality issues if assemblers are
poorly trained or designs fail to make assembly foolproof. (p. 1-209)
7. Aside from compliance with regulations and improving the natural environment for
everyone’s benefit, design for the environment embodies a principal rule of supply chain
management, which is to design, produce, and market products with the entire product life
cycle in mind. In addition, design for the environment can enhance the company’s
reputation and goodwill and expand the market for the product by appealing to
environmentally conscious customers. (pp. 1-213)
8. 4, extended enterprise (p. 1-219)
9. Nucleus firm, channel master (p. 1-221)

Chapter 3: Technology Design

 Show how information technology can reduce friction in the
supply chain by enabling new strategies and operational
methods
 Classify information system infrastructure: databases, networks,
software, and configuration
 Show how the return on investment for an IT initiative is
computed
 Show how IT fits in a comprehensive supply chain management
system
 Discuss electronic business fundamentals, including internet-
enabled supply chains, e-commerce, business-to-business
commerce, and business-to-consumer sales
 Appraise key application tools for their use in supply chain
management, including enterprise resources planning, advanced
planning and scheduling, supply chain event management,
warehouse management systems, and transportation
management systems
 Discuss the need for timely and accurate data
 Compare data acquisition and communication tools, including
interface devices, data communications methods, and database
types
 Examine the impact of automatic identification systems and
automatic identification and data capture devices, including bar
codes, warehouse automation, and radio frequency identification
Without technology, the current concept of supply chain management

would not exist. Technology has allowed businesses to move from
department-centric spheres of control to a focus on business processes
that spans departments and extended supply chains. As technology has
evolved, it has enabled increasingly complex business strategies, metrics,
and analysis, which in turn have sped up the pace of business and given
business a global reach. Technology is quickly becoming a world-class
performance enabler because it helps interconnect the key elements of a
value-driven network.
Customers and suppliers now expect fast and informed responses to

questions and real-time visibility into events, market intelligence, and

point-of-sale transactions. Better knowledge of demand has allowed

(and required) product life cycles to shrink. Faster life cycles mean that
products may enter growth and maturity faster, which will speed the
time to profitability, but, conversely, it may also mean that products
enter decline sooner and need to be replaced, meaning that
organizations must be increasingly flexible. Technology can be a source
of competitive advantage for a business.
We’ve already covered some aspects of technology as it relates to supply

chain management. This chapter looks at technology in greater detail. The
first topic examines the role of information technology in the supply
chain, information system architecture, and comprehensive supply chain
management systems. Subsequent topics cover electronic business, key
applications, and data acquisition and management.
Topic 1: Information Technology and Supply Chain Management

Role of IT in The APICS Dictionary, 15th edition, defines information technology
supply chain (IT) as
management The technology of computers, telecommunications, and other
devices that integrate data, equipment, personnel, and problem-
solving methods in planning and controlling business activities.
Information technology provides the means for storing, encoding,
processing, analyzing, transmitting, receiving, and printing text,
audio, or video information.
Networking technology also plays a central role in enabling the

transmission of information throughout organizations and among
supply chain partners.
The information system in a supply chain is not only a collection of data.

According to the APICS Dictionary, 15th edition, an information system
(IS) is the
interrelated computer hardware and software along with people and

processes designed for the collection, processing, and dissemination
of information for planning, decision making, and control.
This definition’s focus on people and processes is the key to getting the
most out of any information system. Technology should automate the
flow of information and help network people together so they can share
their knowledge efficiently and effectively. By using electronic
documents, “the electronic representation of a document that can be
printed” (APICS Dictionary, 15th edition), people can easily share data

and information of every nature. Technology should help automate,

control, and standardize processes so that people can focus more on the
“why” and the social elements of transactions or on the exceptions to
normal transactions. Finally, information systems not only help turn
data into information by putting it in context; they also help share and
create knowledge by finding and highlighting new associations between
data. These capabilities empower people and processes to continually
improve. In other words, the key is turning data into information and
then turning that information into action.
Organizations can employ IT to aid supply chain management in

many ways, including the following:
 To increase supply chain velocity, agility, and scalability.

By enabling the efficient transfer of secure information among
independent supply chain partners, IT supports the formation
of virtual chains—firms specializing in complementary core
competencies can network together temporarily to develop
new products and exploit fast-changing opportunities.
 To provide cost-effective global visibility of data. Rapid,

inexpensive transmission of massive amounts of data through
the internet enhances global supply chain visibility. The
resulting improvement in sourcing and selling decisions sets a
new standard that must be met by other companies.
 To avoid the bullwhip effect. IT can be used to gather,

integrate, and report logistical data to show actual supply chain
activity and avoid the bullwhip effect that occurs when
partners forecast with incomplete data.
 To create lean, cost-effective supply chains by replacing

inventory flows with information flows and moving from
push to pull. Rapid data streams replace push systems with
pull systems, in which real-time data sent from the point-of-
sale allow planners to respond rapidly to actual shifts in
demand.
 To gather, store, and analyze knowledge and share it

among supply chain partners. Efficient networking and
integrative technologies give each partner strategic and tactical
capabilities that enhance everything from strategic analysis to
logistics.

 To facilitate strategic, tactical, and operational planning and

coordination. By giving all partners the same information, supply
chain partners are empowered to improve the overall profitability
of the supply chain rather than solely focusing on their own profits.
 To drive accuracy of data and provide straight-through

processing. Data can be entered once, stored in one place, and used
in multiple transactions without reentry errors.
 To facilitate new relationships. IT has removed many of the

barriers (sometimes called “friction”) that locked organizations into
less than optimal relationships. Thus it has enabled easier formation
of new supply chain partner relationships to exploit emerging global
opportunities.
 To deepen trust in existing relationships. IT can help create

greater trust among supply chain partners using real-time
information sharing.
Information The degree of efficiency and effectiveness of a supply chain’s functions

system is limited by the velocity of information (ease and speed involved in
architecture creating, compiling, transferring, understanding, analyzing, and using
information). The information system architecture introduced in the
last chapter is the key to increasing the velocity of information.
The definition of the information system architecture states that it

should reflect the architecture of the organization. This implies that if
the organization wants to change its basic architecture, say, from a
department focus to an extended process focus, its information system
architecture will also need to change. If it does not, older technology
architectures could prevent the changes from succeeding. Therefore,
supply chain managers need to understand an organization’s
information system architecture at a high level even if this architecture
already exists so that they can determine if it needs to be changed or
upgraded to facilitate a specific supply chain strategy.
The core technologies of the information system architecture can be

summarized as databases and their management systems, networks,
software, and configuration.
Database and The core of information system architecture is the database, which is a
database structured repository of data serving a specific need, such as a
management transaction record or an employee file. When enterprise resources

planning systems are used, they provide a pre-built database structure

that can be leveraged. Databases require a database management
system (DBMS), which is defined by the APICS Dictionary, 15th edition,
as
Software designed for organizing data and providing the

mechanism for storing, maintaining, and retrieving that data on a
physical medium (i.e., a database). A DBMS separates data from
the application programs and people who use the data and permits
many different views of the data.
Related terminology includes data manipulation language (e.g.,

structured query language [SQL]), which is the language used to query
and manipulate a database, and data dictionary, which, as defined in
the APICS Dictionary, 15th edition, is
(1) a catalog of requirements and specifications for an information
system; (2) a file that stores facts about the files and databases for
all systems that are currently being used or for the software
involved.
Details of database types are provided later in this chapter.
Networks The APICS Dictionary, 15th edition, defines a network as

the interconnection of computers, terminals, and communications
channels to facilitate file and peripheral device sharing as well as
effective data communication.
Linkage between computers and servers is usually through a local area

network (LAN). The Dictionary defines these terms as follows:
Server: A computer, or software package, that provides a specific
kind of service to client software running on other computers.
LAN: A high-speed data communication system for linking
computer terminals, programs, storage, and graphic devices at
multiple workstations distributed over a relatively small
geographic area such as a building or campus.
Wireless LANs use radio waves to transmit data. Wireless systems are
less expensive to set up since they require no wiring, but they do
require higher security to prevent unauthorized interception and use of
data.
Companies use wide area networks (WANs) to share information

between geographically dispersed facilities. The Dictionary states that a
WAN is “a public or private data communication system for linking
computers distributed over a large geographic area.”

A virtual private network (VPN), a low-cost internet-based secure

transmission method, can allow secure communications with
individuals and organizations in various locations. VPNs use encryption
to ensure secure communications. External VPN users see the system as
if they were in the facility using the LAN.
Two other network terms from the APICS Dictionary, 15th edition, are
intranet and extranet.
Intranet: A privately owned network that makes use of internet
technology and applications to meet the needs of an enterprise. It
resides entirely within a department or company, providing
communication and access to information, similar to the internet,
with web pages, and so on for internal use only.
Extranet: A network connection to a partner’s network using

secure information processing and internet protocols to do
business.
Software Software describes programs that create, display, modify, process, and
analyze the data in databases in various ways. Types of software include
operating systems and applications.
 According to the APICS Dictionary, 15th edition, an operating

system (O/S) is
a set of software programs that control the execution of the

hardware and application programs. The operating system manages
the computer and network resources through storage management,
disk input/output, communication linkages, program scheduling,
and monitoring system usage for performance and cost allocations.
Familiar operating systems include Windows, Unix, Linux, and the

Mac O/S.
 Application software is controlled by an operating system and fills

various computing needs such as to plan, make, source, account for,
deliver, and return products and services. We’ll look at a number of
key applications for supply chain management later in this chapter.
Software can be judged by its relative cost, its reliability (failure rate),
its relevance (usefulness and time until obsolescence), and its
maintainability (relative cost to create, configure, or upgrade).
In the conventional software application model, the user purchases a

software package and license, paying a one-time fee. The user owns

the software, and the vendor or developer provides support and

updates according to the terms of the licensing agreement. An
alternative to this is software as a service (SaaS), defined by the
APICS Dictionary, 15th edition, as
computer services…provided by a third party that keeps all of the

software and hardware in its place of business and the company
using the services accesses them via the internet.
With SaaS, the software is not downloaded to the user’s computer or

server. The organization effectively rents the software; SaaS
applications do not have licenses. Software payments are for
subscriptions (usually monthly). User access and use ends when the
user stops paying for the subscription.
SaaS eliminates time required for installations and upgrades. For

example, Google’s word processing and spreadsheet tools fulfill the
basic criteria of an SaaS application:
 A vendor (Google)
 Logic and data stored in a central location
 End-user access to data and software, run and used over the
internet
This example can be classified as one broad category of SaaS—

customer-oriented services. Business-oriented SaaS applications are
often “lines of business services,” or business solutions for processes
such as supply chain management, customer relations, and others.
Exhibit 1-38 summarizes some basic advantages of SaaS for users and
vendors.
Exhibit 1-38: Key Advantages of SaaS
User Advantages Vendor Advantages

 Lower initial costs—no large licensing fee  Continuous stream of income—ongoing
reduces barriers to use; no IT investments subscription fees typically exceed the
 Immediate use—no long implementations traditional one-time software licensing fee
 Upgrades are automatic—the vendor makes  Only one active version to support
improvements and fixes to the active version  Reduced software piracy and unlicensed use
 Smaller storage requirements—storage is the as well as fewer losses associated with such
SaaS provider’s responsibility activities
 Fewer personnel—reduced need for internal
IT people for installation, monitoring,
maintenance, and updates

Certainly SaaS does not come without challenges. Vendors must

constantly reaffirm that SaaS solutions are lighter, simpler, more
intuitive, and more agile. Users are looking to vendors to facilitate
easier deployments and provide more robust integration strategies
that recognize the heterogeneous environments that most customers
now run and will run in the near future. Application areas where
functionality is fairly standardized and commoditized (such as
customer relationship management, security, and IT help desk) are
thus far the most prevalent uses for SaaS. Gaps in customization and
integration capabilities make SaaS less appealing in areas requiring
specialization or complex, real-time integration.
Configuration Configuration from an information system architecture standpoint

refers to how the actual hardware, operating system, application
software, and networks are arranged.
The most common configuration is a client/server system, where the

clients are personal computers (PCs) or devices and the servers are
either mainframe systems or servers. The O/S runs the clients and the
servers. The client/server concept involves distributing processing
tasks so that the client takes care of local, low data demand tasks and
the server/mainframe performs general, high data demand tasks for
the company.
The extended chain of suppliers and customers operates primarily

over the internet, which is a distributed form of the client/server
structure, or a network of networks in which the web browser is the
client connected to a web server.
Another option for configuration with supply chain partners or other

internal offices is cloud computing. Cloud computing allows
authorized members to have virtual access to a network of remote
servers and databases no matter their actual location.
Cloud computing deploys powerful computing applications,

platforms, and services over the internet. The “cloud” is a network
of data centers enabling computing resources to be accessed and
shared as virtual resources in a secure and scalable manner. While
cloud computing is often advertised as a way to connect with
external service providers, it can also be used for internal purposes.
For example, large companies can virtualize their own servers and
create internal clouds that can save money and provide better
results than having dedicated servers for each application.

At this time, standards for connecting the computer systems and the
software needed to make cloud computing work are not fully
defined, and vendor technologies differ. However, many SaaS cloud-
based systems do have ways to interface with an organization’s
enterprise resources planning systems, for example. As cloud
computing continues to gain mass appeal in corporate data centers,
supply chain applications will undoubtedly grow. According to 2014
Infosys and Verizon Enterprise Solutions surveys, cloud computing
has entered the mainstream and businesses want to use it both to
reduce costs and to increase business agility. Many ERP systems
have enhanced their delivery methods using cloud- and web-based
access, and cloud-only ERP systems such as NetSuite also exist.
Exhibit 1-39 shows the technology components of information

system architecture, including the connection to external system(s)
over the internet or via cloud computing.
Exhibit 1-39: Information System Architecture Components
Clients
(wireless Client
devices) (PC)
Client
(peripheral)
LAN/WAN
Wireless
Database
Internet
(configuration LAN/WAN
choice)
Database
Cloud
computing Database
(configuration
Server
choice) (DBMS) Server
Comprehensive Exhibit 1-40 on the next page provides an overview of a

supply chain comprehensive supply chain management technology system from the
management perspective of a manufacturer, focusing on the key application tools
system (which will be discussed later in this chapter) as well as on customer
relationship management and supplier relationship management
(which are discussed in Module 2).

Exhibit 1-40: Comprehensive Supply Chain Management System

(Manufacturer’s Perspective)
Process Value Supply Chain Value Delivery Supply Chain Demand

Channel
Flow of Goods and Services Information Flow Flow of Payments
Suppliers’
Suppliers Suppliers Manufacturers Distributors Wholesalers Retailers Customers
Enterprise Resources Planning (ERP)
External
Supplier Supplier Parent Distributor Wholesaler Retailer
ERP ERP ERP ERP ERP ERP
Advanced Planning and Scheduling (APS)

Plant 3
Subsidiary Plant 2 Subsidiary
Plant
ERP 1
ERP ERP ERP
ERP
Supply Chain Event Management (SCEM)

Active Visibility
SCEM SCEM
Warehouse Management System (WMS)
WMS WMS WMS WMS WMS WMS

Inventory Inventory Inventory Inventory Inventory Inventory
Transportation Management System (TMS)
TMS TMS TMS TMS TMS TMS
TMS (Reverse Logistics)

Customer Relationship Management (CRM) and Supplier Relationship Management (SRM)
CRM ↔ SRM CRM ↔ SRM CRM ↔ SRM CRM ↔ SRM CRM ↔ SRM CRM
Suppliers’
Suppliers Manufacturers Distributors Wholesalers Retailers Customers
Suppliers
Many of these systems are also used by other supply chain members,
and their supply networks and technologies would appear to be
centered on them.

Note the three categories at the top of the exhibit:
 Process value supply chain. This part of a supply chain translates

demand channel information into products or services. Process
efficiency and effectiveness are critical.
 Value delivery supply chain. This part of a supply chain is

configured to deliver the service component of a product-service
package as defined by what the demand channel values. Some
chains will have more or fewer partners as strategy demands.
 Demand channel. From an IT perspective, the demand channel

exists to collect, analyze, and disseminate market intelligence and
information on actual customer demand.
Rather than thinking of a supply chain as a monolithic entity,

technology has allowed supply chains to continually reinvent and
regenerate themselves by forming new chains for different products or
customer segments. Viewing a supply chain as a set of modular
components helps demonstrate this flexibility. A modular system, as
defined in the APICS Dictionary, 15th edition, is
a system architecture design in which related tasks are grouped

in self-contained packages. Each package, or module, of tasks
performs all of the tasks related to a specific function and
advances in functions can be implemented without affecting
other packages or modules because of the loose coupling with
other modules. One example is a multitiered architecture in
which application business rules are separated from the data
management rules. Another example is a client-server
architecture in which user interface tasks are separated from the
application software.
Benefit-cost For all the potential uses of technology, IT investments should be

rationale for undertaken only if they result in a net gain for the organization. As such,
new the first assumption to make in an IT justification is that this is a
technologies business decision, not a computer project. New technology should be
matched to the company’s goals and should create a strategic supply
chain advantage. Note that most IT departments will expect the
recipient of the technology to perform such a justification. The IT
personnel can be used as expert resources but should not be expected
to develop a business case. For supply chain technology, this is the
supply chain manager’s responsibility.

If technology is poorly chosen or installed without thorough project

management, it can result in a huge financial drain without
generating the envisioned benefits. Many organizations have
assumed significant financial risk by poorly planning and/or
implementing IT projects.
Well-managed capital investments can generate returns in cost

savings (in logistics, procurement, software systems, and overhead),
greater market share, and new product and market innovations.
Successful IT should make a company agile and resilient to change
and disruption.
Tangible and Credibility is the key to any cost justification, and past success lends
intangible benefits strong credibility to a proposed IT investment. However, the past is
not always an accurate predictor of the future. Moreover, making
only investments that proved successful before can stifle creativity
and hamper business growth.
Benefits of IT investments can be both tangible and intangible.

Tangible benefits can be broken down into direct, day-to-day savings
and increases in working capital or available cash resulting from
reductions in temporary assets such as inventory and accounts
receivable. Intangible benefits are difficult or impossible to quantify,
so they may place some strain on credibility.
Exhibit 1-41 displays some tangible and intangible benefits of

successful IT investments.
Exhibit 1-41: Potential Benefits of IT Investments
Tangible Intangible
Lower maintenance costs Customer retention

Faster implementation Customer service
Increased sales volume Visibility of order status
Improved scheduling (fewer Workforce redeployment
changeovers) Employee satisfaction and efficiency
Greater financial returns
Lower overhead
Reduced cash-to-cash cycle
When estimates are required to justify intangible benefits, the best

method is to build a consensus rather than use an individual’s opinion.

For example, IT that promises improvements in sales volume could

include points such as
 System visibility of order status increases responsiveness to
customers.
 Quality controls result in fewer returns and more customer
satisfaction.
 Faster processing increases transaction velocity, reducing lag
times.
Note that Exhibit 1-41 lists workforce redeployment as an intangible

benefit. Cost reductions promised by the ability to lay off employees
should be treated with caution. Besides lowering employee morale,
many such estimates prove incorrect; the firm may initially reduce the
size of the workforce but eventually increase overall staff. As a
consequence, it is advisable to position this predicted benefit as
workforce redeployment.
Some nonfinancial benefits to consider include

 Greater customer satisfaction as determined by customer service
measures such as number of service calls or returns
 Employee satisfaction measures such as reduced employee turnover
(greater retention) and more positive responses to surveys
 Efficiency measures such as increased orders processed per hour
 Collaboration and visibility measures such as reduction of the
bullwhip effect without an increase in stockouts.
Tangible and On the cost side, tangible, direct costs are straightforward. These
intangible costs include the direct costs of the IT project and ongoing service and
maintenance, plus estimates for consulting fees, staff training and
change management, resources assigned to the project, and opportunity
costs. However, many IT projects are significantly over budget because
managers
 Overlook major cost items such as operational support costs.
 Use estimates that assume everything will go according to plan.
 Purposely underestimate costs to secure project approval.
If the initial estimates are optimistic and the project is over budget,
both management and external investors will perceive the project as a
failure.
The three basic categories of costs are capital expenditures, one-time

project expenses, and ongoing support activities. Capital expenditures
are amortized over the expected life of the technology. If this

amortization period exceeds the actual product life, the costs will be
underestimated. One-time project expenses often contain hidden costs
such as fees to investigate alternatives, training travel, data conversion,
or lost productivity when employees go through a learning curve.
Ongoing support costs include annual license fees and maintenance
fees for vendor support, bug fixes, upgrades, taxes on fixed assets, and
IT support staff. Analytical software may have additional costs such as
the cost of generating mathematical or simulation models once the
software is installed.
Just because a salaried employee is a sunk cost (according to the APICS

Dictionary, 15th edition, “a cost…that is not relevant to the
decision…that is being made”) does not mean that the cost of
reallocating employees to an IT project can be ignored in the
justification. Employees should be used when the savings from long-
term maintenance using staff are greater than the savings of using a
seasoned consultant.
A final cost to consider is the cost of not implementing the project.

Sometimes the costs of acquiring new IT capability are outweighed by
the greater (but intangible) costs of not doing so. For example, if a
competitor creates a new business model using technology, failure to
adapt may risk business failure.
Benefit-cost Exhibit 1-42 presents a benefit-cost ratio as well as a return on

analysis and ROI investment (ROI) ratio for an investment. Assume that a company
implementing a new version of an ERP system has estimated total
benefits at US$345,000 in tangible and intangible savings and
performance increases over five years. The company also tallied
US$259,000 in tangible and intangible costs for five years.
Exhibit 1-42: Benefit-Cost Formula and Example
Total Benefits
Benefit-Cost Analysis =
Total Costs
US$345,000
= = 1.33
US$259,000
Total Benefits – Total Costs

Return on Investment = × 100
Total Costs
US$345,000 – US$259,000
= × 100 = 33%
US$259,000

The benefit-cost ratio example indicates that for every dollar invested
in the project over the five-year period, US$1.33 is returned. The ROI
shows the same results from the perspective of net value created,
which is 33 percent. Analysis time frames should be kept short due to
the risk of technology obsolescence.
Technology A thorough analysis of the organization is required before making IT

audits and investments. What are the firm’s current networking capabilities?
implementa- What is needed to get to the next stage of supply chain development? A
tion reviews technology audit can answer such questions. It can also help in
mitigating risks (see below) and allocating technology spending.
IT audits test for system availability, security, confidentiality, and

integrity. They play a critical role in compliance with the U.S. Sarbanes-
Oxley Act of 2002 (SOX), which requires U.S. public companies to establish
adequate internal financial reporting and IT controls. (Canada has a
similar Bill 198, known as “Csox.”) For example, an IT audit should reveal
that persons who approve purchase orders cannot also receive goods.
The audience for a technology audit is upper management, not IT or a

specific department. The audit may investigate multiple companies in
the supply chain and report to a cross-enterprise executive committee
or boards of directors.
Technology audits include pre- and post-implementation IT reviews,

system development life cycle (SDLC) reviews, and database reviews.
A post-implementation review addresses whether or not the company

got the expected return on investment. Reviewing lessons learned can
help the next project be more successful. If the review is included as
part of the initial project plan, each manager will have a strong feeling
of accountability. A post-implementation review should focus on items
that can be measured and therefore managed. Incentives for project
team members are key to success in achieving overall supply chain
goals. These incentives should include financial success as well as other
measures such as customer satisfaction and quality (i.e., a balanced
scorecard system). Stock price is not a fair measure for IT investment
because it fluctuates in response to many factors.
Audits can reveal

 Software vendor promises that were false
 Failure to provide the promised level of system integration
 That full features of the software are not being exploited because of
resistance to change or inadequate training.

The results of audits are rarely entirely positive, but negative results
should be used to create positive organizational change.
The external auditor’s recommendations on IT should include an

explanation of the cost of continuing to use the existing technology
versus replacement cost. A benefit-cost study from historical past
estimates and true costs can show where costs were poorly estimated
or overlooked. If current or prior investments had a negative ROI, the
auditor should indicate how future IT can produce a positive return,
such as by using add-ons to current technology.
Mitigating To be successful, IT projects can mitigate typical risks by adopting

typical IT risks the following approaches.
 Make incremental improvements. Management may be

tempted to try to solve all problems in one mega project. These
large projects are hard to manage and prone to failure.
Organizations that take incremental steps can add innovation
between steps.
 Clearly define business requirements. Because evaluations

take weeks and thousands of vendors can be available,
management must be convinced from the start to clearly define
business goals to ensure that evaluators have met management’s
principal criteria.
 Perform due diligence on proposals. Rather than rely only a

marketing presentation from the provider, IT purchasers can
limit the risk of a new system by interviewing previous
purchasers and using third-party evaluators. Many project
failures are traced to processes or proposed software that were
not properly understood.
 Control scope creep. The activities required to carry out a

project should be fully and carefully defined in written
documents. There should also be written procedures for defining
and estimating the costs of additional work.
 Control excessive customization. When packaged software

cannot fit the organization’s business processes perfectly, a
dilemma organizations may face is deciding whether to adapt
their processes to fit the standard delivered functionality or to
customize the software to allow current practices to remain in

place. A good rule of thumb is to look for packages that meet at

least 80 percent of needs “out of the box.” The remaining 20
percent can be met through customization. While there will be
short-term pains in pursuing organizational change over
customization, in the long run it will lead to a much lower total
cost of ownership, easier software upgrades, and less expensive
training of users. Many companies have faced expensive
technology issues because they customized software when they
should have updated and changed their business processes. Note
that some customizations are riskier than others. At the low risk
end, many software packages have built in extra “blank” data
fields for custom use; far riskier customizations involve altering
raw source code.
Supply chain risk management is covered in detail in Module 3,

Section B, “Manage Risk in the Supply Chain.”
Topic 2: Electronic Business

Electronic business (e-business) “is conducting business processes
on an electronic network, typically the internet” (APICS Dictionary,
15th edition). E-business is a collection of business models and
practices enabled by internet technologies that network customers,
suppliers, and productive capabilities in order to continually
improve supply chain performance.
Electronic commerce refers to that part of e-business that has to do

with conducting electronic transactions. The APICS Dictionary, 15th
edition, defines electronic commerce (e-commerce) as “the use of
computer and telecommunication technologies to conduct business
via electronic transfer of data and documents.”
There are four electronic business models: business-to-consumer

(B2C), business-to-business (B2B), consumer-to-consumer (C2C),
and consumer-to-business (C2B). All are considered to be types of e-
commerce. Since the focus of electronic business is on improving the
performance of the extended enterprise, this topic focuses on the
B2C and B2B models.
Today, some level of electronic business is required for almost all

organizations, and not only B2C but also B2B companies engage in e-
commerce (e.g., industrial products) to extend their supply chains.
Not all organizations will be able to sell their products or services on

the internet, but almost all should engage in brand awareness and
marketing using at least a website, even if the site is just
informational rather than interactive. HTML, which is not a
programming language but a way to format text, permits a user to
create text, hypertext links, and multimedia elements within a web
page. Modern websites also use responsive design, which detects the
type of device the user is using to access the site and then
automatically reformats the information for optimal display on a
phone or tablet, in addition to enabling touch-screen capabilities as
needed. In this way, one’s website will not appear extremely tiny on
a phone or be otherwise difficult to access. In addition to this, some
organizations will benefit from developing a downloadable
application for smartphones and tablets.
The goal of all supply chains should be a network that functions as if

it were a single well-run company. The boundaries, even when
geographically dispersed, should be invisible to the customer. The
internet has made this feasible, if still challenging.
Internet-enabled supply chains—those in which all partners share

data through the internet—have specific characteristics that
distinguish them from less advanced supply chains. They exhibit
these characteristics in different degrees, depending upon the
sophistication of their strategy and use of internet technology.
An internet-enabled supply chain realizes the following benefits:
 Visibility and efficient, responsive networks. Internet-enabled

supply chains can realize the benefits of integration.
 Global reach. Instantaneous communication through the internet

eliminates distance and time-of-day constraints on buying and
selling.
 Improved financial position. The internet provides increased

revenue and profit margin through global sales with fewer
intermediaries, increased customer loyalty through personalized
contact, speed to market, and reduced costs.
Exhibit 1-43 shows how the traditional and electronic business supply
chains differ.

Exhibit 1-43: Traditional Versus Electronic Business Supply Chain
Characteristic Traditional Supply Chain Electronic Business Supply Chain

Ownership model  Own the supply chain.  Own the core capabilities.
 Vertically organized.  Virtually organized using
 Mergers and acquisitions. collaborative processes and IT.
 Outsourced business processes.
Competitive  Big dominate the small.  Fast dominate the slow.
advantage  Barriers to market entry: high market  Physical assets become barriers to
share and many physical assets. change and are tied-up costs.
 Agile companies find new business
models that dominate industry.
Who is channel  Firm closest to customer: retailer for  Firm with most brand equity and
master/nucleus consumer goods, manufacturer for most efficient model: even small
firm? industrial goods. firms get global reach from internet.
Trading interaction  Rivalry; each party seeks the best  Collaborative arrangements that
deal at the expense of the other. share the risks and rewards.
 Terms dictated by channel master.  Terms set by mutual agreement.
 Much friction in interactions.  Fluid interactions.
Working with  No interaction with rivals.  Same party can be buyer, supplier,
competition rival, and/or trading partner,
depending on mutual gain.
 Where no mutual gain can be found,
rivalry still exists.
Production focus  Economies of scale and scope.  Engineering competitive supply
chain.
Collaborative stage  Internal organizational silos.  External trading partner silos.
 Cross-functional cooperation.  Cross-company cooperation.
 Proprietary, expensive networking.  Open, inexpensive networking.
 Batch processing.  Real-time and batch processing.
Suppliers  Fixed industry structures: number of  Open competition via electronic
suppliers limited by buyer marketplaces and auctions.
relationships, e.g., over the phone.  Collaboration allows faster partner
 A few long-term partnerships and a integration, so firms have many
moderate number of commodity continuously reconfigurable
and/or adversarial relationships. relationships at every level.
Customer service  Purely reactive, narrow view.  Proactive, broad view.
 Narrow product/service offerings.  Segment-specific product/service.
 Little feedback used.  Better use of feedback.
Intermediaries  Fixed, often vertically integrated  Business models may avoid some
(brokers, relations. intermediaries entirely.
distributors, freight  Some reintermediation as these
forwarders, channels find way to add value.
dealers)

E-business Before we examine the B2B and B2C models, let’s look at a number of
considerations other considerations related to e-business and e-commerce.
Electronic business Electronic business was initially so popular that it gained market
strategy support even without financially sound business models. Electronic
business was touted to reduce costs and increase customer
satisfaction and business flexibility, but its lack of profitability was
ignored. Eventually, businesses unable to sustain profits failed.
A primary cause of this failure was lack of a valid business strategy

and a valid electronic business strategy. Both must exist and must be
tightly integrated, and they must be guided by a realistic vision
communicated and accepted throughout the extended supply chain by
involving these partners in strategic planning.
The electronic business strategy must be more than a plan to use

e-commerce to sell goods. It should enable collaboration with the
extended supply chain, including integration of customers and
suppliers. Traditional business strategy must still be robust to allow
the efficient sourcing, manufacturing, and fulfillment of orders that
satisfy actual customer needs. Company and e-business strategy must
transform the business and allow global reach.
E-business strategy indicates how the firm intends to connect with

partners. The link between business strategy and e-business strategy
is enhanced by the optimization, visibility, and shared planning tools
discussed elsewhere in these materials.
Potential costs Implementing e-business solutions requires a formidable investment

and challenges with of time and money for the ongoing discovery of IT capabilities,
e-business contract and RFP development, benefit-cost analysis, direct hardware
and software costs, hosting, training, change management, consultant
fees or opportunity costs for staff time, customization, configuration,
and ongoing maintenance. Some of the necessary costs of doing e-
business include the following:
 System security. Security maintains an agreed-upon level of

access. The firm must determine what information will be shared.
 Increased outbound transportation costs. While inbound

transportation can be optimized or centralized, outbound
transportation volume and cost increase because some customers
no longer pick up the goods and firms need to ship (often smaller

quantities of a wider variety of products more often) anywhere in

a short window.
 Increased materials-handling costs. Handling costs are higher

because actions typically performed by the customer now must be
performed by the company (e.g., product returns, picking orders
from shelves, unique packaging or labeling). E-business analysis
tools weigh the risk of a lost sale against decreased profitability.
 Reliance on outside suppliers. Companies may need to rely on

other suppliers to perform actual delivery. Late deliveries directly
affect customer satisfaction. Reliability has forced many virtual
models to adopt hybrids that include physical distribution centers.
 Global reach requires global localization. The company will

need to tailor its offerings to each country or region. While it may
not need physical infrastructure in each country, it does need to
translate its web offerings to accommodate local languages,
culture, and currencies and local and national regulations, laws,
and commercial practices.
 Accessibility and ease of use. Significant effort must be made to

advertise and to provide easy methods of searching for e-business
services. A website can have a much greater variety of goods for
sale than a typical retail location, but if the site does not provide
an easy way to find what is needed, such as by intelligent product
recommendations, this variety becomes cumbersome.
ROI justification for Justifying a particular e-business strategy requires consideration of its
electronic business costs and benefits. External factors, such as the economic
initiatives environment, market turbulence, and the competition’s capabilities
and stage of supply chain sophistication, must also be examined.
Comparison of the cost of maintaining old technology plus the

opportunity cost of lost capabilities versus the cost of implementing a
new technology can help make the choice clear. In general, if an
electronic business strategy increases competitive advantage, it will
tend to decrease inventory, facility, and transaction costs while
increasing transportation and technology costs.
Another choice is whether to outsource the e-business technical

functions or to maintain the IT internally. The cost of monitoring an
outside arrangement must be added to the direct cost of outsourcing.

Failure is a real possibility if the balance between benefits and costs tips
the wrong way. However, some level of investment in e-commerce is
now a required cost of doing business. Strategy should focus on finding
the investment level that is appropriate for the organization and supply
chain.
No project will succeed unless it has cost controls in place. Management

must also incorporate a review process to improve future project
budgeting.
Examples of e- Successes—Amazon, Dell, and Alibaba

business ventures According to a 2013 eMarketer/InternetRetailer study, U.S. e-commerce
sales are expected to reach US$434.2 billion in 2017 and 60 percent of
retail sales will involve the web by that date. The European e-commerce
prediction is US$248.3 billion in 2017, as reported by Forrester
Research.
Although these statistics make e-commerce sound like the answer to

assured business growth, different industries and business models have
experienced different levels of success from the use of electronic
business. Three companies have successfully used it to spur incredible
growth: Amazon, originally just an online bookseller; Dell, a pioneer in
the direct-to-order assembly of computers; and Alibaba, owner of
several Chinese e-commerce juggernauts. This discussion describes
their origins and the direction they each have taken in terms of their use
of e-business.
Amazon was founded in 1994 by Jeff Bezos, an American

businessman, investor, and technology entrepreneur.
 It went online in 1995 as Amazon.com and originally sold only five
product types: compact discs, computer hardware, computer
software, videos, and books.
 Its original supply chain started out longer than that of traditional
brick-and-mortar book retailers.
 It invested heavily to maximize its servers’ capacity to handle
peak traffic during holiday shopping periods.
 It added its own distribution functions across North America,
Latin America, Europe, Africa, and Asia.
 It has its own software development centers. (Some are run by an
Amazon subsidiary.)
 It located its automated fulfillment centers in select cities around
the globe, often near airports.
 It turned its first profit at the end of 2001—one cent per share.

 It has become the largest retailer on the web, with net sales in
2014 topping $88.99 billion and an average of 175 million
monthly unique visitors.
 It serves as a high-performing model of internet-based sales.
Dell, originally a maker of personal computers, was founded in 1984

by Michael Dell, a college freshman at the University of Texas.
 It designed and built its first computer in 1985 and differentiated
itself with risk-free returns and next-day at-home product
assistance.
 It manufactured the industry’s fastest-performing PC and opened
its first international subsidiary in the U.K. in 1986 to 1987.
 It debuted its online website in 1996 and sold $1 million of
product per day within six months after the site was launched.
 It climbed onto the Fortune 500 list in 1992.
 It provided customers with at-the-time innovative online technical
support via the internet.
 It sold $40 million a day of online product, which made it one of
the highest volume e-commerce sites in the world in 2000.
 It expanded its product portfolio to include printers, projectors,
and consumer electronics.
 It launched free product recycling and a blog, Direct2Dell,
enabling fast two-way communication with customers, in 2006.
 It created an investor relations blog and participated in social
media.
 It offered its customers high-tech end-to-end IT services and
cloud-based enterprise solutions.
 It became a privately held company again in 2013 and offered
enterprise-class IT capabilities to small businesses and remote
offices.
 It established Dell Ventures, which supports new businesses that
align with Dell’s expertise and future vision for cloud, big data,
next generation data center, storage, mobile, and security.
Alibaba is the dominant e-commerce site in the world’s largest e-

commerce market, China. Its largest website, Taobao.com, can be
thought of as a giant Chinese bazaar that is part B2C with direct
deliveries like Amazon, part middleman like eBay, part PayPal with its
Alipay payments processing (it also protects buyers if sellers fail to
deliver), and part Google with its fees for advertising and promoted
search results (it doesn’t charge sellers to list merchandise). You can
even buy real estate on the site. Its Tmall.com website is for larger
retailers, such as Gap, Nike, and Apple. It also supports B2B e-

commerce, connecting manufacturers with overseas clients, which

was actually its primary purpose when it was founded in 1999.
Mixed results or failures

Other companies have had slower starts. Mega-retailer Walmart’s
online sales accounted for only two percent of its U.S. revenue in
2012. Walmart grew online revenues at 27 percent in the first quarter
of 2015, which put it close to three percent of its revenue. It recently
implemented a pay-with-cash method for e-commerce, which allows
consumers without credit cards to make online purchases and pay in
a store. It has also been piloting same-day delivery (nine percent of
consumers rated this as the most important factor in their online
shopping experience according to a Boston Consulting Group survey)
since 2012, and over 5,000 items qualify for the service. Deliveries are
by Walmart’s own trucks.
Other companies never figured out how to make e-commerce work to

their financial advantage. In the past decade or so, many online
retailers made big splashes with national marketing campaigns and
expensive TV ads, only to disappear within a few short years: WebVan
(a grocery delivery service, 1999–2001); Pets.com (a pet food and
supply store, 1999–2002); Geocities (web-hosting services, 1998–
2011); and Go.com (created by Disney in 1998 and now used just as
the company’s related properties hosting site).
Although these companies had high hopes of making it, they were
unable to combine their e-commerce skills with long-term, profitable,
sustainable business models that could meet their customers’
dynamic needs and preferences. Some start-up companies attempted
to be pure e-business ventures and survived only by adding a physical
layer to their network. Others were the extension of an existing
physical network but failed because the company didn’t integrate its
physical strategy with its e-business strategy. Dividing e-business
from the physical business creates an inefficient network that is
unable to provide a consistent message to customers.
So what does it take to be successful in e-commerce?
Requirements for E-business must maximize the efficiency of all channels. Retailers must
success in e- be prepared to serve customers across all channels even when they
business seemingly may compete against each other, such as sales of televisions
via the web versus an in-person visit to a traditional retailer.

Other requirements for success in e-business include

 Order visibility that extends to the customer to reduce inquiries
and complaints about fulfillment status
 Shipping methods consistent with profitable sales (using a
transportation management system [TMS])
 Sensible return policy (customers cannot see merchandise until
received)
 Reevaluation of wholesale or retail locations on the basis of site
profits
Now let’s take a closer look at two types of e-commerce and how they
work.
B2B and B2C B2B and B2C are defined in the APICS Dictionary, 15th edition, as
follows:
B2B—Business-to-business commerce: Business being

conducted over the internet between businesses. The
implication is that this connectivity will cause businesses to
transform themselves via supply chain management to become
virtual organizations—reducing costs, improving quality,
reducing delivery lead time, and improving due-date
performance.
B2C—Business-to-consumer sales: Business being conducted

between businesses and final consumers largely over the
internet. It includes traditional brick and mortar businesses that
also offer products online and businesses that trade exclusively
electronically.
B2B commerce includes exchanges and direct collaboration

technologies. Exchanges are intended to decrease the costs of
procurement, resource management, and fulfillment by providing
access to a larger market and by lowering transaction costs through
automation. B2B collaboration technologies are discussed later in this
topic.
Objectives of B2C are to create an additional source of revenue and a

wider customer base, build customer loyalty through tailored
offerings and shopping experiences, and create an ever-expanding
source of customer information. B2C focuses on retail sales and
includes things such as banking, shopping, product downloads, travel,
and insurance. It may also simply include providing corporate
information to customers or collecting information on customers
through incentives such as surveys, games, or prizes.

Other types of B2B and B2C include virtual services. Virtual service
providers are a broad category of companies that own no assets but
direct the actions of many companies and may provide capital as
needed to produce, transport, and/or sell goods or services. Virtual
hybrids own a relatively small number of assets. Often what these
companies provide is expertise in supply chain coordination for those
with a particular core competency.
Layers of B2B and The internet structure can be seen as a series of layers (based on a
B2C e-commerce study sponsored by Cisco). The layers can show where investments
are needed.
 Foundation layer. The foundation layer includes all physical

means of transmitting data over the internet (as well as an
intranet or extranet) plus all necessary networking and interface
devices. The foundation layer also has security systems such as
firewalls. It includes assets both in and out of the company’s
control.
 Application layer. The application layer includes all web-specific

applications and tools for creating interactive websites.
Applications include web directories (“a list of web pages
structured hierarchically,” APICS Dictionary, 15th edition), catalog
builders, web shopping carts and billing, multimedia tools for
streaming audio or video or virtual classrooms, search engines, and
web development tools. Many of these tools simply enable internet
commerce. Therefore, companies that outsource their web
development can outsource all of these costs, too.
 Aggregation layer. The aggregation layer consists of applications

designed to take information and services from various locations
and package them for easier access and consumption. This layer
includes portals and intermediaries such as brokers and service
providers. Hosting is generally very expensive, and many
companies have formed consortiums to control costs and form a
larger community of users.
 Business layer. The business layer includes all exchanges and

involves all buying and selling activities over the internet. If the
level of sales is expected to be quite large, a huge investment in
both setup and maintenance at the foundation layer is required to
handle the traffic. Therefore, many businesses become members of
an exchange or they outsource its creation and management to
specialists.

B2C e-commerce E-commerce was born when websites could be made interactive
rather than static. This enabled internet transaction processing and
payment acceptance. E-commerce software includes sell-side, buy-
side, and content management applications.
Sell-side e-commerce
Sell-side e-commerce applications and services help sellers present
their products and automate sales and customer relationship
building. These applications must include presentation (right product
at the right time to the right audience), automation (order entry,
tracking, and settlement), and administration (nontechnical staff can
maintain the site).
Exhibit 1-44 shows the steps of an adaptive sell-side e-commerce

website.
Exhibit 1-44: Adaptive Sell-side E-commerce Website
Step 1 Step 2 Step 3 Step 4

World Wide
ABC
Web
Company Attract the
Select/
Provide Perform
internet site customize
user information transaction
choices
Internet
Step 8 Step 7 Step 6 Step 5
Personalize
the user’s Deliver the Follow-up
Pay
Internet user buying products capabilities
accesses the preferences
web
Note that sell-side e-commerce and customer relationship management

applications are converging.
Buy-side e-commerce
Buy-side applications help firms purchase goods and services. These
applications save employee procurement time, especially in the
request and approval process. They generally automate the
requisition, sourcing, negotiation, and contract phases as well as
supply and payment.

Content management e-commerce

The APICS Dictionary, 15th edition, defines content management
applications as follows:
Supports the evolutionary life cycle of digital-based information and

makes information dynamically updatable online; includes the ability
to publish content to a repository and support access to digital-based
content.
Content management applications can include, for example, catalogs

for product data, databases for customer data, contract information,
and advertising content.
Buyers want to see only items specific to their strategic sourcing needs
and restrictions, so these applications stress content repurposed by
buyer or seller perspective while preserving brand image, pictures,
and other content.
B2B commerce B2B commerce took off when the internet became viable for data
transfer in two directions instead of only one and when smaller
businesses could participate due to the low cost of the internet. B2B is
characterized by automating traditional business transactions such as
formal sourcing.
Open exchanges provide access to the worldwide market; this can,

however, lead to risks involving unknown suppliers. Membership-
based exchanges (often on an extranet) prescreen members to mitigate
risks. B2B can be performed globally, which has helped to create the
process of supply chain management.
Exhibit 1-45 on the next page shows how B2B commerce facilitates
faster and cheaper links in the supply chain.
B2B collaboration B2B collaboration is an evolution in B2B commerce that facilitates the
multiple connections necessary in a real supply chain. Exchanges (also
called B2B marketplaces) provide a common place to trade and exchange
information. Hundreds of separate links are replaced by a single hub with
spokes going out to each node. One example is the popular QAD supplier
portal for the automotive vertical.
As supply chains grow more complex due to flexible supply chain

configurations, virtual organizations, outsourcing. and virtual service
providers acting as intermediaries, collaboration acts as the glue that
binds the network.

Exhibit 1-45: Business-to-Business Commerce (B2B)
ABC
XYZ Company
Company internet site
internet site
Internet
Materials Supply Chain Payments and returns
1 2 3 4 5 6 7
Raw
Tier 2 Manu-
material Distributor Wholesaler Retailer End user
supplier facturer
supplier
Topic 3: Key Technology Applications

Key technology applications for supply chain management discussed in
this topic include enterprise resources planning (ERP), advanced
planning and scheduling (APS), supply chain event management
(SCEM), warehouse management systems (WMS), and transportation
management systems (TMS).
ERP systems The APICS Dictionary, 15th edition, defines enterprise resources
planning as a
framework for organizing, defining, and standardizing the business

processes necessary to effectively plan and control an organization
so the organization can use its internal knowledge to seek external
advantage. An ERP system provides extensive databanks of
information including master file records, repositories of cost and
sales, financial detail, analysis of product and customer hierarchies,
and historic and current transactional data.
ERP software is a modularized suite of business applications that are

seamlessly integrated to provide automated interactions and a common
source of data. ERP systems are built around a large database with
shared access to data and include a number of transactional modules
(for example, planning, manufacturing, purchasing, human resources,
finance, sales, logistics).
ERP systems are common in large and mid-size companies and are
being adopted by smaller firms. Even in companies already set up for
enterprise resources planning, however, there is room to enhance the

system’s capabilities and to add new modules. Moreover, there is the

evolving challenge of linking the ERP systems of supply chain
partners.
Without vision or direction, ERP is just a set of applications; with

them, ERP will provide the visibility and efficiency needed to see
where the business is going and where it can be steered.
Exhibit 1-46 shows how an ERP system supports multiple business

functions and can be extended to include more advanced systems such
as advanced planning and scheduling.
Exhibit 1-46: ERP System Functionality
Sales Logistics
Sales orders Receiving
Pricing Issuing
Billing Warehousing
Quotes Inventory
Available-to-promise Quality management
Finance Planning
General ledger Shared S&OP
Master Data
Assets MPS/MRP
Accounts payable Planning methods
(A/P) ERP
Bill of material
Accounts receivable Database
(A/R) Scheduling
Human Resources Manufacturing

Personnel
Shop floor control
Travel
Purchasing Production orders
Payroll
Purchase orders
Time Repetitive
management Contracts manufacturing
Quotas
Requirements
Vendor lists
SRM

ERP components ERP database and shared master data

A key feature of ERP systems is a shared central database. ERP
databases provide a single storage location for all types of data. This
minimizes data redundancy and enables the various modules to
create, access, and modify the same data. The ERP data warehouse
contains a number of files or categories of data; the following are
relevant to supply chain management:
 Customer files contain all information on individual customers,
including terms of sale, records of transactions, and customer
service notes.
 Product-price files contain all data on the firm’s products and
services, including quantity discounts, standard costs, and
physical characteristics.
 Supplier files list all suppliers for the organization, allowing the
organization to consolidate suppliers and find economies of scale.
 Open order files contain all current or potential product orders
from multiple channels, including special shipping or handling
requests.
 Purchase order (PO) files are all open orders to suppliers,
including MRO (maintenance, repairs, operations).
 Bill of material (BOM) files list product components and raw
materials.
 Inventory files show, by location, all available raw materials and
finished goods and forecasts of when work-in-process (WIP)
inventory will be available.
 Order and PO history files show past purchases and sales for
forecasting and budgeting.
These master data are shared among the transactional modules. For
example, information in a vendor master file may be used by purchasing,
finance, and planning. Material master information may be used by
purchasing, planning, and logistics. Location information may be used by
planning, purchasing, logistics, sales, human resources, and others.
ERP transactional modules

The ERP transactional modules are where all user interactions with
the system occur, such as placing orders, moving inventory, billing
customers, or paying suppliers. These modules are numerous, and
companies can implement one, many, or all of them and may
implement them sequentially or all at once.
Decision makers use the ERP planning module to set corporate

strategy. For the supply chain, this includes research and

development, funding and required returns, product line decisions,

and marketing strategies. Analytical and forecasting tools in this area
make use of ERP data as well as external market intelligence. The
strategic goals set in this area are translated into department-specific
goals. Sales and operations planning is a key tool that works to
synchronize supply with demand, allowing strategic plans to be
regularly adapted to current circumstances. (S&OP is discussed in
more detail in Module 2.) S&OP decisions feed into master production
scheduling, material requirements planning, bills of material,
scheduling, capacity, and other planning methods. The results of
S&OP are also fed into other modules, including sales, manufacturing,
purchasing, finance, and logistics.
Each of the other modules shown in Exhibit 1-46 will have a range of
functions from the strategic to the transactional. Review the exhibit to
see some of the functions of these transactional modules.
ERP system Most ERP systems originated as material requirements planning

evolution to (MRP) systems that grew over time to include manufacturing
advanced systems resource planning (MRP II) functions and then continued to add
modules. Therefore, these supply planning functions are often
described as the core of ERP.
The outer ring of Exhibit 1-46 shows that ERP systems are
continually evolving and adding new functionality such as CRM, SRM,
SCEM, TMS, WMS, engineering change control (ECC), or APS.
Engineering change control, also called engineering change
management or engineering change order, is a way to ensure that
product designs follow a change authorization procedure.
Advanced systems may be part of the same ERP system, but often
they exist within separate systems. These systems will link back to
the ERP system and leverage the shared ERP data. They may send
instructions back to the ERP system for processing. For example, an
APS system may determine an optimized production plan, but it will
not execute that plan; it will send the plan back to the ERP system to
process.
Even older ERP versions provide value, such as automating

processes to increase efficiency and reduce errors. ERP systems
incorporate best practices in their conceptual models, which enables
process improvements but also means that an upgrade is required to
utilize innovations such as moving from a product-oriented push

model to a customer-oriented pull model. More advanced versions

shift the focus from internal optimization to external relationships
and efficiencies such as collaborative commerce and supply chain
management.
With advanced versions of ERP software, supply chain partners are

able to
 Make better decisions by relying on data transformed into
business knowledge
 Link management pay to supply chain performance through
built-in performance measurement tools
 Adopt operational methods such as build-to-order, direct-to-
customer, and lean manufacturing (see Module 3, Section C,
Chapter 3)
 Connect one ERP system to others in the supply chain and use
web-based, open, and component-based systems to regularly
adapt the business model
 Provide global access to operational data for all supply chain
partners
 Free up capacity and resources to pursue new business
opportunities
 Perform collaborative planning using cross-industry and
industry-specific ERP systems.
ERP versus best-of- There are several ways to construct an ERP system. All modules can
breed systems be purchased as a package from one vendor, some modules can be
purchased from one vendor with other modules added, or “best of
breed” modules can be bought from multiple vendors. When an
application is available from both a best-of-breed vendor and an
organization’s ERP vendor, which should be chosen?
The advantages of using a module from the ERP vendor include the
following:
 Simpler and better integration
 Leveraged ownership of enterprise data
 Shorter user training
 Fewer vendors to work with
 Included in existing support contract
 Lower total cost of ownership (most of the time)
 Vast development resources, including large development
(industry-specific) staffs

On the other hand, many best-of-breed vendors have come up with

industry-specific or otherwise highly tailored and cutting-edge
solutions with the following advantages:
 Faster to market with innovative functions and services
 Targeted industry expertise
 Niche market applications (e.g., oceangoing vessel management)
 May have more expertise in a specific functional area such as
warehousing, while an ERP vendor may have little expertise in
this area and their module’s functionality may reflect this
shortcoming
The best-of-breed companies will likely have the most innovative

technologies first, and if the company is looking to use the technology
to create a competitive advantage, such a purchase can differentiate
the company until the technology becomes mainstream (by ERP
adoption). Also, if the business case requires a niche application, a
more generic alternative offered by an ERP vendor may not suffice.
Ultimately, the selection should come from a detailed analysis of the
needs of the business versus each option’s capabilities.
Use of upgrades, When a technology audit reveals a gap between current and required
new releases of technology, the company may be able to get to the desired supply
ERP, or new chain stage by implementing an upgrade or new release of its ERP
modules
system or by purchasing a new module from the ERP vendor. Any of
these changes has significant costs and should be justified by a
positive ROI proven with measurable results.
If the upgrade supports the top issues that the company would like to
address and if it satisfies key profit, performance, functionality,
integration, time to market, and human resources criteria, then the
upgrade will likely be a good investment.
Other indications of a worthwhile upgrade include providing the

following:
 Better open architecture than the current system, easing supply
chain communications and the process of later upgrades or add-ons
(Unlike a proprietary architecture, an open architecture is software
coded using certain standards to make its parts more interoperable
and interchangeable.)
 Better business information or metadata (data about data) such as
not only knowing in-stock inventory but also lead time for new
stock, stock locations, and capable-to-promise
 Faster learning curve and user-friendly abilities to speed acceptance

 Full integration with currently disjointed systems

 Increasing cost of maintaining old versions (lack of vendor support)
Upgrades take longer when the system infrastructure is heterogeneous

and multiple duplication of effort is required for each different system.
Multisite coordination is also a factor in the speed and complexity of the
process. Upgrading only the sites that will benefit from the change is an
option, especially if communication between the versions is already
part of the plan.
Tracking the cost of each subsequent upgrade or release allows

companies to assess the lifetime cost of the system. This cost should be
measured by spending as well as time-to-delivery. ERP upgrades that
can come into service quickly provide the most differentiation from
competitors. An alternative to purchasing ERP software and
periodically updating it is to use software as a service (SaaS). Many
companies are starting to offer SaaS directly to their customers.
Another advanced feature that organizations may want to add through

the use of upgrades is cloud computing. Cloud computing would allow a
geographically dispersed organization to maintain servers and
databases in multiple locations while having them function as a single
virtual system and database that can be accessed from anywhere. Note
that cloud computing may use an SaaS model or purchased software.
Configuration versus For a software purchaser, configuration is adjusting system

customization parameters from a process view without reprogramming the
software’s code. Configuration is typically a necessary step that results
in entry fields and lists being populated with the organization’s cost
centers, translation codes, customer codes, and so on. Configurable
software is flexible and cost-effective but has limitations, so the
software must still be a close match. Customizing is reprogramming
the software’s code or adding on to the software’s code to get the
application to do what it was not originally designed to do.
ERP vendors create systems by interviewing thousands of firms and, in

general, design the systems to cover the top 80 percent of requested
functionality. Costs tend to rise quickly if software is selected below the
80 percent threshold level, partly due to the increased need to
customize the software.
Customized ERP systems are inflexible, and customization beyond a

few minor and necessary adjustments has many costs and pitfalls. As

noted earlier in this chapter, customization to meet the remaining 20

percent of strategic goals can be worthwhile but should never be
applied to the 80 percent that does fit. Customization should be used
only to enable meeting indispensable business requirements, and, in
practice, far less than 20 percent of a system should be customized. A
firm is generally better off upgrading current hardware, databases,
software, and business processes to best-practice standards rather than
customizing ERP to fit existing systems. A similar argument against
customization could be made for many types of software.
Advanced According to the APICS Dictionary, 15th edition, advanced planning

planning and and scheduling (APS) refers to
scheduling
techniques that deal with analysis and planning of logistics and
systems manufacturing over the short, intermediate, and long-term time
periods. APS describes any computer program that uses advanced
mathematical algorithms or logic to perform optimization or
simulation on finite capacity scheduling, sourcing, capital planning,
resource planning, forecasting, demand management, and others.
The key use of APS is to help make sourcing and timing decisions when
multiple facilities are available to provide the supply required to meet
demand. As Exhibit 1-47 illustrates, APS is an intermediary to ERP
systems that feed it.
Exhibit 1-47: Advanced Planning and Scheduling Systems
Component
Distributors’ ERP
Manufacturers’ ERP
APS System
ERP ERP
ERP ERP
ERP Headquarters
ERP Plant 1 ERP Plant 2
APS applications use analytical tools such as modeling, optimizing

techniques, and simulations. APS usually includes user-friendly

planning tools such as interactive scorecards and drag-and-drop

functionality in its interfaces. These advanced tools help plan at the
strategic, tactical, and operational levels:
 The strategic level is where high-level decisions and system design

occurs. At this level, APS systems may perform logistics supply
chain network design. For a manufacturing company, this would
involve determining the location of factories, warehouses, and
distribution centers, including which aspects of the supply chain
will be owned and which will be contracted from a third party.
 The tactical level is where strategy is refined into discrete plans

and optimization occurs. At this level, APS helps optimize
production, distribution, and inventory across the supply chain.
 The operational level is where plans are refined to the most

granular level and then executed. At the operational planning level,
APS creates demand forecasts, demand plans, inventory plans,
transportation plans, and optimized daily production schedules.
For example, at this level it may include finite scheduling software
that sends optimized work order loads to manufacturing
equipment.
Note, however, that while APS supports planning at each of these

levels, it does not execute transactions itself.
Exhibit 1-48 shows how APS systems have four modules that take data
from the ERP systems, provide planning and optimization, and then
provide the results back to each ERP system’s master production
schedule.
Exhibit 1-48: Advanced Planning and Scheduling System Modules
Demand
ERP management
ERP
Resource Resource
allocation APS management
Requirements
optimization

The four modules comprising APS are described as follows:
 Demand management. This module takes data on actual orders,

order history, customer data, seasonality, and scheduled
marketing events and performs organizational or extended supply
chain forecasting for production and transportation.
 Resource management. This module coordinates the capacities

and constraints of resources across the supply chain. Inputs
include planning objectives, demand management output, system
constraints, customer data such as location, and costs,
descriptions, and physical characteristics of products and
resources.
 Requirements optimization. This module analyzes demand and

resource management results and generates and evaluates
multiple planning options. It considers customer service and cost,
recommending the optimum systemwide solution for
procurement, manufacturing, transportation, and storage. It also
allows planners to simulate the effect of changes in demand,
capacity, etc.
 Resource allocation. Once planners review and release the

optimized requirements, this module sends requirements to each
ERP system’s master production schedule. It also provides
sales/customer service decision support, such as
 Available-to-promise (ATP). Information on the visibility of

uncommitted finished goods inventory plus work-in-process
inventory allows sales channels to quote reliable delivery
dates. The APICS Dictionary, 15th edition, further explains
ATP as
the uncommitted portion of a company’s inventory and

planned production maintained in the master schedule to
support customer-order promising. The ATP quantity is the
uncommitted inventory balance in the first period and is
normally calculated for each period in which an MPS receipt
is scheduled.
 Capable-to-promise (CTP). If supply chains are fully linked, the

availability of materials for production can be added to ATP
data to quote a reliable delivery date.

The APICS Dictionary, 15th edition, defines CTP as the
process of committing orders against available capacity as

well as inventory. This process may involve multiple
manufacturing or distribution sites. Capable-to-promise is
used to determine when a new or unscheduled customer
order can be delivered.
 Profitable-to-promise (PTP). This combines CTP with a

profitability analysis to determine how profitable a particular
order would be after all costs are considered.
The optimized supply chain master plan feeds a detailed sequence

of events to the transactional systems. It ensures the availability
of materials and capacity and synchronizes their flow using
scheduling.
Feedback from these plans helps continuously improve supply

chain planning.
Benefits of APS APS systems remove pressure from bottlenecks in systems. In a

multiplant environment, when the same item can be manufactured
at different facilities, APS optimizes and accelerates the use of
available materials, labor, and plant capacity. At the same time, it
satisfies business objectives to create schedules for what should be
produced, when and where production should occur, and the
sequence of events that should occur. APS creates holistic supply
chain plans that incorporate long-range aggregate planning and
short-term detailed scheduling.
APS also makes tradeoffs between conflicting objectives as

determined by the strategic priorities of the firm. One such tradeoff
is performing mass customization while keeping costs down.
The combination of several ERP systems with an APS system makes

the most of current ERP investments while opening up a new stage
of supply chain development for a firm. The APS system derives an
optimal solution for the supply chain network and provides each
ERP system with production requirements and optimal start dates
for production runs and leaves the ERP system to work out the
details of how it will meet this high-level plan. Note that the benefits
of APS systems can only be achieved if input data are complete and
accurate.

Supply chain The APICS Dictionary, 15th edition, defines supply chain event
event management (SCEM) as
management
a term associated with supply chain management software
applications, where users have the ability to flag the occurrence
of certain supply chain events to trigger some form of alert or
action within another supply chain application. It can be
deployed to monitor supply chain business processes such as
planning, transportation, logistics, or procurement. SCEM can
also be applied to supply chain business intelligence
applications to alert users to any unplanned or unexpected
event.
Such alerts are called exception reporting.
SCEM software simulates, controls, and responds to unplanned

events and exceptions to planned events. It uses supply chain
visibility to link the extended supply chain and track inventory
movement. It can help reduce or eliminate customer service errors
such as late deliveries or incomplete orders by inputting data into
performance management systems so that the root causes of the
errors can be seen and corrected. In other words, it shows why a
problem occurred.
SCEM also allows users to set parameters based on business rules

that trigger notification to the appropriate parties when events in
the system occur or when exceptions to those events occur.
Managers set workflow-enabled business rules and can spend their
time on exceptions instead of sifting through events. Decision
makers using SCEM are able to quickly develop and possibly even
automatically implement alternate plans. Therefore, SCEM helps
mitigate business risk, makes processes more harmonious, and
enables collaboration.
Use of SCEM will help a supply chain reach the highest stage of
development by enabling interactions between their functional
systems such as ERP, advanced optimization tools, and trading
exchanges.
SCEM can also trigger downstream activity. For example, when a

surgeon writes an order (prescription) authorizing a specific
procedure, this event may trigger a number of activities at the
hospital, such as allocation of nursing resources, operating and
recovery room space, pharmacy needs, and meals.

Active visibility SCEM provides active visibility, meaning it can perform the following
functions:
 Monitor events such as demand, shipments, orders, production,

fulfillment, and inventory and distribute the information
throughout the supply chain.
 Measure events against key performance indicators to improve

forecasts and decision making.
 Notify decision makers when exceptions occur, such as a shortage,

so they can make alternate plans in time to avoid costly
consequences.
 Simulate real or projected exceptions to gauge their impact and

recommend solutions.
 Help control events by providing timely and simple methods for

reversing previous system choices when an exception indicates
that a change could prevent a problem or be less costly (e.g., ship
from an alternate source).
Active visibility in SCEM means providing real-time data to internal

users and external supply chain members by capturing data from each
supply chain partner and dynamically updating distributed databases
across the extended supply chain. With SCEM visibility, customers
using the company’s website can see dynamic order status or get the
same information from an email, call center, or salesperson. These
systems usually save the company money in customer service because
an email to customers makes them less likely to call about the status
of their order, saving call centers for more complex issues.
For managers, the system may include global track and trace functions
and may provide data not only on picking, packing, shipping, transit,
and delivery status but also quality reporting and performance data.
Instead of making calls to find the status of an incoming order,
managers simply check the system, at a much lower cost per
transaction. Active visibility may also benefit other systems, such as
TMS or WMS, for example, when optimizing or making ATP quotes.
Visibility provides SCEM the ability to measure and report on supply

channel performance, including information on customer demand
patterns, shipments, order location and lead time, and inventory levels
by location. SCEM collects information from external sources to add to
business intelligence.

For demand management, SCEM provides the ability to manage

supplier stockouts or delays. It helps buyers and sellers plan for
seasonality and promotions and quickly update demand forecasts
with the latest information.
For supply planning management, SCEM supports dynamic inventory

allocation and postponement. Sourcing can be sorted into multiple
tiers for various levels of speed versus price. Global supplier
shipments can be redirected at the port of entry rather than sorted at
a central distribution center.
SCEM benefits SCEM benefits include the following:

 Faster response times to changes in supply and/or demand
 Ability to receive exception notifications on portable devices
 Earlier marketing and sales demand reaction (less waiting for
systems analysts)
 Improved order accuracy, tracking, and cycle time
 Less management time devoted to shipping and receiving
 Reduced inventories and safety stocks across the supply chain
 Greater labor efficiency and productivity
 Better forecasting and business planning for a flexible response to
demand
 Reduced total supply chain costs
 Enriched collaboration by allowing it to occur in a decentralized way
 Increased customer responsiveness and decreased product returns
 Improved real-time communications with ad hoc partners
Use of SCEM in Some online trading exchanges provide SCEM capabilities as SaaS.
trading exchanges They coordinate procurement or sales activities and manage
documentation and information distribution needs. On the buy side,
exception alerts can notify appropriate personnel of a need to buy a
type of good, or the system can be set up to automatically bid for
items based on constraints such as cost and supplier rating. On the
sell side, shortages in supply can dynamically influence trade
exchange demand, such as by promoting an alternative item.
Warehouse As defined in the APICS Dictionary, 15th edition, a warehouse

management management system (WMS) is
systems
a computer application system designed to manage and optimize
workflows and the storage of goods within a warehouse. These
systems often interface with automated data capture and
enterprise resources planning systems.

WMS software takes the output from the ERP and order entry and
executes the daily operations of the warehouse or distribution center,
performing tasks in an ordered sequence based on predefined
parameters.
To gain productivity improvements, the WMS, the warehouse layout,

and all enabling technologies for automating data capture and
inventory movements should be thoroughly mapped in advance. For
example, if mobile devices for scanning bar codes are to be located on
forklifts, this needs to be included in the mapping. While WMS was
initially only for warehousing, its role has expanded to include areas
such as light manufacturing (postponement) and transportation, labor,
and order management. This functional overlap makes selection more
complex and integration more challenging. However, a WMS selection
should hinge on three key areas: directed picking, directed
replenishment, and directed put-away. WMS performs these tasks by
tracking and analyzing item, quantity, location, unit of measure, and
order data.
WMS functions A WMS incorporates feedback to improve workflow by continuously

simplifying and optimizing operations, especially with warehouse
personnel and equipment. It directs management attention to
anticipated or existing problem areas in warehouse activity by
continuously profiling performance and then creating exception
reports for activity levels, productivity, warehouse order cycle time,
storage density, and shipment and inventory accuracy. WMS should
perform continuous cycle counting for inventory. (See Module 2,
Section A, Chapter 3, “Inventory.”)
The WMS should have a flexible location system including definable

put-away and storage logic methods such as zone logic (defined
storage zones), nearest location, fewest locations, or pick-to-clear
(uses smallest quantities first to maximize space).
Specific WMS functions include the following:

 Receiving—automatically matches and routes POs with advanced
shipment notifications (ASNs) and blind or traditional receipts;
notifies staff of incoming ASNs and upgrades backorders or rush
orders
 Storage location management and optimization—creates put-
away algorithms and determines location by type, size, volatility,
and velocity

 Cross-docking—allows for opportunistic or planned truck-to-

truck transfers, including timed merging of items for a customer’s
order
 Inventory control—performs cycle counting and creates audit
trails to track the time, person, and place of movements, inventory
levels, and lead times
 Quality control—tracks items by batch or lot, notifies
management of quality issues, places rejects on hold, and ensures
quality compliance
 Order selection and task management—forms a pick plan by
picking type, allocates items for specific orders, and shows order
status
 Automated replenishment—automatically creates a shipment
order when an internal or external partner’s system signals the
demand
 Security—interfaces with security by requiring WMS records for
all releases at controlled points, rotates work assignments, etc.
 Returns—manages reverse logistics for repairs, returns, and
recycling
Today’s WMS supports automatic identification technologies and

wireless data collection devices to make the warehouse manager’s job
easier, more efficient, and less prone to error. Automatic
communication and presentation devices such as radio frequency data
communications, synthesized voice, pick-to-light, carousels, sortation
systems, virtual displays, and other pick signals tell warehouse staff
what needs to be moved where without creating paper records. These
automatic identification technologies are discussed later in this chapter.
Web-based WMS Some vendors offer WMS with web-based interfaces or portals.
Portals allow visibility and control because users can push data and
inventory to supply chain members or they can pull the data and
inventory themselves. Such portals can be available as purchased
software or SaaS.
Web-based WMS has functions such as merge-in-transit and cross-

company sharing of warehouse space, freight consolidation, or
complementary commodities. The web can provide real-time visibility
to these collaborative activities such as by providing warehouse
status or brokerage clearance data.
Benefits of WMS Implementing a quality WMS can significantly improve productivity and
reduce the frequency of errors or fraud in comparison to traditional

methods. In traditional systems, stock pickers may find the wrong item
in a location or that an item is out of stock. Salespersons with old data
may promise what is unavailable, leading to rush orders. Special orders
may wait instead of being cross-docked. Fraud or theft may occur (e.g.,
deliberate over-picking).
Other WMS benefits include the following:

 Offers competitive advantage, such as faster cycle times through
cross-docking or automated checking replacing manual checking
 Satisfies retail requirements such as by adding automatic
identification technologies
 Improves accuracy by automating put-away and pick location
verification
 Supports high transaction processing capacity for global e-
commerce
 Satisfies complex international handling needs
 Increases distribution efficiency, for example, coordinating pallet
sizes and bulk discounts (e.g., 80 items per pallet = 80-item order
for discount)
 Reduces safety stocks
 Optimizes use of space
 Provides for system design, selection, training, and change
management that can mitigate risk
Transportation As defined in the APICS Dictionary, 15th edition, a transportation

management management system (TMS) is
systems a computer application system designed to manage
transportation operations. These systems typically offer modules
focused on specific functions, such as intermodal transportation,
import/export management, fleet service management, and load
planning and optimization.
Transportation management systems automate the planning and

operations involved in moving goods between any points in the
supply chain, including shipper and mode selection, optimizing
routes and loads, and fleet maintenance. TMS has become an
integral part of supply chain management partly because of the
impact of e-commerce on order size and frequency. Online
procurement favors the lowest bidder. Both businesses and
consumers are finding it cost-effective to have smaller, more
frequent orders. Business models such as Just-in-Time and build-to-
order, direct-to-customer also require smaller shipments with
tighter lead times. Thus the profit margins are still tight, but the

expectations for shipping to manage capacity, costs, and congestion

are growing. In such an environment, TMS must be able to optimize
transportation across the entire supply chain.
Transportation costs amount to a significant percentage of a

company’s total expenses. Furthermore, organizations commonly use
thousands of transportation suppliers. Transportation optimization
has room to leverage cost savings by using key partnerships with a
smaller number of suppliers for most activity and transportation
marketplaces for exceptions.
Any TMS package must be able to provide the following:
 Visibility. Gives transportation managers, salespersons,

customers, and shipping personnel access to timely information.
 Centralized control over shipment planning. Holistically

optimized routes and shipping modes, freight cost, lead time, and
customer service levels.
 Integration between transportation planning and order

fulfillment. Increases cost control, customer service, and
automation.
 Execution control. Ensures that the plan is being followed.
 Automation. Increases efficiency and reduces errors, e.g.,

integrating TMS with conveyor belt systems, automatically
marking billed loads, or converting documentation to PDF format
for international shipments.
TMS functions TMS generally includes the following functions.
Transportation network design

This strategic phase maps out the transportation network using tools
and optimizers. This process would be completed when starting a
company or undergoing a major shift in strategy such as collaborating
with supply chain partners in transportation network design or
determining distribution center locations.
Shipment planning
Shipment planning optimizes the transportation network using
modeling and simulation. At the tactical level, it evaluates routes and

carriers. At the operational level, it optimizes daily transportation

plans. Shipment planning includes carrier capacity planning, which
matches capacity from a supply plan with demand from a demand
forecast. Planning takes into account national regulations such as
hours-of-service limits to prevent driver fatigue.
Routing
Routing must be able to deal with various transportation modes. For
example, truck shipments are shipped by truckload (TL) and less than
truckload (LTL). Mode-switching tools optimize the movement of
goods across multiple modes, such as air-to-ground, parcel-to-LTL, or
courier-to-air-to-courier. Routing guides allow users to define rules
for shipment routings, and the TMS can automatically select carriers.
Dynamic routing services can interface with global positioning (GPS)
devices to avoid traffic congestion.
Specialty applications exist for modes such as routing container ships.
 Private fleet management. Private fleets can be managed using

tools such as dynamic routing and real-time dispatch. Fleet
management dispatches the least number of routes over the least
distance to maximize capacity. A vehicle maintenance module
schedules maintenance and tracks costs.
 Carrier selection. Multiple carriers such as owner-operator

trucks, common carriers, agents, and package services can be
managed and selected using transportation procurement
applications and transportation marketplaces. Both methods can
electronically distribute and collect data from requests for
quotation (RFQs) on price and capacity. The systems also track
carrier broker profiles and contracts.
Load matching and optimization

TMS provides better visibility to the resources available so that the
system can find optimal locations from which to fill orders based on
availability and inventory and delivery costs. Common load matching/
pooling functions include cross-docking and LTL consolidation. Load
optimization includes handling of special materials (e.g., refrigeration,
hazardous materials). Special applications exist such as for bulk
replenishment (e.g., gasoline tankers).
Freight rating
Rate tariffs can be entered, and loads will be automatically rated by
cost and reliability. The selection process uses carrier service level

ratings that are updated based on past performance measurement of

cost, on-time delivery, and number of errors or damaged goods. Each
owner’s tariff is used to calculate demurrage (payment for delay to
load or unload) and per diem rates.
Manifesting
Manifesting is the process of creating all required shipment
documentation. TMS automates the process, printing shipping labels
and pick slips.
Load tendering and delivery scheduling

Each load lists carriers in order of preference, and each carrier is
attempted in order until coverage is obtained. The delivery is
automatically scheduled if the location is set up to receive ASNs.
Shipment tracking and settlement

Managers can view the actual cost of shipments based on actual
charges through real-time updates of proof of delivery, freight bills,
and import/export documentation. The TMS generates invoices and
bills of lading. For global shipments, managers can view certificates of
origin, global settlement and billing information for freight, and
customs information. Settlement includes auditing of freight bills,
minimizing payment errors, and automating payment.
Visibility tools
Visibility tools allow companies and their suppliers and customers to
view inbound and outbound shipments, in-transit inventory levels,
and exceptions to expected shipments. These tools improve customer
service because they provide the same information to all channels,
including self-service channels, make replenishment cycles more
reliable, and help supply chain members reduce safety stocks by
showing sources of stock and delivery times.
Post-shipment analysis
Managers can print reports on freight bills, total landed cost, and loss
and damage claims and their filing status.
Web-based TMS Transportation management systems often have web-based interfaces

or portals that allow centralized control and automate information
distribution across multiple sites. Portals are available in purchased
software or as SaaS. They have dynamic databases of transportation
information that can immediately be used for optimization of
transportation methods, such as by allowing carriers on the network to

indicate their availability to ship to a particular location or accept

backhauls from a location.
Many SaaS TMS applications have thousands of carriers and thousands

of TMS subscribers in their networks, meaning that there are no
compatibility issues between network members and that automated
requests for proposal (RFPs) can be sent to a large selection of carriers.
For example, Ace Hardware used its SaaS network to send an RFP to
almost 500 carriers, helping it save US$3.9 million or approximately 4
percent of its transportation costs.
Since shipment and fuel costs, road maps and routes, carrier
availability, road, traffic, and weather conditions and many other
transportation factors change dynamically, it makes sense for data of
these types to be located in a web-based environment where they can
be updated in real time. Managers can use web-based TMS to change
destinations on shipments while in transit and receive a notice of
consignment and statement of revised charges.
Global track and Common carriers and private fleets can install global track and trace
trace using cellular-enabled GPS. Global track and trace allows tracking of
shipments by location and by receiving status from booking to proof of
delivery. Concerned parties can check the information on a dynamically
updated website. Global track and trace can also be used to manage
field personnel and keep fleets in constant communication, such as
finding the best time to pass a toll if the rates change by time of day. The
ability to measure driver performance and efficiency allows shippers to
manage these factors. Therefore global track and trace systems are a
key element in any effort to optimize transportation routes.
When web-based transportation information services are coupled

with automatic identification technologies, this information can
automatically keep the TMS up-to-date on the status of a shipment
without any manual intervention. Because the TMS gets near real-
time updates on order shipping status, the system can be proactive in
planning next steps and notifying appropriate parties of information
such as pickup requests or claims status. Shipments have
unprecedented visibility because the TMS allows access by container,
bill of lading, PO, order, and other numbers.
Collaborative Collaborative transportation management has become possible

transportation because of robust web-enabled technologies such as use of
management transportation marketplaces for collaborative shipment management.
principles

Shippers and carriers can collaborate on load planning, optimize

costs, and consolidate shipments for lower overall transportation
costs. Members of a collaborative supply network can optimize all
network assets such as by matching loads with multicompany internal
assets before resorting to common carriers.
Benefits of TMS Benefits of TMS include reduction of overall transportation costs by

reducing deadheading, demurrage, and time spent waiting to load or
unload. Companies can aggregate volumes between locations or
companies to reduce freight costs. Capacity procurement reduces cost
variability by anticipating demand and making better use of all
internal and contractual transportation resources. Linking of
communications reduces billing errors and gives networks more time
to strategically plan shipments.
In general, a TMS should

 Minimize transportation costs
 Communicate with carriers, vendors, and others using web-based
tools
 Make faster and better transportation decisions
 Enable intelligent sourcing decisions by sharing accurate, real-
time costs
 Reduce shipment delays from paperwork, errors, or capacity
bottlenecks
 Centralize operations to reduce administrative and support costs
 Create distributed data access to reduce information bottlenecks
 Increase supply chain visibility.
Topic 4: Data Acquisition and Management

Sometimes supply chains are all about computers talking to one
another without human intervention. Many companies process
millions of transactions per day. A vast amount of data that can be used
for numerous purposes is produced. For example, in determining the
optimal distribution network, data can be collected on customer, retail,
distribution center, and manufacturing locations; product sales by
weight and cube; special transportation requirements; and forecasted
demand.
“Big data” is a buzzword term that describes the massive amount of

both unstructured and multistructured data that is hard to process
using traditional database and software techniques. Big data comes
from different sources—web, sales, customer contact, social media,

mobile data, and so on. Many frame the discussion of big data using
volume (the amount of data), velocity (the speed of information
generated and the flow of it through the supply chain), and variety (the
kind of data available). However, the term may also refer to the
technology that an organization requires to handle the large amounts
of data. The APICS Dictionary, 15th edition, defines big data as
“collecting, storing, and processing massive amounts of data for the
purpose of converting it into useful information.”
Data analytics tools and big data are two elements that can help
businesses identify problem areas within a supply chain before those
areas actually do damage. Companies need to think about how they
will use big data to improve their supply chain:
 Data collection. Deciding how much data to collect and how they
will be analyzed.
 Technology usage. Separating insights from useless data and
presenting the insights in a way that is instantly understandable.
 Leverage results. Incorporating insights into the decision-making
process.
For example, two uses of big data are demand sensing and demand
shaping. Demand sensing is used to detect changes in demand from
consumers in near real time; demand shaping is then used to alter
demand plans to reflect the best current information on demand.
Data acquisition and communication tools are methods of collecting,

storing, and sharing data among areas in the organization and with
members of the extended supply chain. The primary goal of data
acquisition and use is to create a seamless link between all points of
production, distribution, purchase, and service. This goal can be
broken down into the following components.
 Collecting information. Information should be collected at each

point at which a good is handled or a service is rendered. Since
these points occur within and between many companies, from raw
materials companies to manufacturers and assemblers to
distribution centers and retailers (plus transportation between
each point), there are naturally many individual databases. This
information may or may not be shared between supply chain
partners.
 Providing timely access to data. Data are considered timely if

they are received by the relevant system or decision maker within
the time needed to execute the relevant transaction or make the

decision. Some data are needed instantaneously, while other data

can be sent in batches or subjected to intermediate steps such as
analytics and still be considered timely.
 Controlling access to relevant data. Access to relevant data,

especially data regarding the status of material, products, and
services, is the basis for making efficient supply chain decisions.
The goal of data access is to allow each information user access to
a uniform set of role-specific data from any point of contact. For
example, a sand supplier should get the same information about a
customer’s sandpaper sales or rejection rates whether inquiring
by phone, ERP, or internet exchange. Likewise, regardless of the
means used, the sand vendor should not see the sandpaper
manufacturer’s labor rates or profit margins.
 Reducing visibility gaps. Depending on organizational strategy or

the stage of supply chain development a company has achieved,
data may or may not be shared. At the earliest stage, even internal
information between divisions may not be shared, or it may have
to pass through bottlenecks, making it less relevant when shared.
At higher stages of development, the company may share data
among its internal and perhaps even external partners in real time
using straight-through processing (no reentry needed). Visibility
implies not only tracking materials, products, and services but also
providing active alerts to each affected party of upcoming actions
and exceptions to planned events so alternate actions or methods
can be devised.
 Improving planning effectiveness. A forecast or model is only as

good as the data used to create it. Since the sales forecast is the
basis of almost all of the other budgets for a traditional
manufacturing or service company, improving the data used in
planning has a direct effect on a company’s planning effectiveness
and ultimately on profitability. Improving forecast accuracy is
primarily a function of accurate, timely data, measuring and
reducing estimate error, and product lead time.
 Ensuring and maintaining data accuracy. Ensuring and

maintaining data accuracy are critical to the perceived and actual
usefulness of any technology system. (Data accuracy is covered in
more detail later in this topic.)
This topic covers a number of factors related to data acquisition and

management. First we’ll look at types of data. Then we’ll look at data

capture and several methods to accomplish it, including automatic

identification technologies and point-of sale systems. We’ll also learn
about the various types of databases, interface devices (devices used
to get otherwise incompatible systems to work together), data
communication methods, data accuracy, and data analysis.
Types of data Data can be either static or dynamic. Static data include plant locations,
warehouses, stock keeping units (SKUs), or part numbers; dynamic
data include forecasts, current deliveries, and direct materials and
direct labor costs. Some dynamic data are entered as standard
costs/time (a “should cost” amount or time period) for planning
purposes, and the actual cost/time data are recorded when available
and compared to the standard. The expected use of the data should be
a primary driver of the data to be collected.
The types of data used will vary between department, company, supply
chain, and industry. The most important data for analysis include
 Purchase orders for raw material cost and spend analysis
 Orders for demand analysis, customer profitability, and customer
service
 Inventory data for working capital, customer service costs, and
obsolete or excess inventories
 Shipment data for network optimization, transportation spend
analysis, carrier performance analysis, and transportation rate
negotiations
 Customer and supplier master files.
Data exist for every department and area of a company. For example,
customer data include customer order history, point-of-sale (POS)
data, and the customer master file, among other things. From these
basic sources, one analysis might query sales by customer and
customer location, further broken down into sales by pallets, cases, or
pieces or by weight, cube, product lines, or frequency. Similar queries
could be run for sales by SKU or other measures. Such information
results in customer activity profiles, SKU activity profiles, customer by
SKU profiles, and customer order profiles, each broken down by sales
amounts and volume. From these data, managers can determine
customer segments, better classify SKUs, set customer response
measures, and determine an optimal customer service strategy for
each customer segment.
Data capture While the goals of greater collaboration are easy to see at a high level,
the first hurdle can be difficult. Cost-effective processes need to be set

up to capture and transmit data to the database accurately. Once set

up, data capture is primarily a tactical or operational problem, but the
setup of methods, policies, and procedures for capturing data is a
strategic decision. Without accurate and timely data, no other aspect
of supply chain management can be fulfilled.
Considerations in Specific considerations in data capture include the following:

data capture
 Data volume. Depending on how sophisticated the company’s
data capture processes are to start with, the volume of data
captured may vary. Incremental improvements may be the best
policy, because each increase in the amount of data captured can
immediately be put to use in improving the bottom line. An
accurate inventory system is a good place to begin. Many
companies have moved to cycle counting—counting inventory
periodically, several times a year. Done correctly, this improves
the accuracy of the inventory. Working with accounting, this can
avoid the annual physical inventory counting.
 Having partial data is better than having no data. Even if a

company’s strategic goal is to have complete visibility across the
supply chain network, it has to start somewhere. Partial data can
provide incremental improvements and the ability to see what
data are necessary for the next improvement in analysis.
 Capture at the source. When possible, capturing data at the

source is far better than entering them later.
 Data capture tools: manual versus passive. Passive or automatic

data capture increases productivity, is more likely to occur every
time, and is more likely to be accurate than manual processes.
 Capture ancillary data when possible. In a networked supply

chain, it can be difficult to know what data will be important. Data
mining and decision support systems (discussed later in this topic)
can find hidden patterns if enough data are available. If a particular
type of data is deemed important in the future, it is many times
more valuable if those data have been captured continuously since
some point in the past. Systems design should acknowledge the
desirability of capturing ancillary data.
However, organizations can become overwhelmed by too much

data—the “big data” we looked at earlier. More data than is needed

may simply hinder analysis or hide the true indicators of change.

Therefore, even when the additional data are stored, use cases for
data should be developed to indicate how the extra data could help
prior to their being included in metrics or analysis.
 Real-time versus batch data. Engineering true real-time access to

data can be many times more expensive than engineering near
real-time access. Sometimes using near real-time data has no real
impact on usefulness. For example, transmission of production
counts each minute rather than each second does not make the
data less useful and saves considerable money. Oftentimes an
organization has both a transactional system for real-time data
checking as well as a reporting system for when near real-time or
historical data are sufficient.
Data capture Fast-paced, hostile, or multilingual environments pose a particular

challenges and challenge to accurate data capture:
possible solutions
 Fast-paced environments. Local management may be resistant to
adding any steps that would slow a process down, so the best
solution may be to incorporate hands-free data capture such as a
bar-code or radio frequency identification (RFID) reader. (These
data capture methods are discussed below.) Package shipping
companies use multiple readers from different angles so packages
passing on conveyor belts can be quickly read.
 Hostile environments. Dangerous, noisy, hot, crowded, or

otherwise physically hostile environments require special
solutions. It should be determined where in the process
measurement is required so that a minimum number of durable
sensors can be used.
 Language or training issues. Employees who do not speak the

same language as their managers or are illiterate or technically
illiterate need simplified environments such as those that use bar-
code work cards with multilingual or pictographic instructions.
Data capture Data capture methods include automatic identification technologies

methods and point-of-sale systems.
Automatic The APICS Dictionary, 15th edition, defines an automatic

identification identification system (AIS) as “a system that can use various means,
technologies including bar code scanning and radio frequencies, to sense and load
data in a computer.” Devices used for an AIS are sometimes called

automatic identification and data capture (AIDC) devices. These devices

identify items and track the movement of goods across the supply chain
automatically, leaving employees to handle just the physical movement
of goods. The key benefits of an AIS are faster information visibility and
increased transaction accuracy and processing speed.
Unlike just having a serial number on an object, an AIDC device can

communicate the object’s presence. AIDC devices have two key
features: automatic classification and automatic identification. Proper
classification is a prerequisite to creating a unique identifier for an
item. The classification process applies the object’s class to some of the
numbers in an identifier, reducing the complexity of the numbering
process and increasing identification speed. An item that can
communicate its class allows optimization of groups of objects. In the
warehouse, these items can be stored in optimal locations. In
transportation, available shipping space can be planned. In retail, shelf
space can be planned.
Because the internet allows access to information from anywhere,

AIDC devices can classify and identify themselves on a network.
Instead of trying to keep all product data on a tag, or even in a static
database, only a unique identifier is required and the product data for
the AIS can be stored on the internet.
Global identification requires that the identifiers for objects be

unique so the internet will yield only one match per item. Bar codes
do this to a certain degree, but RFID is more thorough. Both,
however, can be used to update the transactional database when
changes occur. Automatic identification systems are used in many
places where the physical world must connect with the world of
data, as shown in Exhibit 1-49.
Exhibit 1-49: Automatic Identification System (AIS) Interface Points
Receive
Shi
e
Mov
Material Flow
Cycle
Pr
od
ck
uc
Pa

The benefits of automated identification devices include reduced errors

and lead times, productivity increases, optimized storage density,
better response times, and more accurate shipping and inventory
leading to less shrinkage. The cost of purchasing, implementing, and
maintaining such technologies should be offset by the benefits,
especially if paperwork can be eliminated.
The following content looks at types of AIS and related AIDC devices,
including warehouse automation systems, bar codes and bar-code
scanners, RFID, smart cards, magnetic stripes, and vision systems.
Warehouse automation systems

Warehouse automation systems are physical devices that interface
with a WMS to provide information to distribution center employees
on how to pick or put away items while they are on the move. These
devices may be handheld, hands-free, mounted on a forklift or other
vehicle, or built into the warehouse floors or racks. The key benefit of
these devices is that they can be integrated with optimizing
applications to ensure employee efficiency. Hands-free devices are
especially good because they do not hinder manual tasks.
Warehouse automation systems include the following:
 Wireless radio data terminal (RDT). This data interface device

involves a display, an input mechanism such as a keyboard that
likely includes special function keys, and either a bar code, an RFID
reader, or both. The RDT receives commands from a WMS and
directs the actions of the employee for picking or put-away.
 Synthesized voice. A WMS directs this hands-free synthesized

voice system to tell an operator what to do. The operator may
wear a microphone to indicate when a job is finished. These
systems require little training.
 Pick-to-light. These systems highlight a path through the

warehouse and/or an item to be picked using physical indicator
lights or lit alphanumeric displays installed at each inventory
location or on a carousel.
 Heads-up displays. Heads-up displays present a virtual image of

the warehouse over the employee’s actual view for hands-free
direction.

Bar codes and bar-code scanners

A bar code is a machine-readable code that identifies, at a
minimum, the product manufacturer and the stock keeping unit
(SKU). Some bar codes may also contain lot and batch information
and/or a serial number. Bar codes assist in the correct
identification of products and also operators/staff, store shelves,
pallets, and pallet racks. For example, warehouse orders can be
picked and placed in reusable baskets, each with a bar code. The
operator scans the basket’s code, and the warehouse system
indicates what to put in the basket.
The bar-code system is heavily integrated in all areas of the supply

chain. It will continue to coexist with other methods of data
scanning such as RFID because bar-code labels are very
inexpensive compared to RFID tags. Most RFID labels have a bar
code on the outside of the tag for use with either system. RFID and
bar codes can be complementary; when an RFID tag experiences
interference, the bar-code tag can be scanned.
Components of a bar-code system include

 Bar-code printers
 Bar-code labels
 Bar-code readers (portable or stationary)
 Hard-wired or radio frequency (RF) communications links
between the bar-code readers and an application (ERP, TMS,
WMS, or POS capture)
 Applications to process the data collected.
Exhibit 1-50 shows a typical bar-code label.
Exhibit 1-50: Bar-Code Label
Black White Gap between characters

bars spaces
Start character Character Stop character

* A *

Bar-code labels list data in a format of bars with intervening spaces of

varying thickness. A reader shines lasers at the bar code and captures
the reflection in an optical scanner. The scanner takes up to a
hundred looks at the code to measure the width of the black bars and
the white spaces. Each group of black bars and white spaces
represents a character (letter or number). Start and stop characters
tell the scanner which direction it is reading from and allow the
reader to read information omnidirectionally. Large industrial
scanners can read bar codes in a wide viewing field for high-speed
sorting. Exhibit 1-50 shows only a single character; a complete bar
code would include a number of characters to identify the
manufacturer, etc.
A very common bar-code standard is the Universal Product Code

(UPC), one type of which is shown in Exhibit 1-51, representing the
number 123456789012. (A 12-digit number is the maximum
information for this type.) This number is typically used to identify
the manufacturer and SKU only; it does not normally identify a
product by its serial number or other unique identifier. UPC codes are
heavily used in retail sales for checkout at cash registers.
Exhibit 1-51: UPC Bar Code (UPC-A)
Source: barcode.tec-it.com
There are a large number of other bar-code standards, many of which

do support identification down to a unique identifier. Some may use
the 12-digit UPC code as the unique identifier. Once the UPC code is
scanned, the unique identifier can be run through a WMS, TMS, or POS
to link to and retrieve an abundance of data—SKU, date made, location
in a warehouse, ERP system part number identifier, and all possible
combinations of data captured in a data collection system. Most
readers are designed to read multiple bar-code formats.
One type of bar code gaining in popularity is the 2D code. A 2D bar

code can be scanned by mobile devices for automatic redirection to
mobile-friendly websites (assuming the user has downloaded the
appropriate application). 2D bar codes include standards such as the

QR (quick response) code and PDF417, a code found on the back of

every U.S. driver’s license. Exhibit 1-52 shows an example of a QR code.
The chief advantage of such a code is that it stores data both
horizontally and vertically rather than just in one direction, so more
data can be stored in a small space without sacrificing scanner
readability. 2D codes are one of the types of bar code that can be used
to identify an item by its serial number.
Exhibit 1-52: 2D Bar Code (QR Code)
Source: Barcode generated with TEC-IT Barcode Software. barcode.tec-it.com
Bar codes are not smart tags. They are simply a hard-coded number
or alphanumeric information that identifies a product, a website, or
other information. When the type of bar code used does not identify
a product down to its serial number, this can be an issue for product
defects and quality assurance, especially for medicine and packaged
foods. In some cases, one or more additional bar-code blocks (not
using UPC coding) carry the serial number, lot number, or other
scannable data. In other cases, a single bar code (e.g., a 2D code)
contains the manufacturer, SKU, and serial number.
Bar-code data are often batch-processed, for example, when a

mobile scanning device is placed back into its cradle, which is linked
to the network. According to the APICS Dictionary, 15th edition,
batch processing as it relates to computer processing is “a
computer technique in which transactions are accumulated and
processed together.” For example, in a warehouse, the operator will
be given a series of tasks to perform, and, when these tasks are
finished, the operator will send the information to the system in a
batch before receiving a new set of commands. While batch
processing is low in cost, the advantages of a real-time bar-code
system include better data for salespersons quoting availability, on-
the-fly correction of operator errors, and systems that can add or
change tasks during a job.

RFID
The APICS Dictionary, 15th edition, defines radio frequency
identification (RFID) as “a system using electronic tags to store data
about items.” The electronic tag is a tiny microchip with an antenna
whose signal is automatically picked up by a reader/interrogator. The
reader can be combined with a cellular/GPS device for in-transit
updates. The information on the tags is more robust with RFID than
with other forms of AIDC. Associated data are stored on the internet,
data capture is entirely automatic, and tags can be read even when
the item is under other packages.
A significant feature of RFID tags for supply chain applications is that

the tags are available in a read/write configuration that allows tag
and reader to communicate back and forth. The information on the
tag can, in other words, be altered from a distance, unlike with bar
codes. Applications for the supply chain could include updating the
tag with its current location to provide a chain of custody for a
pharmaceutical drug or dynamically changing the description of an
item as value is added during manufacturing.
EPCglobal’s electronic product code (EPC) is the most widely

accepted set of standards for RFID tag data and has been mandated
by numerous retailers. The APICS Dictionary, 15th edition, defines
EPC as “codes that are used with RFID tags to carry information on
the product that will support warranty programs.” The EPC has the
same manufacturer/SKU information as a UPC bar code, plus a
unique serial number and a link to interactive transaction data. The
item’s creation location, distribution points, and point-of-sale can be
known down to the specific cash register and salesperson.
EPCglobal’s EPC Generation 2 (Gen 2) interface protocols specify

how information is communicated between tags and readers. EPC
Gen 2 is recognized by the International Organization for
Standardization (ISO) as the ISO 18000-6 class of standards.
The EPCglobal Network is a standards-based method of locating and

verifying EPC codes. It creates an intelligent value chain for products.
Trading partners use the web-based network to locate EPC codes
and view the manufacturer’s secure item website for additional
product data.
EPCglobal tag data standards add security. For example, drug

companies can use the network to track their products through the
supply chain and guarantee that nothing was illicitly introduced,

guard against counterfeits, and issue targeted product recalls.

Although a counterfeiter could make a tag with someone else’s
company and product SKUs, only the EPCglobal’s object naming
service can issue tag headers. Because the product identifier is
checked against this online registry, counterfeit tags would be
immediately detected. Gen 2 also has password capabilities to lock
portions of a tag.
There is a vast variety of types and costs of RFID tags. Simple and
cheap tags are used to record an EPC, while more sophisticated tags
are used as a mobile database (e.g., recording temperature, pressure).
A chip can also control a process on an assembly line. Some tags are
for single use only, while others can be updated and reused. Tag types
include active, passive, and semipassive:
 An active tag is “a radio frequency identification tag that

broadcasts information and contains its own power source”
(APICS Dictionary, 15th edition). Such tags can transmit data to a
reader at long ranges and are the most expensive type of tag. They
are often used to tag containers or pallets.
 A passive tag is “a RFID tag which does not send out data and is
not self-powered” (APICS Dictionary, 15th edition). The radio
frequency energy from the reader temporarily powers the tag.
Passive tags can transmit data at short range and are cheap if
purchased in bulk. Readers must typically be installed at gateway
entry and exit points, on equipment such as a forklift, or be
handheld.
 A semipassive tag is “an RFID tag that sends out data, is self-
powered, and widens its range by harnessing power from the
reader” (APICS Dictionary, 15th edition).
Companies will likely use a mix of active and passive tags, for example,
placing active tags on high-value assets and whole containers and
passive tags on boxes full of merchandise. The cost of tags is a limiter
in the expansion of RFID, since, in comparison, the cost of a bar-code
label is practically negligible.
Printers burn an RFID tag and may simultaneously print a label with a
bar code. Printer cost, reliability, and throughput may be the most
relevant issues.

Interference (a distorted radio signal) can be a problem with RFID. A

signal can be affected by variables such as antenna size, reader power
level, frequency used, and other radio frequency emissions (e.g.,
machinery white noise). Some liquids absorb reader/tag signals, and
some metals reflect signals. Reading multiple boxes on a pallet is not
foolproof; reading singular cases on a conveyor system is very
reliable.
Common adjustments to improve read rates include

 Placing readers in locations with less interference
 Placing a buffer or shield between the tag and the interfering
object
 Adjusting the position and angle of the RFID antennae on readers
 Changing reader or tag type/manufacturer to suit the facility or
product.
The absence of human intervention in the process makes data

acquisition with RFID extremely cheap and fast. However, many RFID
users indicate that some human intervention is still needed to verify
that the tags have been read, raising the cost and error rate of the
system and reducing efficiency. Reader maintenance and testing must
be included to verify promised reliability. For example, a major airline
tested RFID and found that it could increase the accuracy of luggage
read rates to more than 90 percent, but the airline would need to
change how its operators loaded baggage into the metal luggage carts
to get that accuracy level.
Because RFID generates vast amounts of data, the data must be

brought into a usable state prior to sending them to ERP or analytical
systems.
Before implementing RFID, companies should be at a high stage of

supply chain development. Implementations at lower stages will lead
to an inability to use the gathered information. (The company will
experience all the costs and none of the benefits of RFID.)
RFID’s value comes in when process discipline cannot be advanced

with other technologies and human interaction has reached the limit
of its efficiency. For example, a refrigerated goods company saved 25
percent in energy costs by using RFID to make refrigerated doors at
their warehouse open and close automatically at the arrival and
departure of trucks.

The costs associated with RFID can be difficult to estimate because

they include not just individual RFID tag costs but also infrastructure
changes and capacity increases for filtering, storage, processing, and
analysis.
A full implementation may be hard to justify, so a limited project may

be the best way to add RFID, such as a plant area where items need
careful tracking.
The business case should drive RFID selection. The organization

should target a supply chain process that has sufficient room for
improvement and will provide a strategic advantage, such as
collaborative product life cycle management, continuous demand
management, reduction of stockouts, asset management, fulfillment
and distribution, aftermarket sales, or reducing counterfeiting or
theft.
Other types of AIDC devices

Other types of AIDC devices include the following.
 Smart cards. A smart card has an embedded microchip with a

unique identifier. Companies give employees smart cards to
regulate physical and computer access and create an automatic
time log. Smart cards are also used for vehicle identification at
tollbooths or in warehousing for a picking tour.
 Magnetic stripes. Magnetic stripes are used for credit and ID

cards to automate number entry. Data on the magnetic stripe can
be changed. Because the stripe must be read by contact, it can’t be
used for high-speed sorting.
 Vision systems. Vision systems use cameras and computers to

interpret the images. These systems are relatively expensive and
can distinguish changes at moderate speeds with great accuracy in
a controlled environment. A vision system may be used to identify
incoming items that have only text labels.
Point-of-sale The APICS Dictionary, 15th edition, defines POS as “the relief of
systems inventory and computation of sales data at the time and place of
sale, generally through the use of bar coding or magnetic media
and equipment.” A related term in the Dictionary is point-of-sale
information, “information about customers collected at the time
of sale.”

These two terms provide a great deal of information about the

benefits of capturing data at the point-of-sale. Transferring
information from the POS to the organization’s information
systems in real time allows the organization to
 Capture data on product SKU, price, promotion, and inventory
 Replace a push system with a demand-pull system based on
actual customer orders and improve sales forecasting
 Deduct inventory from the books immediately at the time of
sale
 Immediately forward accounting information to finance
 Collect information about individual customer purchasing
habits (either through a credit card or through a voluntary
affinity card program)
 Reduce the bullwhip effect if the data are shared immediately
throughout the supply chain
 Reduce data errors by collecting data at the source rather than
later entry
 Update POS systems at reduced cost, simplifying returns,
coupons, special orders, layaways, etc.
A retailer may, for example, send information from the point-of-sale

to suppliers each time a customer purchases an item to trigger
production or shipment of a replacement. Large retailers may
summarize the POS results in a data warehouse and provide all
vendors with access to it through a vendor web portal.
In addition to linking cash registers to POS data collection systems,

field systems such as wireless credit card readers, wireless POS
scanners, tablets, and cell phones can be used to collect POS data. Self-
service POS terminals such as at a grocery store or an ATM also exist.
POS data can be collected through manual entry or as part of a bar-
code or RFID system.
Many types of buyer-supplier partnerships, such as vendor-managed

inventory, which is discussed in Module 2, Section A, require that the
retailer provide POS data to the supplier. Business portals allow
individuals to see exception-based information and forecasts based
on POS data. The data are presented on a dashboard that allows users
to configure what items are tracked. For example, Walmart shares
POS data by broadcasting to all suppliers on a security-restricted
basis using their own portal network.

Consider the following case study of a company that has realized the
benefits of capturing and communicating point-of-sale data in a retail
setting.
A small company with gross annual sales of more than US$100

million designs and creates high-quality running shoes and
apparel and distributes goods through three outlet stores. For
several years they have had a great deal of trouble managing their
inventory at these outlet stores because they have no way of
viewing inventory levels. They have resorted to sending the same
quantities of inventory to each outlet no matter what the current
inventory is, resulting in large excess inventory at stores. They
have also had great difficulty in changing prices. These changes
have to be sent via messenger service.
Their problem is that their data are static but need to be dynamic
and real-time. They decide to solve their issues by implementing a
retail management system with real-time POS data transfer. The
system allows them to view inventory levels at the outlet stores so
they can optimize products by local demand. The company can
determine what products are selling at what locations and
customize shipments accordingly. Headquarters can also change
prices dynamically at each location, saving the company several
days’ worth of labor per month. The system reconciles sales
reports with actual sales for better reporting at the store level.
This reconciliation feature also saves the outlet stores time and
money by allowing faster nightly shutdowns and price change
reconciliations. The company is more profitable and efficient.
Impact of The movement from paper-intensive activities to these automated

automated data data capture systems improves productivity. Workers spend less time
capture on supply looking for and processing paperwork, writing numbers, and entering
chain performance
data. These devices reduce errors by eliminating numeric
transpositions, missing or incomplete information, and lost or
damaged paperwork.
Bar-code and RFID scanners can now be embedded in cell phones for
real-time data input at any location. Wireless POS devices with
cellular technology can accept immediate customer payments.
Handheld scanners allow workers to concentrate more on moving
items. RFID devices are even better, because workers don’t have to
place items with their bar codes in a particular alignment.
These systems improve customer service levels by reducing

stockouts, especially when dealing with promotional or advertised
items. The inventory database is more accurate, and supply is

matched more closely to demand, leading to added profits because

fewer sales are lost and variability is reduced. Enriched product
information also benefits the consumer because such data will be
more easily available from multiple synchronized sources. Even
consumer data can use an AIS, such as an affinity card showing a
pattern of buying certain products in a supermarket on certain days.
Automated replenishment signals can occur when inventory is

tracked accurately. Accurate inventory reduces shrinkage from
employee theft, lost inventory, or spoiled goods and enables functions
such as vendor-managed inventory. In other words, automated data
capture significantly improves inventory visibility. Visibility and
dynamically updated product data help plan space in warehouse and
retail locations more effectively. Finally, quality assurance can be
improved by tracking where problems have occurred.
Such savings are vital to track because they will help offset the
investment in hardware and software required when installing
automated data capture systems.
Now that we’ve looked at data capture, we’ll examine ways to store
and communicate data.
Databases Databases are repositories for all of the electronic records and
information collected from internal and external sources. Databases
can be easy or hard to search, and associations between data can
create or minimize redundancies.
Various database types exist to serve specialized needs:
 Hierarchical databases. Hierarchical databases are arranged in a

hierarchy, meaning that higher level folders (parents) are created
and subfolders (children) are placed under them, those folders
have their own subfolders, and so on. This type of database is not
used much anymore because making associations between folders
not in the same branch requires duplication of data, which is very
difficult to keep accurate.
 Network databases. Network databases assign relationships

between data in any way that is needed. While hierarchical
databases can arrange data only in a hierarchy (one parent to many
children, but each child always has only one parent), in a network

database, a child can have more than one parent, as shown in

Exhibit 1-53.
Exhibit 1-53: Network Databases
Network databases can make

relationships without staying
in the same hierarchy
This folder has two parents (not

allowed in hierarchical databases)
Network databases have niche applications. For example, network

installation tools use network databases to allocate resources (such
as a printer or access to a database) and to provide visibility into
those resources. However, for the most part, relational databases
are used for most types of data storage.
 Relational databases. The most common form of database is the

relational database, which groups data using common attributes.
It stores each type of data in a single location with many links to
it. Microsoft Access is a basic example.
In Exhibit 1-54 on the next page, for example, there are separate
tables for data about orders, parts, and suppliers. Any two tables
with a common data element can be related to one another. In the
exhibit, the order and part tables both contain part numbers; the
part and supplier tables both contain supplier numbers.
Although a field (such as part number) may be contained in more

than one table, it will be managed within only one of those tables.
The other tables containing that field do not “own” it; they merely
display it. In Exhibit 1-54, for example, part number appears in
two tables but is owned by the part table.
The tables can reside on a single PC or server or across multiple

servers that are geographically dispersed and virtually connected
through a cloud or other network to ensure data security from
natural disasters.

Exhibit 1-54: Relational Database
Columns (Fields)
Order_Number Order_Date Delivery_Date Part_Number Part_Amount Order_Total

Order 10034 06/05/12 06/25/12 2245 8 64.80 Rows
10035 06/15/12 07/02/12 1575 9 447.75 (Records)
10036 06/16/12 07/03/12 1949 5 276.95
Linked Tables
Part_Number Part_Description Unit_Price Supplier_Number

Tables Part 1575 Rods 49.75 48235
1949 Reels 55.39 25331
2245 Filament 8.10 47432
Linked Tables
Supplier_Number Supplier_Name Supplier_Address

Supplier 48235 Northern Inc. 101 Jonquil Lane, Lakeville, MN 55044
25331 Strack Co. 21035 Howland Avenue, Pine River, TX 33756
47432 Powell Corp. Route 46, Sandy, UT 89703
Interface Interface devices are designed to take data from one software system
devices— and format it for direct use in another system. These devices are
middleware intended to overcome a major obstacle that stands in the way of
creating visibility and automated transactions between supply chain
partners: getting incompatible hardware and software to
communicate automatically and securely without great expense or
development time.
Some software systems may be inherently incompatible or reside on

different hardware platforms. They may also use different operating
systems, database types, or computer languages. Sometimes legacy
systems may be involved that are no longer supported and may be
virtually impossible to modify. A legacy system is defined in the APICS
Dictionary, 15th edition, as
a computer application program that is old and interfaces poorly

with other application but is too expensive to replace. It often runs
on antiquated hardware.
Software called middleware is often used to create an interface

between two or more other software systems. Middleware is
“software that interconnects incompatible applications software and
databases from various trading partners into decision-support tools
such as ERP” (APICS Dictionary, 15th edition).

Middleware is exactly what its name implies: It is software that sits in

the “middle” between two applications and enables them to
communicate with one another. The applications could be within the
same company or at different companies. There are different types of
middleware, and the term is often used broadly to refer to any
technology that enables communication between two systems.
So, why should a supply chain professional care about middleware?

Because middleware helps to integrate the supply chain, enables
systems and companies to share information, eliminates duplicate
and inconsistent data, and breaks down organizational silos—in
short, it enables the kind of optimized and collaborative supply chain
that this course is all about. Middleware also enables secure
transactions through authentication (preventing unauthorized users
from gaining entry) and authorization (ensuring that users can only
perform authorized transactions or access their own data).
A simple example will illustrate the use of middleware. Imagine you

are having a party and want to send invitations telling people the key
information, including the date, time, and address of the party. After
you send out your invitation, you would like people to respond with
two key pieces of information: whether they are coming or not and
how many people they will be bringing. Now imagine that this is your
first week at a new international school and many of the people that
you are inviting speak a different language. One way to accomplish
your goal is by finding out all of the different languages that your
invitees speak and then translating your invitation word by word into
each of their languages. Each of them will understand your invitation,
and then they will translate their response into your language and
send it back to you. Another possibility would be to use an online
invitation service that everyone signs up for. This service has a
standard template (“the party invitation template”) that you can use
to enter the essential information. The service can then translate this
standard template into different languages for your various guests.
Your friends can enter their responses into a standard response
template in their own language, and that information will be
transmitted to you in your language.
As you can guess, the first method will be the most time-consuming
and expensive for you, but it will allow you to personalize your
invitations and you will have the ability to include any information
you want. This method would be called data-oriented middleware.

Data-oriented Data-oriented middleware involves large system-to-system linkages

middleware that require extensive customization. Each connection usually requires
a great deal of configuration, as each shared data field must be mapped
out. If two companies want their systems to “talk” to each other, they
can map the fields one by one. When one system sends information
with a “product number,” the receiving system knows that “product
number” is what it calls “Finished Good ID#.” It will work to tie those
two applications together, but if you decide you now want to link to a
third application, you will have to start from scratch.
Implementing data-oriented middleware is a labor-intensive process

that will result in effective and fast communications, but the process
may need to be repeated not only to add a new software system but
also after upgrades. Therefore, this middleware option is expensive
and may not provide long-term benefits.
A related approach to data-oriented middleware is custom linkages,

which are custom-programmed data-oriented links that are developed
from scratch rather than using middleware software as a template.
Custom linkages could be less expensive than purchasing and
configuring a data-oriented middleware package or can be used when
no package is a close enough fit for the applications, and there may be
situations in which this process is still less expensive than use of the
other type of middleware we’ll look at—process-oriented middleware.
Process-oriented Another approach to middleware is referred to as process-oriented

middleware middleware, or business process management software. The APICS
Dictionary, 15th edition, defines business process management
(BPM) as
a business discipline or function that uses business practices,

techniques, and methods to create and improve business
processes. BPM is a holistic approach to the use of appropriate
process-related business disciplines to gain business performance
improvements across the enterprise or supply chain. It promotes
business effectiveness and efficiency while striving for innovation,
flexibility, and integration with technology.
This is where each application maps to a standard process. For

example, what one calls “party date” and another calls “day of party”
are both mapped to “event date” in the standard process. This can be
much less expensive because, if dealing with multiple companies with
different systems (or multiple party invitees who speak different
languages), messages have be to “translated” only one time.

Process-oriented middleware is smart middleware. The linked

businesses first map their processes; then the process-oriented
middleware runs the processes and sends the data to the relevant
systems as dictated by the process map. Once the process is mapped
out, different companies with various types of ERP, legacy, and best-of-
breed applications can apply the process map to their systems and
communicate effectively without replacing systems or attempting to
make them congruous. Basically, process-oriented middleware
manages entire conversations rather than individual data. It requires
businesses to focus on processes and has therefore had a side benefit of
process simplification.
Process-oriented middleware
 Gives multiple systems a common communication method
 Accommodates multiple protocols and messaging standards
 Integrates commercial software and legacy systems using standard
tools
 Attaches easily to existing middleware (and their integrated
systems)
 Adds flexibility to the interactions between modules and systems
 Records transactions centrally in a data warehouse, providing
visibility
 Does not require new code for each new system, unlike data-
oriented middleware.
Other features of process-oriented middleware include

 Firewalls between partners
 Customized processes for each partner
 Internal integration preceding external links
 Integration with automatic identification technologies.
Disadvantages of process-oriented middleware are that it may not be as

simple to integrate with existing systems as advertised and different
process-oriented middleware in the same supply chain may be complex
to integrate.
Data communi- Data communications methods are the computer languages and
cations methodologies that enable interface devices to function; they also
methods enable communications to occur between systems without any
interfaces, assuming the systems are using compatible methods.
Ideally, communications between supply chain partners have two

features: They should be easy to link or unlink, and, when linked, they

should be tightly integrated. The more tightly integrated the

communications are between supply chain partners, the more the
supply chain can act as though it were a virtual organization. The
value of communications methods that enable efficient interbusiness
links depends on how businesses make use of the data. If they
manage the process properly, they can increase the visibility and
accuracy of information, speed transactions, and reduce duplication
of efforts. These efficiencies can reduce cycle times, inventories, and
capital expenses and increase ROI and customer service.
Data communications methods include electronic data transfer, EDI

(electronic data interchange) standards, web services, and service-
oriented architecture.
Electronic data Electronic data transfer (EDT) refers to any transfer of information
transfer using electronic means. Originally, EDT could take place only through
proprietary electronic data interchange (EDI) and electronic funds
transfer (EFT). EDI is “the paperless (electronic) exchange of trading
documents, such as purchase orders, shipment authorizations,
advanced shipment notices, and invoices, using standardized
document formats” (APICS Dictionary, 15th edition). These systems
were effective in sending data between two locations if each location
was set up using the same standards. Distributed, open standards for
EDI combined with the reach of the internet have enabled much more
fluid EDI transfers. Funds transfers have their own standards and are
necessarily very restricted. (EFT is important for supply chain
payments but is outside the scope of this text.)
EDT is primarily performed over the internet today, but that does not
limit it to transmissions between computers. Wireless and cellular
devices extend the reach of the internet. Systems such as SCEM create
event-based exceptions and send them to employees regardless of
their location. New software selected should take these cellular device
needs into account by providing fast, simple data transfers in self-
contained small packets that keep interruptions from corrupting the
data. Also, because wireless transmissions are easier to intercept, data
security is a prime consideration.
EDI data standards EDI data standards include internationally agreed-upon protocols for
transmitting data between sending and receiving companies. It is an
extranet (outside of the enterprise) protocol in which the data are
converted from the sending system’s native format into EDI and, once
received, into the receiving system’s format. EDI is a common method of

connecting systems that do not run the same applications or ERP

systems.
Note that EDI is a type of middleware called content-level middleware.

Content-level middleware specifies a shared format for standard forms
and each of the data fields. The parties involved must agree upon the
shared format that will be used. Each may need to translate their data
(e.g., using data-oriented middleware) to work with this common format.
While this sounds like process-oriented middleware, content-level
middleware is less sophisticated. EDI is more like an electronic version of
sending someone a paper invoice or other document without requiring
data reentry, while process-oriented middleware is more of a method of
automating multiple system interactions.
Messages can be sent through a private network for a direct computer-to-

computer link between two databases. While private networks used to be
the only method of sending EDI messages, web-based EDI handles such
messages at a fraction of the setup cost. Under either method, EDI
requires that special software (proprietary software or some type of
middleware) be installed at each end of the transaction or that a third
party manage the transaction. Many off-the-shelf applications, ERP
systems, and internet marketplaces have entered this arena. For a fee, the
processor ensures reliable transfers in a proper format.
Internet-based standards such as web services, XML (extensible markup

language), and Java have challenged EDI’s prominence, but EDI remains a
common method of connecting supply chains for basic transactions. Giant
companies have been able to dictate the use of EDI to their suppliers, and
use of web-based EDI has helped sustain EDI by lowering costs. However,
the common data exchanged is generally very basic and includes things
such as customer orders, advanced shipment notifications, and invoices.
(An example of the formatting can be viewed in our online Resource
Center.) Because of the expense of implementing EDI, the fact that it often
needs to be batch-processed, and the need to agree on one of the various
EDI data formats, web services-based offerings (discussed below) are
gaining on EDI for supply chain management. Many of the more complex
messaging requirements involved in supply chain management such as
SCEM are too complex and too expensive to implement with EDI.
One way to get more out of EDI without the complexity is to use a value-
added network. The APICS Dictionary, 15th edition, defines a value-
added network (VAN) as “a network, often supporting EDI, providing
services additional to those provided by common carriers.”

Web services The APICS Dictionary, 15th edition, defines web services as
a common internet or intranet framework that enables the

movement of data from one application to another, without the
requirement for a direct connection between two supply chain
applications and without regard to the underlying operating
system for those applications.
Web services are portions of software applications or interface devices

that are built to be interchangeable “building blocks” that can all work
together so that organizations can upgrade or change one aspect of the
software without needing to replace or reprogram all of the other
parts of the software.
Supply chain web services might include purchase order number,

purchase order status, item quantity available, and item quantity due
date. Web services make use of all of the specific data elements
contained in existing databases that are made available for sharing
between specific supply chain partners using different systems. As
used in business-to-business (B2B) processes, the term “web services”
is often inaccurately applied to data or processes presumably needed
by all supply chain partners. However, a web service is unique to
specific partners within a specific supply chain.
The standards are open, meaning that all developers can access and
use the same standards and communications can be performed across
operating systems, application platforms, and computer languages.
Web services allow developers to integrate and share information
among disparate systems. Because web services can be created by any
company, the standard isn’t monopolized by any firm and the
acceptance of the standard is widespread.
B2B web services consist of XML and other XML-based standards that
wrap electronic messages in a shell for universal message receipt,
advertise the existence of web services, and specify how requests and
responses must be formatted. XML is a language that facilitates direct
communication among computers on the internet. Unlike the older
hypertext markup language (HTML), which provides HTML tags
giving instructions to a web browser about how to display
information, XML tags give instructions to a web browser about the
category of information.
XML’s ability to put internet business entirely in the hands of computers

and their software makes XML the basic language of internet commerce.

The important thing to know about XML is that it is operating in the

background of all interactive internet transactions, enabling them to
occur despite differences in computer hardware and software.
The advantage of web services is that they save time and money by
cutting development time, especially for integration. For example, if an
airline develops their flight check-in software using web services, it
could build the application using the best available database search
engine from one vendor, the best seat assignment change application
from a different vendor, and their own pricing application. The
components would work together as one application. Furthermore, a
portion of the application could be upgraded easily.
Service-oriented Web services are frequently enhanced using service-oriented

architecture (SOA) architecture (SOA), which is a style of information technology design
that guides all aspects of creating and using business services
throughout their life cycles. It allows for widespread and flexible sharing
of services created by one supply chain partner for use by another.
SOA is an approach to software design (“architecture”) in which

applications are assembled from reusable components (“services”). A
service is a software building block that performs a distinct function,
such as retrieving customer information from a database using a well-
defined interface. (An interface is basically a way to call, or request, the
service from other programs.) A service could be a credit check or
matching an invoice with a purchase order.
SOA differs from other forms of computing in fundamental ways. For one
thing, the software is organized into modules. This is not novel in itself;
the novelty arises from SOA’s two main goals: to achieve loose coupling
among each of the services in its architecture and to separate
applications from their data so they achieve universal functionality. The
loose coupling of modules could be compared to the round connectors on
Lego® building blocks that make them easy to put together and take apart
with endless configuration options. Universal functionality requires that
all messages contain all data necessary to complete processing (rather
than assuming that the data can be looked up). This is a major change
from traditional programming, in which each application can sort out
only its own data. This is what allows the best service provider in each
area to offer its service without having to offer the whole package.
An important consequence of loose coupling is that services can run

anywhere on a network without being restricted to a specific hardware

or software platform or programming language. In contrast, tightly

coupled systems suffer from interoperability issues when platforms or
systems need to be integrated. While traditional applications required
custom interface devices between applications, SOA models can use
generic links that are inherently more cost-effective.
The results of using SOA are a dramatic decrease in application

development time because many portions of an application can be
reused. The applications are by nature more adaptable, interoperable,
and scalable.
SOA (and web services) can also handle elaborate tasks. A retailer, for
example, could incorporate business rules to reroute trucks
automatically based on a weather report. If flooding were forecast,
getting sandbags to stores in affected areas could take place seamlessly.
Ensuring data Ensuring and maintaining the accuracy of data is an ongoing concern.
accuracy Data collection must be as automated as possible; however, with or
without humans in the process, data can become compromised or
erroneous.
Data errors can come from some of the following sources, especially in an
extended supply chain:
 Each time data are manipulated (Software bugs can introduce errors.)
 Numeric transpositions, typos, and missing or incomplete data
 Older or not fully integrated databases with multiple versions of a
record
 Redundant databases in the network or different tags for the same
objects
In addition, delays in data collection can mean that the data arrive too late
to be relevant.
Ensuring data accuracy requires resources for validating the data and
correcting errors. Companies should use multiple methods to reduce and
prevent errors. Without accurate data, advanced analysis will be
ineffective and transactional systems will be inefficient. Data accuracy is
especially relevant for planning systems. For example, when a
transportation management system calculates how to load trucks, if the
cube and weight data are wrong or missing from even a small percentage
of items to be shipped, the system could recommend overloading the
trucks. If this occurs too frequently, workers and managers may stop
trusting in the integrity of the system.

Improving data A primary method of ensuring data accuracy is to institute consistent

accuracy collection and data entry polices:
 Sharing POS and other transaction-specific data across the supply
chain
 Collecting and transferring data in real time where feasible
 Completing data entry at the time and place of the event
Acquiring new software without improving the quality of the data will
lead to poor ROI for the software, possibly leading to distrust and
abandonment of an otherwise useful system. A way to prevent this is to
combine system upgrades with data cleansing and normalization
initiatives.
Data cleansing is defined in the APICS Dictionary, 15th edition, as
sifting through a database to find and fix mistakes such as

misspelling, missing information, and false data.
Data normalization is defined in the Dictionary as
a database maintenance term used in the context of relational

databases, which helps to minimize the duplication of information
or safeguard the database against certain types of logical or
structural data anomalies. It is often used when merging data from
one or more databases.
Cleansing, normalizing, and otherwise enhancing data become

especially important when two or more databases are combined.
Mergers are one occasion for combining databases.
The format of the information must also be considered. IT systems

should present data in like terms as well as in terms that are relevant to
users’ needs. For example, when an intermediate customer is creating
sandpaper, a sand supplier should be able to see the customer’s demand
for kilograms of sand and not sheets of sandpaper.
Maintaining data Once a firm’s database has been deemed acceptable after cleansing or
accuracy other improvements, the firm must take steps to ensure that the data
quality doesn’t degrade over time. Steps to ensure data integrity include
 Instituting role-based access policies, procedures, and software
limits for adding, deleting, and modifying information
 Investing in data maintenance/continuous improvement process
training for current and future users.

Analyzing data Analysis turns data into business information, or information that is
placed in context, is relevant and reliable, and upon which actions can be
determined. Analysis should reveal the best way to allocate scarce
resources. A holistic analysis of the extended supply chain should reveal
the optimal use of assets for each partner. Analysis occurs at the strategic,
tactical, and operational levels, such as determining the location and
number of distribution centers or calculating which centers to ship
certain goods from during seasonal demand fluctuations. Analytical
systems should be flexible enough to incorporate shifts in strategies, such
as moving from distributed warehouses to a centralized warehouse.
Data aggregation Due to the large amount of data collected—especially in retail, where
large numbers of different products are sold—data are usually
aggregated, or grouped into like categories.
Aggregation is “the concept that pooling random variables reduces the

relative variance of the resulting aggregated variable” (APICS
Dictionary, 15th edition). In other words, the peaks and valleys in the
data are smoothed out when they are combined, which allows averages
and trends to be more obvious. In addition to reducing variance,
aggregation is useful because massive amounts of data can be difficult
to interpret when viewed at a granular level. For example, sales by SKU
by store will have a large amount of confusing variation. Looking at
sales by SKU by region will reduce variation and provide better
insights. Further aggregation could be done with meaningful groupings
of SKUs per region (e.g., all sizes of the same shirt).
The aggregated data are used in data modeling and analysis, such as by
using a decision support system.
Decision support A decision support system (DSS) is “a computer system designed to

systems assist managers in selecting and evaluating courses of action by
providing a logical, usually quantitative, analysis of the relevant
factors” (APICS Dictionary, 15th edition). DSS is a broad term for any
software application used to help management make better decisions.
A DSS generates analytical models that are based on mathematical
algorithms, simulations, or hybrids of the two. Analytical models are
simplified versions of a real situation, event, or transaction. A good
model will have just enough information to help guide a decision
without including any details that would confuse the issue at hand.
Models may not always be purely mathematical versions because a DSS
may be needed to help management make tradeoffs between two or
more possibly qualitative objectives.

As shown in Exhibit 1-55, basic DSS components include an input

database, a set of data analysis tools, and a set of database and
spreadsheet presentation tools to display results.
Exhibit 1-55: Decision Support Systems (DSS)
1. Management formulates a 2. DSS software searches for

business scenario and the appropriate information
requests the DSS system in the ERP system, formats
to evaluate and analyze it. it, and applies logic to it.
Management DSS
software ERP system
3. DSS software analyzes the

selected data and provides
management with alternative
Presentation of courses of action based on
information the requested scenario.
Analysis tools also include data mining, commonly using a data

warehouse or a shared interorganizational database. Data mining is
“the process of studying data to search for previously unknown
relationships. This knowledge is then applied to achieving specific
business goals” (APICS Dictionary, 15th edition).
Presentation tools filter the massive data output of a DSS analysis into
role-specific information using “dashboards” that allow users to
customize the information to suit their needs. For example, a
dashboard could show a marketing manager the simulated results of a
sales campaign but omit manufacturing simulation results.
Input data to a DSS for supply chain management might include, among
many other specific data items, the following:
 Static and semistatic data such as customer order history; locations
of suppliers, warehouses, and retailers; weight; volume (cube);
holding cost; and shelf life (maximum and minimum) of products
 Dynamic data, such as point-of-sale data and sales forecasts; current
capacity and transportation costs to distribution centers; retailer
inventory levels; delivery status; and product sales forecasts
 DSS queries, such as sales by customer, segment, or SKU; purchasing
by supplier, SKU, etc.; on-hand inventory and inventory forecasts;
orders by value, lines, units, etc.; and demand variability

Strategic-level DSS can afford to be detailed and relatively slow because

the decisions are long-term and need to be performed only periodically.
Such systems often use the most extensive historical data available.
Tactical decisions require a balance between speed and sophistication.
Operational DSS must be able to provide fast decisions and so are
generally simpler models that use current data for short-term planning.
Model and data When analyzing results, both the predictive model and the data used
validation must be validated, or tested against actual results. The first step in
analytical model validation is to put historical data into the model and
see if the results are as expected. If they are, the model is run again
using current data, and the output is compared with expected results
for reasonableness. When either of the above validation tests returns
unexpected or wildly inaccurate results, both the model and the data
are explored to find errors, bugs, outlier exceptions, or incorrect or
unrealistic assumptions.
If the results differ by too much, the model and/or the data must be
modified until the model accurately predicts actual results within an
acceptable margin of error. Then the model and the data are put to use
in actual business decisions. They are, however, periodically reviewed
to ensure that they continue to reflect actual usage.
Because models often use aggregated data, the amount of error related
to the aggregation should be estimated. If the error is within limits, it is
considered acceptable. Finally, if the model makes intuitive sense and
the data are consistent with actual results or if any anomalies in the
data can be fully explained, then the model is ready to be used.
Collaboration Collaboration with key supply chain partners is a primary goal of

with supply organizations wishing to reach Stage 4 of supply chain development,
chain partners the extended enterprise. The discussion of the acquisition and use of
data should therefore end on this note. Sharing data can help
organizations stay competitive by globally optimizing their supply
network, sharing both risks and rewards with partners, and using
collaborative forecasting and active visibility.

Progress Check
questions in the APICS CSCP examination. Read each question and respond in the space
provided. Answers and page references appear on the page following the progress check
questions.
1. True or false? The intended audience for a technology audit is IT staff.

( ) True
( ) False
2. Which of the following is a typical advantage of using a best-of-breed application instead of

an already integrated ERP module?
( ) a. Faster to market with innovative functions and services
( ) b. Leveraged ownership of existing data
( ) c. Shorter user training
( ) d. Simpler and better integration
3. SCEM’s active visibility encompasses five functions, the first one being to monitor. List each
function and provide a brief definition.

Match each description to the corresponding advanced optimization tool.
4. Users have the ability to flag the occurrence of certain a. SCEM

supply activities to trigger some form of alert or action
within another supply chain application b. WMS
5. Includes functions such as load matching and c. TMS

optimization, rating, manifesting, tendering, and
routing
6. Continuously profiles performance; creates exception

reports for major shifts in activity, order cycle time,
storage density, and shipment/inventory accuracy;
performs continuous cycle counting
7. Which of the following is part of a good policy on data capture?

( ) a. A fast-paced site should add data capture steps even if they slow the process
down.
( ) b. Capturing partial data is better than capturing no data.
( ) c. At a fast-paced site, entering data later is preferred to entering it during busy
periods.
( ) d. Capturing ancillary data is a must, and no amount of data is too much.
8. True or false? UPC bar codes that dominate retail sales can identify a product type but not a
unique instance of a product by serial number; RFID codes do provide unique serial code
identification.
( ) True
( ) False
9. RFID tags that contain no battery but harvest energy from the reader antennae are called
____________________________________________.


1. False (p. 1-241)
2. a (p. 1-260)
3. Monitor: information on demand, shipments, orders, production, fulfillment, and inventory
distributed throughout the supply chain. Measure: measuring events against key
performance indicators. Notify: exception notification. Simulate: real or projected
exceptions. Control: providing timely and simple methods for reversing system choices
when needed. (p. 1-267)
4. a (p. 1-266)
5. c (p. 1-273)
6. b (p. 1-270)
7. b (p. 1-280)
8. True (p. 1-287)
9. Passive tags (p. 1-288)

Chapter 4: Implementation Tools—Communications
and Projects

 Describe how communications must be tailored to fit the purpose,
target audience, and communication channel
 Describe the basic communications model (sender-receiver model)
and how to apply it
 Explain when to apply project management to supply chain
initiatives and when to manage initiatives as normal operations
 Discuss the basics of project management
 Describe how to manage projects in terms of scope, time, and
budget
 Explain what to do in each of a supply chain project’s process
groups: initiate, plan and design, execute, monitor and control,
close.
Topic 1: Communications
Generally defined, communication is the two-way process of creating
and sending messages and receiving feedback with the goal of influencing
the opinions, actions, and decisions of the intended audience. The process
includes selecting the appropriate media to best reach the intended
audience at the right time.
There are many ways to share and communicate information. Managing

communications involves collecting data and information from the
various parts of the supply chain or from project team members on
supply chain projects, creating discussion guidelines and formal reports,
and distributing the information to the right people at the right time.
Leadership and management rely heavily on one’s ability to communicate
effectively.
Stakeholders have different needs, preferences, styles, levels of

expertise, and cultural backgrounds, which means that it is doubly
important for supply chain managers to adapt to stakeholder needs
when it comes to communication. Customizing your communications to
reflect these differences shows respect and sensitivity and makes the
message more effective. Effective communication strategies that take
into account individuals’ differing needs and perspectives allow for

greater engagement and positivity throughout the process. Achieving

supply chain goals and objectives depends heavily upon well-planned
and well-delivered communications. Because so much depends upon
working with and responding to stakeholder communication needs, it is
crucial that time is spent planning for this by collecting information
from stakeholders on their communication needs and requirements.
The ability to communicate quickly, succinctly, and accurately can be

facilitated by the abundance and diversity of available information,
data, and knowledge and by the vast array of technology and media.
This abundance can be a gift if it is used wisely, but it can also be a trap
in that it can overload your audience with too much information. The
basic capability to develop is to know what information needs to be
communicated for the given purpose and audience. Ask yourself:
 What does your audience need?
 How does the subject of your communication fulfill the audience’s need?
 How can you make the benefits of the presentation clear to the audience?
This topic examines how communication occurs as well as the

importance of context in influencing the success or failure of the
information to achieve intended actions and be put to useful purposes.
The communi- A basic communication process occurs for all types of communications.
cation process This could be when a supply chain manager informally talks with a
colleague one-on-one or makes a presentation to multiple people. The
intent is always the accurate transfer of the information between
individuals or groups. Exhibit 1-56 depicts the elements in the
communication process.
Exhibit 1-56: Basic Communication Process

Filters Filters
“Noise”
Sender Message Receiver
Medium
Filters Filters
Acknowledg-
ment/Feedback

As shown here, communication involves transmitting and receiving

information. This is true whether the communication is human or
technology-enabled. The following are the key elements in the
communication process.
 Sender—True to the label, the sender is the person with ideas,

concepts, requests, or other information to convey.
 Message—This is the subject matter of the process, the translation of

the sender’s information into a systematic set of symbols or sounds
(written, verbal, nonverbal gestures, or some combination). It is
sometimes called an “encoding process.”
 Medium—The medium is the pathway through which the message

is sent. It could be oral (conversation, presentation), written (memo,
newsletter), or electronic (email, video chat, social media).
 Receiver—The receiver is the intended audience, the individual or

group that “decodes” or interprets the message in light of previous
experiences or frames of reference.
 Filters—A filter is any factor influencing how the communication is

received or interpreted. Filters may take many forms, such as
feelings and emotional states (mood), individual perceptions,
experience, and culture. Because of filters, a message may not be
received at all.
 “Noise”—Noise is essentially anything that distorts a message. Noise

can take many forms, including background sounds, another person
trying to enter into a conversation, or any other distractions that
prevent the receiver from paying attention or accurately
understanding what is being communicated. It can also be electronic
distortions that corrupt a phone line, file, or program. Similar to
filters, noise interferes with and can inhibit the communication
process.
 Acknowledgment—The receiver acknowledges the message in a

medium to signal that it was received. This does not necessarily
imply comprehension or agreement, simply receipt of the message.
 Feedback—Feedback is the verbal or nonverbal reply or reaction to

the message. It expresses the receiver’s understanding of the
message. Feedback provides a vehicle for receiver response that
allows the sender to assess if the message has been received as
intended.

This last element, feedback, is, in fact, the main point of this model.
There are things that can get in the way of communication being
successful (filters, noise), but insisting on getting acknowledgment and
especially feedback as appropriate are the communicator’s methods of
making messages fail-safe. Close attention to the recipient’s feedback
will signal comprehension or lack thereof. If the message wasn’t
received as intended, the sender should revise the message accordingly
and repeat the communication process.
Forms of To further illustrate what makes for effective and successful

communication communication, it is helpful to recognize the different forms of
organizational communication. As shown in Exhibit 1-57, there are
various dimensions of communication.
Exhibit 1-57: Communication Dimensions
Written
and voice Internal
Vertical
Formal Informal
Horizontal
Official Nonofficial
External Nonverbal
Source: Holmes Corporation. Used with permission.
Official/nonofficial communication relates to whether the information is

on or off the record. Reports within the company or for public
consumption are often considered official, while newsletters, press
releases, or annual reports are on the nonofficial side of the spectrum.
Formal/informal refers to the expected level of decorum adopted in a

communication and the communication’s format.

Formal communication is officially sanctioned and considered informative

and factual. Such communication is planned and carried out according to
organizational structure and the official chain of command. Because formal
communication is highly documented, amendments and changes are
restricted. Even if the tone or format seems casual, a formal
communication is designed to convey an official message that should be
adhered to. Typical examples of formal communication include mission
and vision statements, goals and objectives, organizational brand, policies
and procedures, organizational or departmental meetings, staff meetings,
publications and newsletters, public relations information, official notices,
signage, and training materials and events.
Informal communication is not officially sanctioned information and does

not follow any official chain of command. However, the majority of
communication in an organization is informal, so its importance should
not be underestimated. A wealth of information is spread through informal
communication media such as personal conversations, telephone
conversations and voice messages, emails, text messages, social
gatherings, social media, and impromptu meetings. Such informal
communication helps to create and sustain open communication in an
organization. Oftentimes, informal communication plays a vital role in
tandem with formal communication (e.g., team bonding, networking).
Vertical/horizontal communication refers to the orientation of the

communication in relation to a project’s or organization’s hierarchy. These
communications are often between people at different levels in the
organization, unlike horizontal communications, which are peer-to-peer.
Internal/external communication refers to whether the communication

involves people who are subject to supply chain management direction or,
more broadly, to organizational employees (internal) or persons in other
departments or other organizations (external). How internal versus
external is defined may therefore differ, depending on the subject of the
communications. External generally includes regulators, interest groups,
the customer, or the public.
Written and voice/nonverbal communications are different modes.

Physical cues, body language, expressions, and body movements that are
present in face-to-face communication can provide a more complete
understanding of how a certain message is received or intended. The
ability to give and interpret nonverbal communication can provide a more
complete understanding of a message. Unlike an email, which, if short and
to the point, could be seen as cold and impersonal, the same message when

given in person could be received completely differently. This is one

reason why emoticons have become popular in informal written
communication; a wink of the eye—even a virtual one—can change the
tone of a message. It is important to remember in written and some verbal
communication modes that nonverbal cues are missing. When writing
emails and reports or when speaking on phone or conference calls, take
extra care when conveying your intended message to ensure that it is
received appropriately.
Communication The APICS Dictionary, 15th edition, defines a communication

management management plan as “a document that describes the communications
plans needs and expectations within a project, including format, dates,
locations, and responsibilities.” These plans are especially important in
supply chain projects due to the need for everyone to work together to
stay within scope and budget and achieve deadlines. Planning your
communications and how they will be conducted creates an environment
that encourages stakeholder involvement and support. A plan can be
brief, especially when few stakeholders are involved, but when supply
chain teams and projects are large and there are many people involved, a
communication plan becomes paramount.
The following describes the steps in creating a communication

management plan.
Identify target The first step when planning communications is to determine your target
audience(s) audience. Due diligence regarding the who, what, when, why, where, and
how of communications can help in avoiding many potential issues,
including delayed communications, communicating to the wrong audience,
and misinterpreted messages. A strong plan can strengthen the
effectiveness of your communications. Communication should also be
efficient by providing the right amount of information, no more and no
less, than the receiver needs. This strategy ensures that the important
points of your message are received and are not lost in an overabundance
of irrelevant data.
The process of managing stakeholder relationships is key for your

communications plan. The APICS Dictionary, 15th edition, defines
stakeholder relationship management as
addressing and managing the competing priorities, needs and

concerns of internal and external stakeholders in a proactive and
sustained manner resulting in decreased cost and enhanced
stakeholder acceptance or buy-in.

When collecting information about your stakeholders’ communication

preferences, the following should be gathered:
 Preferred communication types, media, formality, and formats
 Information needs
By interviewing stakeholders, you can determine their communication

preferences. You can collect this information in the same meetings you
have with stakeholders regarding requirements and risks.
Analyzing RACI (responsible, accountable, consult, and inform) and

organizational charts can also provide information on how to structure
your communications. RACI charts spell out who needs to do each task
(responsible), which one person will answer to its success or failure
(accountable), who needs to be given a chance to review (consult), and
who simply needs to be told about what’s going on (inform).
Organization culture and policy can also influence your communication

strategies, and you may receive guidance regarding how to communicate
with internal staff as well as guidelines for contractor, public, and media
interactions.
Use expert judgement when assessing information needs—including

determining what information will be sufficient and necessary. Good
questions to ask include
 Is the subject matter relevant for the person in this role?
 Is the level of technical detail appropriate?
 Is the level of content complexity sufficient to successfully complete
the assigned activities?
 Is any confidential information being disclosed, and, if so, is it
necessary and are appropriate precautions being taken?
It is important not to underestimate general communications, as these

often motivate people and keep them informed, and this minimizes the
risks of supply chain initiative or project failure.
Identify Communications channels refer to the number of potential two-way

communication interactions that can occur between stakeholders. These are important
channel(s) because they indicate the relative complexity of communication in a
team or project. The greater the number of stakeholders, the higher the
number of possible lines of communication, and the more careful the
manager and team must be to ensure thorough communication of
issues.

The number of communication channels can increase quickly. The

communication channels formula helps supply chain managers grasp
this point.
n (n – 1)
Communication Channels =
2
In this formula, n stands for number of stakeholders.
So, in a project that has only four stakeholders, there are six possible
channels of communication:
4 (4 – 1) 4 × 3 12
= = =6
2 2 2
What happens if there are 15 project stakeholders instead of four?
15 (15 – 1) 15 × 14 210
= = = 105
2 2 2
With each channel of stakeholder communication, costs and risks

increase and productivity is reduced. With each additional channel,
there is an increased risk that a stakeholder may forget to communicate
with another key stakeholder or an incorrect communication may be
relayed in an improper manner. As complexity increases, so do the risks
of communication. When the number of authorized representatives is
reduced, complexity can also be reduced.
Create message(s) Communication requires effort for both the sender and the receiver;
it should always have a purpose. A clear message purpose addresses
the reason why you are communicating and what you want to
accomplish with the communication. Are you announcing a new
service or process? Are you hoping to influence attitudes or achieve
consensus? Are you seeking feedback? Do you want the audience to
make a decision or take action? Or do you have some combination of
motives in mind?
Whether the message is intended to inform or educate, persuade or

inspire, initiate action or some other motive, make clear what you’re
wishing to convey from the outset. People need to know in advance
what you expect from your communication.

Relating the message in ways that are understandable to the

intended audience
Crafting an understandable message involves tailoring the message to
the audience. With a clear picture of the intended audience, ask yourself
questions such as
 Does the audience need background information and, if so, how
much?
 What aspects of the topic matter to them?
 What information would be distracting, confusing (e.g., jargon), or
irrelevant?
 Are there specific benefits for audience members?
 Why should the topic be of interest to the audience?
 If the intention is to persuade or initiate action, how difficult will
that be for the given audience?
 How much does the audience already know about the topic?
Different audiences may require different information. As you think

about what the audience needs to know, vary your messages
accordingly. For example, when unveiling a new supply chain process,
strategic and financial information would be of interest to the board
and senior management and staff members would need to know what
they need to do to support process success.
Using the appropriate media

What is the best way to communicate the message? When selecting an
appropriate delivery method, consider factors such as
 Physical constraints—size of the audience, how dispersed
audience members are, time zones, and the technology and
resources available
 Urgency—whether the message is routine, important, critical, or
time-sensitive
 Cost—cost constraints, image and brand considerations
 Message distribution—who needs to receive the information; the
number and makeup of the receivers
 Security/privacy/sensitivity considerations—any legal, risk,
professional, or proprietary aspects
 Preference—for example, a telephone call in lieu of an email or vice
versa
 Need for retention/retrieval—whether the information should be
retained and for how long, plus the methods for storing,
maintaining, updating, retrieving, and disposing of the information.

Recall how many times you have received an email blast (irrelevant to
you) that was sent to the entire organization with the hope that the
intended audience will notice it. An inappropriate media choice can
dilute the message intent, lead to indifference and confusion, or create
many other problems. Great media choices, on the other hand, can grab
people’s attention, spur creativity, and encourage healthy conversation.
Ensure Intended receivers should not be thought of as passive absorbers of

understanding/ messages. As noted above, feedback is essential in communication so
gather feedback you know whether the recipient has understood the message in the
same terms you intended and whether he or she agrees with the
message.
Check with the members of your audience. In face-to-face

communication, the opportunity to observe nonverbal cues or ask and
answer questions helps to assess if the intended meaning equals the
perceived meaning. If not a face-to-face communication, follow-up
queries and feedback received can help to determine if the
communication was clear and useful to the audience.
Feedback is your audience’s response; it enables you to evaluate the

effectiveness of your message and whether you achieved your purpose.
If your audience doesn’t understand what you mean, you can refine the
message accordingly. Any opportunity to garner feedback is important
in increasing communication effectiveness.
Do not neglect to consider lessons learned through feedback. To

improve or sustain effective communication, consider what you will do
differently the next time. Failure to do so may compromise your
credibility and the potential of receiving critical feedback in the future.
As much as feasible, you should act on feedback. Be grateful for the
opportunity to do so.
Close the loop The final step in any communication plan is to ensure that
communications are continually monitored for completeness, accuracy,
and tone. It is also important to monitor the release and timing of
messages—this may even include involving the legal department for
any messages intended for consumption by the general public.
Controlling communications is itself a feedback loop. Communications

improvements or error corrections may be fed back into a new iteration
of communications planning and management.

Topic 2: Project Management

Supply chain managers may be involved in planning, organizing,
delegating, and monitoring and controlling projects. The supply chain
manager’s role may vary, depending on the specifics of the project and
his or her capabilities and availability. Common roles include
 Being the project manager
 Delegating work to a project manager and being accountable for
results
 Being a team member on the project (e.g., a different business unit’s
project or a project for the entire organization).
The ability of the supply chain manager to accurately estimate project

schedule and costs, develop a feasible and properly organized project
schedule and budget, and keep a project on schedule and on budget
strongly affects his or her credibility with senior executives or clients
and ability to get funding for future projects. A supply chain manager
may be a skilled project manager or can acquire a skilled project
manager for a project. Staffing this role with a skilled professional will
greatly improve the chances of accomplishing all project objectives.
The overarching goal is to ensure that the interests of the organization

and its customers are represented throughout a project’s life cycle.
What are The APICS Dictionary, 15th edition, definition of a project is

projects?
an endeavor with a specific objective to be met within
predetermined time and dollar limitations and that has been
assigned for definition or execution.
The Project Management Institute (PMI®) defines projects as

“temporary endeavors undertaken to create a unique product, service,
or result.” Note that project deliverables can be tangible (product) or
intangible (service or result). The two most important words in this
definition are “temporary” and “unique”:
 Temporary. All projects have a start and an end and are never
ongoing. The start is when a project charter is developed and
approved; the end may be achievement of objectives and handoff of
deliverables or project termination (e.g., the sponsor runs out of
funds, the objectives cannot or will not be met). A project could take
years to finish and its deliverables or societal impact could last
indefinitely, such as the pyramids, but the project itself is still
temporary.

 Unique. The products, services, or results differ in one or more

ways from the organization’s prior work. Parts of deliverables could
be similar, but the remaining differences make them unique. For
example, even if the same architectural design is used for a
warehouse, it is still constructed on a different plot of land and may
be built by different contractors.
Projects vs. Operations and projects are different, and it is important to distinguish
operations between them. Operations are repetitive and ongoing processes of an
organization that are used to produce saleable products or services.
Operations, like projects, require planning, execution, and control to
manage constraints on people and resources. However, unlike projects,
operations are neither temporary nor do they produce unique
deliverables.
Exhibit 1-58 shows the differences between projects and operations.
Exhibit 1-58: Projects versus Operations

Distinguisher Operations Projects
Duration  Ongoing, indefinite,  Always temporary, but varies
repetitive
Deliverables  Standardized  Unique
 Make-to-stock, make-to-  Makes a finished deliverable
order, assemble-to-order or component(s), e.g.,
 Formalized, repeated engineer-to-order
process results (e.g., regular  Improves an existing product,
reports) service, or result
 For example, review  Builds service capability, for
monthly vendor scorecard example, establish criteria for
reports and take action on vendor scorecards including
poor-performing vendors; necessary report templates
send quarterly scorecards to
vendors
Human  Permanent positions  Temporary teams
resources  May be cross-functional
 Aligned to departments in
organizational structure
Manager Functional manager Project manager
Project attributes All projects share certain characteristics. They

 Have a definite beginning and end
 Create a unique product, service, or result
 May be progressively elaborated (A plan framework is elaborated
upon as additional information becomes known.)

 Are based on and perhaps contain some assumptions

 Are planned and executed given certain constraints
 May be influenced by internal and/or external environmental
factors
 Make use of existing internal assets and project documents.
What is project The APICS Dictionary, 15th edition, defines project management as
management?
the use of skills and knowledge in coordinating the organizing,
planning, scheduling, directing, controlling, monitoring, and
evaluating of prescribed activities to ensure that the stated objectives
of a project, manufactured good, or service are achieved.
Project management can also be thought of as an organized process for

increasing the chances of project success. This process generally has
the following components:
 Objectives. Project management has a set of results to achieve
defined by its scope and its constraints on cost, time and quality.
 Management processes. Project management follows
predetermined processes, such as scheduling or budgeting, and a
project cycle that encompasses organizing, planning, executing, and
controlling.
 Levels. Project management incorporates both strategic and
tactical planning levels.
Organizations can achieve additional benefits from project

management, including
 Encouraging innovation and creativity via cross-functional teams
and cultivating collective organizational wisdom (“lessons
learned”)
 Leveraging existing and external resources wisely to do more with
fewer resources
 Efficiently securing more informative data regarding projects,
allowing management to terminate projects that would otherwise
fail to implement strategy or negatively impact business value
Some organizations use a PMO (project management office) to ensure

project best practices and standards. Project managers can then reach
out to the PMO for support.
Avoiding common Simply claiming to use project management is not the same as properly
pitfalls managing a project. Organizations need to fully commit to a rigorous
process, get the support of top management, train their project
managers and teams, and use change management to instill best

practices into the organization’s culture. Here are some common causes
for the failure of projects:
 Budget or schedule (or other important constraint) is significantly
missed.
 Project results are ineffective (e.g., unacceptable deliverables).
 Deliverables have no valid purpose (e.g., the project used resources
without adding to business value).
 Project sponsors or managers allow scope creep, the uncontrolled
expansion of project scope. (For example, many ERP projects fail
when the scope continues to expand without allocation of additional
time or funds.)
Exhibit 1-59 shows some common pitfalls along with some

corresponding best practices described in A Guide to the Project
Management Body of Knowledge (PMBOK® Guide)—Fifth Edition, Project
Management Institute, Inc., 2013.
Exhibit 1-59: Pitfalls and Best Practices
Common Pitfalls Project Management Best Practices
Harangue and coerce. Lead and coach.

Micromanage team members. Clearly delegate responsibility.
Treat personnel changes as emergencies Assign activities to specific functional
due to unclear roles and responsibilities. responsibilities for clear personnel
transitions.
Guess at variances until too late. Control and account for resources.
Fail to set plan baselines (e.g., schedule, Routinely measure against the plan.
budget).
Hold meetings to gather percent Hold meetings to discuss substantive
complete estimates (guesses). issues and risks.
Allow change and have unrealistic Control change and analyze tradeoffs
optimism about any consequences. between constraints.
Produce static documentation and never Keep live documentation updated.
use it because it is out of date.
Fail to send out new plan versions (so Ensure that everyone is using the current
everyone is using different versions). plan (configuration management).
Source: A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fifth Edition.
The role of the The project manager gains consensus on project objectives; achieves
project manager these objectives; acquires, manages, and leads the project team; and
integrates or coordinates the project management process. A

functional manager, on the other hand, is responsible for a specific

organizational unit with similar processes—such as IT, marketing and
sales, accounting, human resources, or manufacturing.
To fulfill the project management role successfully, the project

manager should possess certain qualities.
First, the project manager needs management authority, such as the

ability to make purchases within certain constraints and to hire,
discipline, and remove or terminate employees or contractors who
directly report to the project manager.
Second, the project manager role requires that the supply chain
manager have both theoretical knowledge and field experience. This
knowledge and experience needs to be in two areas: technical project
aspects and project management processes and techniques.
Supply chain managers can assess their own skills when deciding
whether they would make a good project manager for a given project.
If supply chain managers are responsible for internally staffing, hiring,
or contracting out the project manager role, they should review and
customize their organization’s project manager job description to
reflect the specific project work to be done. In either case, the project
manager should have strengths in the following areas.
 Leadership and influence. The project manager role requires

development of leadership and influence to create a team. Project
managers accept accountability for the project and its mission.
They adapt their leadership style to the situation and audience,
from asserting, to listening, to using facts and reason, to
persuading. Project managers understand that the goal of
influence is to inspire others to want do the right things rather
than to overtly control them.
 Self-assessment and experience. Supply chain managers assess

whether they or the candidates they are considering have enough
learning and field experience for a given project. The ability to
work well with others is a difficult skill to build without certain
innate personality traits. Therefore, it is important that supply
chain manager or project manager candidates have and
continually improve people skills, including coaching, negotiation,
and conflict management. Project managers must also fairly
evaluate their own skills and performance abilities, ask for help as

needed, admit to mistakes, learn from mistakes and successes, and

vary approaches to fit team member and stakeholder personalities
as well as teams as a whole.
 Recruiting and organizing a team. The project manager needs to

recruit and organize the project team by assessing the strengths and
weaknesses of team members and staff/contractors to encourage
teamwork and fill needed areas of expertise. For example, a project
manager may ask a detail-oriented logical thinker to work on
process audits and assign a people person as a department contact.
Project managers ensure that the project team represents key
stakeholders, including
 Management
 Suppliers
 Customers
 The supply chain manager if different from the project manager
(e.g., final approver for changes and supervisor of big picture)
 Project team members (e.g., accounting, IT, manufacturing,
purchasing, marketing departments)
 Professional services that provide expertise (e.g., third-party
logistics providers).
 Management. The project manager is a planning agent who

integrates and coordinates the work of others. Effective project
managers delegate appropriately and avoid being a bottleneck by
micromanaging team members or delaying the approval process
unnecessarily. Project managers treat controlling and directing work
as a full-time job and avoid doing activities that should be assigned
to team members. Instead they manage the project as a whole and
track its components. If the project manager accomplishes a task
more efficiently than someone else could but misses that a team
member has added an unauthorized step in a process, the team
effectively has no project manager. Project managers spot-check
schedule details because they understand that people who are
behind schedule may report being on schedule if they believe that
they can make up the time later. Project managers understand that
you can’t manage what you can’t measure and so find ways to
measure the details that need managing. For example, if a task stays
at 90 percent complete despite the continued output of work, project
managers may break down how the task is reported so it can be
better measured and then managed.

 Communication and problem solving. The project manager is

the primary liaison between the project team and the executive
team as well as with customers, suppliers, superiors, and other
managers. Project managers maintain regular, personalized
communication and show sensitivity to organizational culture.
Project managers use varied modes of communication to reinforce
messages, including project management software, meetings,
reports, email, printed bulletins, conversations, and nonverbal
cues. Project managers resolve conflicts and regularly negotiate
with stakeholders to help balance the needs of all constituents.
Project Depending on the scope and complexity of a project, planning can be

planning informal or formal. Informal project planning involves asking
questions such as
 What needs to be done?
 How should it be accomplished?
 How long should it take to complete?
 How much will it cost?
 Who needs to do it?
 How well should it be done?
Asking these questions will help plan a simple project, but complex
projects need formal project planning. Such projects often use a
standardized project management process and model to ensure that
all project planning elements are included. Most standardized
processes use the concept of project life cycles. The APICS Dictionary,
15th edition, defines project life cycle as follows:
In project management, a set of project phases (objectives

definition, requirements definition, external and internal design,
construction, systems test, and implementation and
maintenance), whose definition is determined by the needs of
those controlling the project.
The project life cycle helps conceptualize the idea that projects are
developed iteratively, starting with a framework and returning to add
details as they become known or changes as they are approved. This
iterative development is also called progressive elaboration.
Projects are divided into phases to control the work and to integrate
the project’s final product, service, or result into the ongoing
organizational operations.

Standardized project management processes use consistent

terminology and provide a framework that can be changed to fit
project specifics.
It may take some effort and some change management to get an

organization to adopt a standard set of processes and commit to a
larger amount of planning work. Organizational resistance to change
cannot be underestimated, and the benefits of the extra work need to
be demonstrated on a small project before the standard process can
be used on all projects. If the project manager wants to use a specific
project methodology, he or she may need to get buy-in from superiors
and the project team.
A widely accepted standardized project management process is PMI’s

Project Management Body of Knowledge (PMBOK® Guide). The
remainder of this topic reviews the PMBOK® Guide process, including
its Knowledge Areas, Enterprise Environmental Factors and
Organizational Process Assets, and Process Groups.
PMBOK® Guide A process is a systematic series of activities directed toward causing

Knowledge an end result such that one or more inputs will be acted upon to create
Areas one or more outputs. Processes are a group of interrelated actions and
activities that are planned in advance. The result could be a deliverable
(a product, service, or result) or an input to another process.
Project management processes keep the project flowing correctly

throughout its life cycle. The project manager transforms the data
collected from processes into information by placing the data in
context and uses the information to produce reports and change
requests. Transforming process results into actionable information
helps the project manager create a feedback loop and control the
project as it is ongoing.
Project management processes also all have a set of inputs (what teams
need to start the process), some tools and techniques (what teams can
use to perform the process better or faster), and some outputs (the
documents or deliverables that teams create). The outputs of one
process often become the inputs to one or more later processes.
The PMBOK® Guide has a set of project management Knowledge Areas

that represent the process categories used on most projects most of the
time.

The Knowledge Areas are

 Project Integration Management. Begin with the end in mind
(objectives) and get authorization for the project and the project
manager. Coordinate activities, control changes, and formally close
the project.
 Project Scope Management. Say what you will do (scope) and will
not do and validate that only what was in scope was done.
 Project Time Management. Specify the activities to do, put them
in order, and specify resources. Make a realistic schedule and
control variances against this baseline.
 Project Cost Management. Estimate the cost of activities and
materials, make the budget, measure variances, and correct.
 Project Quality Management. Define quality metrics and
processes, audit processes, and control quality of deliverables.
 Project Human Resource Management. Plan, acquire, develop,
manage, and release the team.
 Project Communications Management. Plan who gets what
messages and how, make communications, and get feedback.
 Project Risk Management. Identify and prioritize risks, calculate
probability and impact, plan responses, and control risk and
responses.
 Project Procurement Management. Identify what to procure
using which types of contracts, send RFPs, control, and close
procurements.
 Project Stakeholder Management. Identify persons who can
influence or be influenced by the project, judge their impact, and
manage their engagement and expectations.
All key processes to follow in a project fall within one of the above 10
Knowledge Areas. For example, one process is Develop Project Charter,
and this is an integration task.
PMBOK® Guide There are several considerations that can impact your project. Two
environmental common types that are often inputs to the project processes are
factors and Enterprise Environmental Factors and Organizational Process
process assets Assets.
Enterprise Environmental Factors (EEFs)

EEFs refer to conditions outside the control of the project team that
influence or constrain the project. It is vital to think about EEFs
right from the start of a project, because they can influence whether
the project is even feasible at the given time given things such as
the economy, demand, or organizational readiness. EEFs put a

project in context and highlight constraints so that the project can

be planned to avail itself of opportunities and mitigate threats.
EEFs are both the terrain over which the organization runs and the
type of animal the organization has become. The ground may be
firm, rocky, crowded, or fertile. The organization may be
specialized and thus more adept in certain areas but less so in
others.
When project managers work to understand both external and

internal conditions, they will better comprehend organizational
strategy and will be able to develop charters and plans that reflect
the actual situation.
EEFs include communications, organizational culture and

governance, structures, systems, and external influences. The key is
that they cannot be controlled, only understood.
Organizational Process Assets (OPAs)

OPAs are the policies, procedures, processes, plans, and organizational
knowledge base of the organization. OPAs are common inputs to
planning processes and are created during some processes and so also
may become outputs.
OPAs include
 Policies, procedures, and processes: rules, standards, templates,
and methodologies (e.g., best practices)
 Organizational knowledge base: historical information from
organizational activities and lessons learned from prior projects.
PMBOK® Guide Project management processes ensure the effective flow of a project
Process Groups throughout its life cycle. The PMBOK® Guide identifies 47 processes.
These processes are organized into the 10 Knowledge Areas listed
above but are mainly categorized by Process Group. The Process
Groups are Initiating, Planning, Executing, Monitoring and Controlling,
and Closing.
If you are interested in the 47 processes and where they are located in
each Knowledge Area and Process Group, refer to the PMBOK® Guide.
The order of the processes is important. For example, in the Planning

Process Group, one plans the schedule and defines the activities before
putting them in sequence and estimating resources and durations in

order to finally develop a schedule. While the specifics of each process

are beyond the scope of this course, some processes are discussed at a
high level later in this topic. Having an understanding of the Process
Groups provides a good context for understanding the purpose of each
set of processes.
The Process Groups overlap: Some ramp up as others slow down. Some
processes are ongoing tasks that can recur in later Process Groups. Since
Planning is progressively elaborated, it often overlaps Executing.
Monitoring and Controlling overlaps all Process Groups because one
needs to measure and adjust at all points in a project. Closing may be
needed early on in a project to close some contracts and/or accept some
deliverables.
Each Process Group is addressed in more detail next.
Project initiation The Initiating Process Group includes two processes performed to
define a new project or a new phase of an existing project.
 Develop Project Charter. This process entails activities such as

 Understanding the project context (the environmental factors,
assumptions, and constraints)
 Reviewing the project’s business case and strategic goals
 Choosing the project manager and delegating resource and
expenditure authority to this person
 Clarifying high-level objectives and success criteria (beginning
with the end in mind).
The charter formally authorizes the project to begin and allows

funds to be expended.
 Identify Stakeholders. This process entails activities such as

 Developing a stakeholder register (e.g., a spreadsheet listing
stakeholders and their areas of expertise, interests,
assignments, and communication preferences and
requirements)
 Listening to and getting buy-in from stakeholders
 Building a shared understanding of project scope and
objectives
 Aligning stakeholders’ expectations to the project’s purpose
 Clarifying the link between each stakeholder’s level of
participation and the attainment of his or her expectations.

Project planning The Planning Process Group has the most processes, since planning
and design occurs for each of the Knowledge Areas. Planning turns strategy into
tactical action and reveals how to get to successful project completion.
It is the guide that shows all stakeholders (including team members)
what they need to do. A good planning document will be realistic and
feasible, which will help stakeholders believe that the project’s goals
can be achieved. Planning involves selecting detailed requirements
and scope, refining objectives, and defining what activities are needed
to accomplish these objectives.
Project planning encompasses all aspects of project work:

 Scoping to show what things will be done, documented in the form
of a work breakdown structure
 Scheduling what work needs to be done, in what order, and within
which periods
 Budgeting to estimate project costs and the timing of expenditures
 Specifying quality policies and processes, including process
improvement
 Staffing teams by defining team roles needed to do project work
and how to assign work and responsibilities
 Deciding on communicating what to whom on the team and to
stakeholders, how, when, and by whom
 Determining how to identify, prioritize, and manage risks and
proactive responses
 Deciding what services and materials to procure under contract
and how to conduct the contracting process
 Deciding how to develop and maintain stakeholder relationships
and expectations
A plan is typically generated for every Knowledge Area. (Some plans

could be quite short on small projects.) These plans together become
the project management plan. These plans do not contain specifics
such as particular team member assignments or project schedule
details since they are frameworks, but they do contain baselines.
Baselines are the high-level official scope, schedule, and budget
information that become the basis against which to measure whether
the project is progressing as desired or not. Aside from these
baselines, the project management plan is a “how to” guide. It shows
how to plan for the area, what performance to measure and when,
what tools and techniques to use, and how to execute and control the
elements in the Knowledge Area. Specific project details such as
schedule breakdowns, staff assignments, and so on are stored in
separate project documents. These documents are revised as needed

and allowed throughout the project. Some changes will require

approval through an official change request procedure.
The project schedule and budget are among the first things done after
the project management plan is completed, but these will be
incomplete after the first pass. Only after all subsidiary plans have
been completed can the project schedule and budget be finalized. This
is because later information on, for example, risks or quality, will
impact the schedule and budget. This is an example of progressive
elaboration—elaborating the high-level summary milestone schedule
and budget included in the project charter based on information in the
subsidiary plans. Organizational process assets provide guidance on
what is an appropriate amount of time to spend on planning.
Plans and baselines are subject to revision as needed, but a change to

the baseline is an example of something that generally requires
review and formal sign-off before it can be changed. The idea is to
prevent scope creep (unauthorized addition of work without
corresponding increases in schedule and budget) while
accommodating necessary change. New information or unexpected
events may require changes to project scope, schedule, and budget.
Available team members could need training before they can be fully
productive. New stakeholders or risks could be identified. Quality data
may show a need for new types of testing.
Project scope
The primary processes for developing the project scope are collecting
requirements and developing a work breakdown structure. The
project charter will contain high-level project requirements, but these
need to be refined at a more granular level to define the work to be
done before the project can be considered completed.
Gathering requirements involves reviewing historical requirements

documents and interviewing all stakeholders to develop a full list of
expectations for the project deliverables or the means to be used to
produce the deliverables. Missing a stakeholder or group of
stakeholders creates a risk that the final deliverable will fail to satisfy
all constituents. If this missing group is a customer segment, for
example, it could result in a product or capability that fails to be in
demand. Therefore, thorough stakeholder identification is a
prerequisite for gathering requirements.

Stakeholders will often have more requirements than can be

accommodated in the current project due to constraints on time, cost,
and so on. In addition, some requirements will contradict other
requirements. Therefore, this becomes a process of satisfying as many
requirements as is feasible. It is often described as a process of
separating needs from wants.
Each requirement should be necessary, and the set as a whole should be

sufficient to define the project scope. Good requirements need to be
measurable, meaning that it should be clear how to set acceptance
criteria for each requirement. Acceptance criteria are the conditions
customers will need to verify are present before they will accept the
final deliverables. (Customers are here broadly defined as the recipient
of the project deliverables; they could be internal to the organization.)
Once a set of requirements is agreed upon by all decision makers,

including the customer, the next step is to formalize them into a work
breakdown structure (WBS). The PMBOK® Guide defines a WBS as “a
hierarchical decomposition of the total scope of work to be carried out
by the project team to accomplish the project objectives and create the
required deliverables.”
The WBS focuses on what will be created more than how it will be
created. It looks like an organizational chart, with the project at the top
and major categories of deliverable components listed below it. For
each component, the work is further broken down into subcomponents.
The lowest level will be items that are best planned separately. The idea
is to divide up the work into manageable parts. If an item can be
planned or executed independently, it is a good bet that it should be its
own WBS item. Splitting up work into units smaller than this would add
complexity without improving the ability to plan. The WBS is a map of
100 percent of the work that will be done on the project. If it isn’t on the
WBS, it isn’t being done.
A WBS uses hierarchical labels to show how components interrelate and

their level in the hierarchy. If the top level (project) is labeled as 1, then
the next level is given an additional decimal place, such as 1.1, 1.2, 1.3,
etc. If 1.2 has subcomponents, they are given an additional decimal
place, like 1.2.1, 1.2.2, and so on. Exhibit 1-60 on the next page shows an
example of a WBS for a conveyor belt project.
Once the WBS and other scope description documents are complete and
approved, they become the scope baseline.

Exhibit 1-60: Work Breakdown Structure (Conveyor Belt Example)
1
Conveyor belt
1.7
1.4 1.5 1.6
1.1 1.2 1.3 Project
Entry/exit Routing Integra-
Assembly Sensors Sorters manage-
chutes software tion
ment
1.1.1 1.3.1 1.6.1

Frame Sorter arms Concept
1.3.2
1.1.2 1.6.2
Sorter
Rollers Design
hydraulics
1.1.3 1.6.3
Belt Assembly
1.1.4 1.6.4
Motors Testing
1.6.4.1
Component
test
1.6.4.2
Live test
1.6.4.3
Customer
acceptance
Project schedule
The project schedule defines the activities that need to be done to
complete the scope, places the activities in the order in which they need
to be done, estimates resources to be used for each activity, and
estimates how long each activity will take. The order of these steps is
important. For example, before being able to estimate activity durations,
the project manager first needs to know how many resources (e.g., team
members) will be assigned to the activity and their level of expertise,
since these will greatly impact the duration of the activity.

The project manager first defines activities that are needed to create
each item on the WBS. The WBS contains no activities; one or more
activities may be needed to accomplish each WBS item. An activity is a
distinct element of work that contributes to the completion of a
deliverable and can be scheduled and budgeted.
Once all activities are defined, they can be placed in sequence. The
project manager may arrange for activities to be done concurrently if
they don’t depend on the completion of other activities or have resource
conflicts. In other cases, some activities can partly overlap. Activities that
must be done in sequence (e.g., pouring a foundation before building a
wall) are arranged as such.
Estimating activity resources involves determining the quantity of labor

and level of expertise that is required to complete each activity. For
example, this could be 100 hours of expert labor. The project manager
can determine if these will be all one person’s efforts or if two or more
people can work on the activity simultaneously. The project manager
factors in weekends and holidays and other work availability issues.
Next, the project manager calculates activity durations. The total project
duration is then how long it will take to do the longest string of activities
that need to be done sequentially. This is the shortest possible project
duration and is called the critical path.
Oftentimes, there will be a constraint on time, in other words, a hard

deadline to meet. When this is the case, project managers may need to
rearrange some additional activities to allow them to be done
concurrently (called fast tracking) when possible or will add workers on
activities to shorten their duration (called crashing) as is feasible from a
cost and human resources perspective. These changes may result in a
new and shorter critical path, but there may be a need for additional
team members and/or increased costs to achieve this shorter schedule.
Project schedules and budgets are often managed using project

management software. Microsoft Project is an example. This software
still requires project managers to accurately estimate durations and
costs, put activities in the correct sequence, and specify whether some
activities can overlap and so on, but it does automate many of the other
project management activities, such as rearranging the rest of the
schedule when something is moved or an estimate for a particular
activity is updated. The final schedule can be viewed as a Gantt chart,
which is an easy-to-understand way to show how activities interact and

overlap over time. Exhibit 1-61 shows an example of a Gantt chart

produced in Microsoft Project, using the same conveyor belt project
example as the previous exhibit.
Exhibit 1-61: Project Schedule (Gantt Chart View) for Conveyor Belt Project
Once the schedule is approved, it becomes the schedule baseline.
Project budget
The project budget is often developed at the same time as the schedule,
since each affects the other one, as the prior examples of crashing and
fast tracking demonstrated. Costs are estimated from the bottom up
starting at the activity level. The cost of the materials and resources is
estimated for each activity, and then these costs are rolled up
(aggregated) to determine the budget. As with the schedule, often this
results in costs that are unacceptable to cost constraints. At that point,
the project manager can work on the project budget from the top down,
starting with the cost constraint or target budget and then determining
whether it is feasible to get the same work done for less by using fewer
resources (and likely a longer schedule) or if the project scope needs to
be adjusted to fit within the available budget.
The project manager’s responsibility is to produce a feasible budget and

schedule. Agreeing to a project with a budget or schedule that is sure to
be exceeded is a sure way to fail before the project even starts. The
project manager will be held accountable for achieving the schedule and
budget, and therefore must push back when project sponsors or others
insist that a project can be done for less than the best planning estimate.
If the scope and schedule or other constraints cannot be altered, then it

is the project manager’s responsibility to secure the necessary additional

funding or refuse to lead the project.
The project budget and schedule will need to be revisited once the other
project plan elements are finished. For example, Module 3, Section B,
contains a great deal of information on risk management, much of which
can be directly applied to project risk management. The time and costs
involved for any planned risk responses need to be added to the
schedule and budget. This is also true for quality, human resources,
communications, procurement, and stakeholder management.
Once the budget is approved, it becomes the cost baseline.
Project execution Processes in the Executing Process Group are used to complete the
work defined in the project management plan as needed to fulfill the
project objectives.
The Executing group has fewer processes than Planning, but, in fact,
the largest portion of project time and resources are spent in this
Process Group, specifically in the Direct and Manage Project Work
process. The project manager integrates and coordinates team
activities to ensure that project work is moving along smoothly. To do
this, project managers need to see the big picture and how all the
pieces interact.
Executing is where data are collected for later analysis. Executing

involves doing quality audits, because these are audits of the processes
as they are being performed. Quality audits show whether processes
are effective, efficient, and being applied as intended. The project
manager may need to file change requests during Executing if efforts
or processes need better coordination.
Project monitoring Processes in the Monitoring and Controlling Process Group are
and controlling required to
 Track, review, and control project progress and performance
 Identify required changes to the plan
 Initiate the necessary and approved changes
 Verify that deliverables conform to scope and requirements and
that the customer can accept them.
Monitoring and Controlling is a special Process Group, because it runs

alongside the other groups. The project manager reviews work and
corrects course during Initiating, Planning, Executing, and Closing. If a

project has multiple phases, the project manager also integrates

Monitoring and Controlling across the phases to coordinate overall
events.
Through oversight and measurement, the project manager and team

can regularly compare activities against plans, assess the need for
course correction or refinement, propose solutions and assess the
consequences on all parts of the project, get changes approved, make
changes, and verify that changes have been done correctly and are
effective. If a change is implemented incorrectly, isn’t done at all, or is
ineffective, another feedback loop detects this situation and gets the
changes done right.
Process audits are an especially important Monitoring and Controlling

activity, because reviewing processes as they are occurring during
Planning and early in Executing can prevent problems from occurring
in the first place. Inspection of deliverables, while necessary, is less
efficient, since at this point most of the executing is done and
corrections would require rework. Problems are much more expensive
and time-consuming to fix in later stages.
In other words, it is best to spend most of your time on influencing the

factors that result in changes being necessary than on making
necessary fixes. Recommending preventive or corrective action before
problems occur is far more cost-effective, because there will be fewer
issues to find during inspections.
When changes are required, the project manager analyzes the impact
of these changes on other constraints, such as time, cost, and quality,
and recommends a solution that balances stakeholder needs to the
degree possible.
It is vital that the project manager carefully control changes and avoid
needless change. Unnecessary change (scope creep) has caused
innumerable projects to go far over budget and far over schedule and,
sometimes, to fail entirely.
Variance analysis
The key activity in Monitoring and Controlling is measurement, and
variance analysis is the key to effective measurement. Earned value
measurement (EVM) is a technique that allows project managers to
measure scope, schedule, and cost variances. EVM uses three input
measurements to produce a large number of variance measurements

and ratios. These inputs are shown in Exhibit 1-62, as quoted from the
glossary of the PMBOK Guide®.
Exhibit 1-62: Earned Value Measurement Inputs
Planned Value •The authorized budget assigned to scheduled work
• The measure of work performed expressed in terms

Earned Value of budget authorized for that work
• The realized cost incurred for the work performed on
Actual Cost an activity during a specific time period
Source: A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fifth Edition.
Planned value (PV) can be determined by referring to the project

management plan, since it will show how much work should be done at
any given point during the project. (Work budgeted to be done from
period to period could vary.) If the project has equal amounts of work to
be done in each period, then a simple calculation can be used to
determine PV. For example, if the project is to build four identical walls,
on week 3 of 4 of a $2,000 project budget, then the calculation is as
follows:
Schedule Completed
PV = x Budget = ¾ × $2,000 = $1,500
Total Schedule
Earned value (EV) requires an estimate of actual percent complete. If

that same wall project was behind schedule and only had two walls
done by the end of week three, the EV calculation is:
EV = Budget x Actual Percent Complete = $2,000 × 50% = $1,000
Actual cost (AC) is the actual expenses incurred to date on the project.
Assume for the continuing example below that actual costs are $1,250
as of the end of week 3.
While many useful ratios can be calculated based on these input values,
this discussion will focus on just two important variances—the
schedule variance (SV) and the cost variance (CV)—along with two
related indexes—the schedule performance index (SPI) and the cost
performance index (CPI). The variance measurements are expressed in
monetary values. Negative values are bad (e.g., behind schedule or over
budget); positive values are good.

The following formulas are used to calculate the schedule variance and
the cost variance. The examples continue the simple wall building
project:
SV = EV – PV = $1,000 – $1,500 = –$500
CV = EV – AC = $1,000 – $1,250 = –$250
This project is both off schedule and over budget, but since the project
manager has two types of variances and both are expressed in
monetary terms, it is easy to see that the schedule issues are more
significant. Because these variances can be calculated at any point
during a project, project managers can control small variances as they
are occurring rather than waiting until later to correct course.
Correcting course sooner is both more effective and less expensive than
attempting to do so later.
The same three inputs can also be used to create index values for cost
and schedule performance. An index is basically a ratio in which one
value is divided by another. An index or ratio is useful because it can be
compared to other ratios regardless of the size of the amounts. Like a
percentage, it is easy to see by how much a project is on or off budget or
schedule. The same examples are used to illustrate the two types of
indexes, the schedule performance index and the cost performance
index:
EV $1,000
SPI = = = 0.67 or 67%
PV $1,500
EV $1,000
CPI = = = 0.8 or 80%
AC $1,250
An SPI or CPI of less than 1.0 or 100 percent shows that a project is off
schedule or budget; values greater than 1.0 or 100 percent mean that
the project is ahead of schedule or under budget.
Project closure Closing includes formal finalization processes performed for all
activities across all Process Groups:
 Handing the product, service, or result over to the customer and
supporting a transition into operations as necessary
 Completing administrative tasks
 Executing final payments to contractors
 Closing out procurement contracts

 Providing a final report to the project sponsor and stakeholders

 Doing individual and team performance reviews
 Releasing team members
 Going over “lessons learned” from the project and updating
organizational process assets
 Archiving project documents and plans
Once all of this is complete, the project manager officially indicates that
the project is complete. Projects or phases are formally closed even if
they are terminated early or are postponed indefinitely.

Progress Check
1. How can gathering stakeholder communication requirements promote achieving project

objectives?
( ) a. Gives a better understanding of stakeholders’ perspectives
( ) b. Increases efficiency by showing how to communicate in the same way to all
stakeholders
( ) c. Increases effectiveness of stakeholders because it captures their outstanding
issues
( ) d. Helps maximize the information provided to each stakeholder
2. True or false? The communication process involves encoding an intended meaning into a
message and the receiving and decoding of the message into perceived meaning.
( ) a. True
( ) b. False
3. If there are 5 people on the project team and 4 additional identified stakeholders, how many
communication channels are there?
( ) a. 5
( ) b. 9
( ) c. 36
( ) d. 72
4. Which of the following is true of projects?

( ) a. Projects can have an ongoing, indefinite charter.
( ) b. Projects are one-time, unique sets of events.
( ) c. Projects employ permanent teams.
( ) d. Projects are clearly distinct from and do not overlap with other supply chain
management work.
5. What are the Process Groups, in the correct order, as defined in the PMBOK® Guide?
( ) a. Planning, Executing, Checking, Implementing, Completion
( ) b. Initiating, Planning, Executing, Monitoring and Controlling, Closing
( ) c. Initiate, Perform Integration, Perform Project Planning, Implementation, Closing
( ) d. Project Charter, Project Plan, Execution, Monitoring, Turnover of Deliverables
6. During which Process Group is the majority of project time and resources expended?
( ) a. Initiating
( ) b. Planning
( ) c. Executing
( ) d. Monitoring and Controlling


1. a. Supply chain managers and team members must communicate with stakeholders who
have different communication needs, styles, levels of authority, cultural backgrounds,
interests, and levels of expertise. Appreciating other peoples’ perspectives creates
opportunities to maintain and improve relationships, which can have a strong influence on
achieving project objectives. (p. 1-311)
2. True (p. 1-313)
3. c. The formula for determining total communication channels is n × (n – 1)/2. For this
example, it would be 9 × (9 – 1)/2 = 36. (p. 1-318)
4. b. (p. 1-321)
5. b (p. 1-330)
6. c (p. 1-338)
Next Steps
You have completed Module 1 of the APICS Certified Supply Chain Professional
Learning System. Next, check your understanding by completing the online chapter-
specific quizzes and learning activities to help you identify any concepts that need
additional study. Check your understanding another way by selecting the module-
specific eFlashcards, or visit the Resource Center to download printable flashcards.
Once you have completed the chapter-specific quizzes, reviewed the eFlashcards,
completed the learning activities, and feel confident that you have mastered the
information, you can advance to Module 2.

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Cumulative Course Index
This cumulative course index covers all three modules of the APICS CSCP Learning System. The
page numbers used in the index include the module number, for example, 1-48 refers to page
48 of Module 1.
aggregation layer of B2B/B2C e-commerce, 1-

A 252
ABC inventory classification, 2-157–2-159, 2- agility, as SCOR metric, 3-185–3-187
191, 2-254–2-255 AGVS (automated guided vehicle systems), 2-
abduction, 3-76, 3-115–3-116 268, 2-272
abilities, knowledge, skills, 3-208 AIDC (automatic identification and data
absolute value, 2-55–2-56 capture). See automatic identification
AC (actual cost), 1-340–1-341 technologies
acceptance of risk, 3-101 air transport, 2-289, 2-301–2-303
account management technology, 2-397 airfreight forwarders, 2-325
accounting airway bill, 2-336–2-337, 2-338
cost, 1-111–1-114 AIS (automatic identification systems). See
equation, 1-118, 2-163 automatic identification technologies
management, 1-111 Alibaba, 1-249–1-250
principle-based, 1-115 alliance development, 2-422
regulations, country-specific, 1-116–1-117 alliances with suppliers, 2-422–2-433
rules-based, 1-117 allocation
standards, 1-114–1-117, 3-11–3-12 of resources, 1-264–1-265
value of inventory, 2-166 of supply, 2-68–2-73
accounts payable, 1-120 Altman Z-score, 3-154–3-155
accounts receivable, 1-120 Amazon, 1-248–1-249
accreditation, 3-44–3-45 ancillary data, 1-280–1-281
acknowledgment, in communication, 1-313 anonymity, and Delphi method, 2-40
acquisition cost, 2-160 annualized contract, 2-464
acquisitions, 1-162, 2-213–2-214 anticipation inventory, 2-151, 2-262
action plan, in supply chain network design, ANSI Z.10-2012 standard, 3-54–3-55
1-184 application layer of B2B/B2C e-commerce, 1-
active tags, 1-288 252
active visibility, in supply chain event application software, 1-232
management, 1-267–1-268 APS (advanced planning and scheduling), 1-
activity network diagram, 3-229 262–1-265
activity ratios, 3-153 AS/RS (automated storage and retrieval
actual cost, 1-340–1-341 systems), 2-270, 2-272
administrative/general costs, 2-280 assemble-to-order model, 1-30, 1-190, 2-
advanced planning and scheduling, 1-262–1- 103–2-104
265 assembly sites, 2-210
affinity diagram, 3-225–3-226 asset footprint, 1-28, 1-31
affordability of products/services, 1-66 asset management metrics, 3-31, 3-159–3-
aftermarket, savings in, 2-481 162, 3-189–3-192
aggregate inventory management, 2-156–2-159 assets, 1-116, 3-74–3-77
aggregation, 1-305, 2-156 assignable cause, 2-38
associative forecasting, 2-49–2-53

assortment warehousing, 2-262 B

assumptions reviews, in risk identification, 3-70
ATA Carnet, 2-336 backflushing, 2-120
ATP (available-to-promise), 1-264, 2-70–2- backlog, 2-101
71, 2-107 backorder costs, 2-162
ATR certificate, 2-339 backorders, 2-162, 3-148
attitudes balance, and supply chain management, 1-41
and culture, 3-19 balance sheet, 1-116, 1-117–120, 2-163–2-
segmentation by, 2-383 166, 3-196
auctions, 2-448–2-449 balanced flow, 2-120
audits, technology, 1-241–1-242 balanced scorecard, 1-130, 3-167–3-171
automated guided vehicle systems, 2-268, 2-272 bankruptcy risk, 3-154–3-155
automated sorting systems, 2-268–2-269, 2-272 bar codes/bar code scanners, 1-284–1-286,
automated storage and retrieval systems, 2- 2-273
270, 2-272 base demand, 2-36
automated warehouse systems, 2-268, 2-272 batch data, 1-281
automated guided vehicle systems batch processing, 1-286
(AGVS), 2-268, 2-272 BCMS (business continuity management
automated sorting systems, 2-268–2-269, systems), 3-118–3-121
2-272 benchmarking, 3-214–3-217
automated storage and retrieval systems benefit-cost analysis, 1-237–1-241, 3-93–3-95
(AS/RS), 2-270, 2-272 best-cost strategy, 1-8
live racks, 2-269–2-270, 2-272 best-in-class benchmarking, 3-215–3-216
robotics, 2-269, 2-272 best-of-breed systems vs. enterprise
automatic identification and data capture. See resources planning systems, 1-259–1-260
automatic identification technologies bias, 2-39–2-40, 2-56–2-57, 2-62
automatic identification systems. See big data, 1-276–1-277
automatic identification technologies bilateral contract, 2-464
automatic identification technologies, 1-281– bill of capacity, 2-133
1-283, 2-273–2-274 bill of lading, 2-336–2-337
bar codes/bar code scanners, 1-284–1- bill of material, 2-112–2-113
286, 2-273 bill of resources, 2-133
magnetic stripes, 1-290 biohazard symbol, 3-27
radio frequency identification (RFID), 1- B/L (bill of lading), 2-336–2-337
287–1-190, 2-273 blanket purchase order, 2-213
smart cards, 1-290 BLPs (bonded logistics parks), 2-282
vision systems, 1-290 BOM (bill of material), 2-112–2-113
warehouse automation systems, 1-283 bonded logistics parks, 2-282
automation in warehouses, 1-283, 2-268–2- bottleneck materials, 1-164
270, 2-272 bottleneck work centers, 2-133–2-134
availability bottlenecks, 2-133
and customer service, 1-75 BPM (business process management), 1-297–
metrics, 3-148 1-298
of products/services, 1-66 brainstorming, in risk identification, 3-70
available time, in measuring capacity, 2-138– brand management, 2-74, 2-99
2-139 branding, 1-148–1-149
available-to-promise, 1-264, 2-70–2-71, 2-107 break-bulk operations, 2-260–2-261
averages, 2-44–2-45, 2-165–2-166, 3-92 bribery, 3-75–3-76, 3-114
avoidance of risk, 3-101 bridge cranes, 2-266–2-267, 2-271
AWB (airway bill), 2-336–2-337, 2-338 broad differentiation strategy, 1-8

BSC (balanced scorecard), 1-130, 3-167–3- “buy on the market” relationship, 2-212
171 buyer-supplier relationships, 2-211–2-214
B2B collaboration, 1-254 buy-side e-commerce, 1-253
B2B e-commerce, 1-243, 1-251–1-252, 1-254,
1-255 C
B2C e-commerce, 1-243, 1-251–1-253
bucketless systems, 2-119–2-120 call centers, 2-401
buffer, 2-133, 2-153, 3-256 campaign management, 2-400
buffer inventory, 2-153 capabilities
bullwhip effect, 1-19–1-20, 1-54, 1-229 core, 1-29–1-30, 1-74–1-78
business combinations, 1-92 general, 1-68–1-73
business continuity management systems, 3- capable-to-promise, 1-264–1-265
118–3-121 capacity, 1-76, 2-126
business direction, 1-90 bill of, 2-133
business etiquette, 3-19 control, 2-126–2-144
business intelligence, 2-399 cushion, 1-188
business interruption insurance, 3-110 demonstrated, 2-140
business layer of B2B/B2C e-commerce, 1-252 forecasting/planning, 2-255–2-258
business model, 1-4, 1-7 investments, staging, 2-131–2-132
business plan, 1-26–1-28 and load, 2-141–2-142
business strategy, 1-7–1-15 management, 2-126–2-144
core capabilities, 1-29–1-30 measuring, 2-138–2-141
cost structure, 1-30–1-31 objectives, 2-128
organizational strategy, 1-15–1-26 planning, 2-126–2-144
revenue model, 1-31–1-32 production activity control, 2-137–2-144
value proposition, 1-28–1-29 rated, 2-139–2-140
business plan/planning, 1-26–1-28, 1-127, 2- requirements, 2-140
87–2-88 requirements planning, 2-135–2-137
business process management, 1-297–1-298 resource planning, 2-129–2-132
business process perspective, in balanced rough-cut capacity planning, 2-132–2-134
scorecard, 3-169 supplier, 3-161–3-162
business rules, 3-264 variance costs, 2-162
business strategy, 1-3–1-4, 1-7–1-8 verification of, 2-108
best-cost strategy, 1-8 capital costs, 2-161
broad differentiation strategy, 1-8 cargo insurance, 3-110
choosing, 1-15 Carnet, 2-336
focus advantage strategies, 1-12–1-15 carousels, 2-267–2-268, 2-271
focused differentiation strategy, 1-8 carriers, 1-273, 2-308
focused low cost strategy, 1-8 common (public), 2-308–2-309
low cost advantage strategy, 1-8–1-10 contract, 2-310–2-311
low cost strategy, 1-8 domestic, 2-330
product/service differentiation strategy, exempt, 2-311
1-10–1-12 motor, 2-289, 2-293–2-295
business systems, 2-395 overseas, 2-330
business-to-business collaboration, 1-254 private, 2-310
business-to-business customers, 2-385 carrying costs, 2-160–2-161
business-to-business e-commerce, 1-243, 1- cash flow, 1-40, 1-116, 1-122–1-124, 1-176–
251–1-252, 1-254, 1-255 1-177, 2-168, 2-169, 2-484
business-to-consumer e-commerce, 1-243, 1- cash flows, statement of, 1-116, 1-122–124, 2-
251–1-253 168

cash-to-cash cycle time, 3-152–3-153, 3-189– collectivism, 3-18

3-191 co-location, supplier, 2-451–2-452
causation, 2-50 combination forecasting methods, 2-54–2-55
cause-and-effect diagram, 3-217, 3-220–3-222 commercial invoice, 2-335–2-336
CDW (customer data warehouse), 2-394–2-395 commercial property insurance, 3-110
CE (concurrent engineering), 1-202–1-203 commitment decision points, 2-71–2-73
CEM (customer experience management), 2-393 commodity materials, 1-164
certificate common cause, 2-38
of insurance, 2-339 common (public) carriers, 2-308–2-309
of origin, 2-336 communication, 1-311–1-312
certification, 2-417–2-422, 3-45 audience for, 1-316–1-317
Certified Ocean Forwarder, 2-325 channels, 1-317–1-318
change closing, 1-320
commitment to, in strategic alliances, 2-428 commitment to, 2-429
management, 3-207, 3-257–3-266 of demand, 2-10–2-17, 2-24–2-25
process, 3-259–3-266 external, 1-315
channel, segmentation by, 2-357 feedback, 1-320
chase production method, 2-101–2-102 formal, 1-314–1-315
check sheet, 3-218, 3-223 horizontal, 1-315
CI. See continuous improvement informal, 1-314–1-315
CICs (customer interaction centers), 2-393 internal, 1-315
CISG (contracts for international sale of management plan, 1-316
goods), 2-464 media, 1-319–1-320
classic auctions, 2-449 message, creation of, 1-318–1-320
clean technology, 2-495 nonofficial, 1-314
cleansing, data, 1-304 nonverbal, 1-315–1-316
client-server model, 1-234 official, 1-314
closed-loop material requirements planning, principles of effective, 2-10–2-16
2-121 process, 1-312–1-314
Closing, in project management, 1-341–1-342 skills, 3-19
cloud computing, 1-234–1-235, 2-400–2-401 understanding, ensuring, 1-320
coaching, 3-209 vertical, 1-315
COGS (cost of goods sold), 1-112, 2-167, 2- voice/written, 1-315–1-316
414–2-415, 3-188–3-189 communities, as stakeholders, 1-63
collaboration, 1-153–1-155, 2-212, 2-213 competencies, core, 2-202–2-204
barriers to, 1-159–1-161 competition and supply chain strategy, 1-32–1-33
building, 1-156–1-165 competitive analysis, 1-10
communication in, 1-161–1-162 competitive benchmarking, 3-215
with customers, 1-165–1-170 complexity of supply chain, 1-50, 1-94, 1-129
in design, 1-193–1-196 compliance
features and benefits of, 1-170 and contracts, 2-472–2-473
intensity level, 1-162–1-163 with export-import requirements, 3-126–
success requirements, 1-155–1-156 3-128
strategic importance versus difficulty of government and regulatory, 3-25–3-26, 3-
determining product categories, 1-163– 130–3-133
1-165 with hazardous waste regulations, 2-498–
collaborative planning, forecasting, and 2-500
replenishment, 2-25–2-28 component commonality, 1-199–1-200
collaborative transportation management, 1- comprehensive supply chain management
275–1-276 system, 1-235–1-237

concurrent engineering, 1-202–1-203 continuous process improvement, 3-205

conditionally accepted materials, 2-435 continuous replenishment, 2-29–2-30
configuration contract carriers, 2-310–2-311
vs. customization, in enterprise resources contract warehousing, 2-249
planning, 1-261–1-262 contracting, 2-205
for information system architecture, 1- benefits of, 2-207
182–1-184 complexities of, 2-207, 2-208–2-209
network, 1-184–1-186 customer relationship management, 2-
configure-to-order model, 1-30–1-31 206
conflict minerals, 3-43–3-44, 3-109 information systems, 2-206
conflicts of interest, 2-286–2-288 logistics, 2-206, 2-228–2-233
conformation rates, 2-435 manufacturing, 2-206
consignment, 2-31–2-32 risk management in, 2-209
consistency supplier relationship management, 2-206
delivery, 3-148 trends in, 2-205–2-206
and lead time monitoring, 3-198–3-199 contracts, 2-463–2-464
consolidation annualized, 2-464
in export shipments, 3-7 bilateral, 2-464
in warehousing, 2-260 compliance, 2-472–2-473
consolidators, 2-327, 2-330 cost-based, 2-464
consortia trade exchanges, 2-447–2-448 cost-plus, 2-464
consortia-based marketplaces, 2-447–2-448 cost-plus-fixed-fee, 2-464
constraints, 2-142–2-143, 3-255 cost-plus-incentive-fee, 2-465
consumer research, 1-127 deployment, 2-472
contact channel strategy, 1-145, 1-146–1-147 firm-fixed-price, 2-465
contact management, 2-398 fixed-price-incentive-fee, 2-465
containerization, 1-197 incentive, 2-465–2-466
containership, 2-305 for international sale of goods (CISG), 2-
content management applications, 1-254 464
content-level middleware, 1-300 language, 2-469
contingent action in response to risk, 3-102– legal authority in, 2-470
3-104 with logistics service providers, 2-232–2-
contingent business interruption insurance, 233
3-110 negotiation, 2-470–2-471
continuous improvement, 2-98, 3-204–3-205 problem resolution channels, 2-469
Just-in-Time, 2-119–2-120, 2-144, 3-230, success of, 2-473–2-474
3-239, 3-246–3-250 termination, 2-469
lean, 2-119–2-120, 2-144, 3-230, 3-231– terms and conditions, 2-466–2-470
3-245 trading partner agreements, 2-464
model, 3-206–3-207 control charts, 3-217, 3-219
personnel improvement, 3-208–3-210 conveyors, 2-264–2-265, 2-271
process improvement, 3-210–3-217 core capabilities, 1-29–1-30, 1-74–1-78
reasons for adopting, 3-207 core competencies/strengths, and make-or-
six sigma, 3-250–3-254 buy analysis decisions, 2-202–2-204
theory of constraints, 2-142–2-143, 3- corporate social responsibility, 2-416–2-417,
230, 3-255–3-257 3-35–3-37
tools, 3-214–3-230 corporate strategy. See organizational
total quality management (TQM), 3-204, strategy
3-205, 3-230, 3-254–3-255 corrective action in response to risk, 3-102–
continuous job improvement, 3-249–3-250 3-104

correlation, 2-50, 2-53 cost(s) (continued)

corruption, 3-75, 3-114–3-115 security, 2-280
COSO Enterprise Risk Management to serve, total, 3-187–3-188
framework, 3-134–3-135 standard, 1-111, 1-113–1-114
cost-based contract, 2-464 storage, 2-160
cost-benefit analysis, 1-237–1-241, 3-93–3- structure, 1-30–1-31, 1-78–1-80
95 supplier quality, 3-158
cost-plus contract, 2-464 supply chain, 3-187–3-189
cost-plus-fixed-fee contract, 2-464 transportation, 2-250, 2-279–2-280, 2-
cost-plus-incentive-fee contract, 2-465 286–2-287
costing variance, 1-112, 1-113
standard, 1-111–1-114 vehicle, 2-279–2-280
target, 1-9 counterfeiting, 3-116–3-117
cost(s) counterparty risk, 2-314
accounting, 1-111–1-114 country of origin, 2-343
acquisition, 2-160 country-specific accounting regulations, 1-
actual, 1-340–1-341 116–1-117, 3-11–3-12
administrative, 2-280 country-specific asset footprint, 1-31
avoidance, 2-481 coverage amount method of determining
backorder, 2-162 safety stock, 2-184
balancing for inventory ordering, 2-162 CPFR® (collaborative planning, forecasting,
carrying, 2-160–2-161 and replenishment), 2-25–2-28
capacity variance, 2-162 CPI (continuous process improvement), 3-
capital, 2-161 205
driver, 2-279 CR (continuous replenishment), 2-29–2-30
drivers, 1-113 creditworthiness, 3-155
of goods sold (COGS), 1-112, 2-167, 2- CRM. See customer relationship management
414–2-415, 3-188–3-189 cross-docking, 2-260–2-261
general, 2-280 cross-functional teams, 1-221–1-223
holding, 2-160–2-161 cross-selling, 2-388–2-389, 2-400
import, 2-333 cross training, 3-208–3-209
insurance, 2-280 CRP (capacity requirements planning), 2-
inventory, 2-155, 2-160–2-162 135–2-137
landed, 2-160, 2-197, 2-198–2-199, 2- CSR (corporate social responsibility), 2-416–
204–2-205 2-417, 3-35–3-37
line haul, 2-279 CTP (capable-to-promise), 1-264–1-265
lost sale/customer, 2-162 C-TPAT (Customs-Trade Partnership Against
metrics, 3-31, 3-150–3-152 Terrorism), 3-128–3-130
minimization, 2-223 CTX (consortia trade exchanges), 2-447–2-
net, 2-199–2-200 448
ongoing, 2-199 culture, 3-16–3-17
operator, 2-279 alignment, 2-214
ordering, 2-161–2-162 conflict in, 1-161
of ownership, total, 2-196–2-201, 2-204– dimensions of, 3-17–3-19
2-205, 2-413–2-414 cumulative lead time, 2-67
period, 1-121 currency, 2-318–2-319
process change, 2-199 current price, 1-112
product, 1-121 custom scorecards, 3-171–3-172
purchase price/production, 2-197 customer, as stakeholder, 1-62
risk, 2-161 customer care systems, 2-396–2-401

customer complaints, 3-148 customer value, 1-66–1-67, 2-355–2-356, 2-

customer data warehouse, 2-394–2-395 383–2-384
customer decisions, 1-175 customer, voice of, 2-359–2-361, 2-391
customer demand, and inventory policy, 2-155 customer-centric businesses, creating/
customer experience, 1-11–1-12, 2-393 maintaining, 1-167–1-170
customer experience management, 2-393 customers, collaboration with, 1-165–1-170
customer feedback questionnaires, 2-391–2-392 customers, lifetime, 1-166
customer focus/alignment strategy, 1-16–1- customers, types of
18 business-to-business, 2-385
customer, in supply chain, 1-17–1-18, 1-39, 1- lifetime, 2-370–2-372
40 loyal, 2-388–2-389, 2-400
customer information, sources of, 2-358–2- prospective, 2-386
359, 2-370 retail, 2-384–2-385
customer interaction centers, 2-393 service-minded, 2-384
customer metrics, 3-147–3-149 vulnerable, 2-386–2-387, 2-400
customer needs, segmentation by, 2-356–2-357 win-back, 2-387, 2-400
customer orders, 2-107 customer-focused marketing, 2-352–2-354
customer perspective, in balanced scorecard, customization, 1-207–1-212, 1-242–1-243, 1-
3-168, 3-169 261–1-262, 2-362
customer problem tracking, 2-401 customs (cultural), 3-19
customer relationship management, 1-169, 2- customs (in export-import), 2-323
366–2-367, 2-378–2-382 documentation, 2-334–2-339
analysis, 2-369 duties, 2-332–2-333
contracting, 2-206 house brokers, 2-327, 2-330, 3-5
customer information, 2-370 labeling and documentation, 3-7, 3-128
leveraging, 2-458–2-463 packaging for, 3-6–3-7
and lifetime customer, 2-370–2-372 prohibited goods, 3-127–3-128
need for, 2-367–2-368 security regulations, 2-339
organizational structures, 2-375–2-376 Customs-Trade Partnership Against
performance management, 2-389–2-392 Terrorism, 3-128–3-130
processes, 2-374–2-375 cyber insurance, 3-110
and product life cycle, 2-377–2-382 cycle counting, 2-189–2-190
relationship building, 2-370–2-372 cycle stock, 2-152
sales operations, 2-369 cycle time, 2-207, 3-198
scope of, 2-368–2-372 cycles, 2-36, 2-37
strategy, 2-372–2-389
technologies, 2-376, 2-386, 2-393–2-403 D
customer satisfaction, 1-75–1-76, 2-390–2-392,
2-434–2-435, 3-148, 3-149, 3-199–3-200 damage, 3-113–3-114
customer segmentation, 1-168–1-169, 2-351– dangerous goods, 3-26–3-29, 3-127
2-360, 2-382–2-389 dashboards, 2-15–2-16, 2-92, 2-93, 3-166–3-
customer service, 1-28, 1-75–1-76, 2-389–2- 167
390 data
customer satisfaction, 1-75–1-76, 2-390– access, 1-277–1-278
2-392, 2-434–2-435, 3-148, 3-149, 3- accuracy, 1-278, 1-303–1-304, 3-91
199–3-200 acquisition, 1-276–1-279
measuring, 2-73, 3-196–3-200 aggregation, 1-305
and number of warehouses, 2-250 analysis, 1-1-305–1-307
ratio, 3-196–3-197 ancillary, 1-280–1-281
requirements, 2-155 batch, 1-281

data (continued) delayed differentiation, 1-207–1-208

big, 1-276–1-277 delivery
capture, 1-279–1-293 consistency, 3-148
cleansing, 1-304 patterns, 2-235–2-242
and collaboration with supply chain requirements, in contracts, 2-467
partners, 1-307 scheduling, 1-274
collection of, 1-277, 3-92, 3-151–3-152 Dell, 1-249
communication methods, 1-298–1-303 Delphi method, 2-40, 3-70
dictionary, 1-231 demand, base, 2-36
dynamic, 1-306 demand channel, 1-236, 1-237
integrity, 3-91 demand, communicating, 2-10–2-17, 2-24–2-
interface devices, 1-295–1-298 25
management, 1-276–1-279 demand, defined, 2-5
manipulation language, 1-231 demand, dependent, 2-109–2-110
mining, 1-306 demand, elasticity of, 1-106, 1-108–1-109
normalization, 1-304 demand forecasts/forecasting, 1-139, 2-33–2-
in planning, 1-278 34, 2-99. See also forecasting
purchased, as source of customer demand generation, 1-140–1-141
information, 2-358 demand, independent, 2-109–2-110
quality assessment, 3-90–3-91 demand, law of, 1-106–1-107
real-time, 1-281, 3-149 demand management, 1-137–1-138, 2-6
static, 1-306 in advanced planning and scheduling, 1-
types of, 1-279 264
validation, 1-307 auctions, 2-448–2-449
visibility, 1-278 and brand management, 2-74
volume, 1-280 communicating demand, 2-10–2-17
warehouse, 2-394–2-395 functional responsibilities/interfaces, 2-
database management system, 1-231 73–2-76
databases, 1-230–1-231, 1-293–1-295 influencing demand, 2-17–2-20, 2-25
hierarchical, 1-293 managing and prioritizing demand, 2-20–
network, 1-293–1-294 2-23
relational, 1-294–1-295 and marketing, 2-74–2-75
in supply chain network design, 1-182–1- and operations, 2-76
184 planning demand, 2-7–2-10
data-oriented middleware, 1-297 and product development, 2-74
days of supply, 3-190 and sales, 2-75–2-76
days outstanding, 3-190 demand manager, 2-13–2-15
days sales outstanding, 3-190 demand plans/planning, 2-7–2-10, 2-33, 2-86
DBMS (database management system), 1-231 assumptions, 2-99
DDMRP (demand-driven material commitments, 2-99
requirements planning), 2-182–2-183 dashboards, 2-15–2-16
decision support systems, 1-305–1-307, 2- inputs, 2-7–2-8
441 numbers, 2-99
declared value, 2-332–2-333 planning horizon and revision period, 2-
decline stage in product life cycle, 1-152, 1- 9–2-10
153, 2-382 uses of, 2-8–2-9
decoupling, 2-153 demand, price elasticity of, 1-108–1-109
deemed export, 3-15–3-16 demand prioritization, 2-66
defect measurement, 3-214 and allocations of supply, 2-68–2-73
deflation, 1-104–1-105 time fences, 2-66–2-68

demand pull, 2-143–2-144 diminishing marginal utility, 1-107

demand review meeting, 2-91–2-94 diminishing returns, 1-107
demand risk, 3-67, 3-83–3-84, 3-106–3-108 direct/core competency materials, 1-164, 1-
demand seasonality, 2-36, 2-37, 2-42–2-44, 2- 165
47–2-49 direct marketing, 2-399
demand sensing, 1-277 direct-to-consumer delivery pattern, 2-240–
demand shaping, 1-141, 1-277, 2-25 2-242
demand time fence, 2-66–2-67 disconnected technology, 2-402
demand-driven enterprise strategy, 1-20–1- discounts, 2-315
23 diseconomies of scale, 1-107
demand-driven material requirements distance, and shipping, 2-283
planning, 2-182–2-183 distribution
demand-driven systems. See pull systems centers, 2-171, 2-237
demographic segmentation, 2-383 inventory, 2-151
demonstrated capacity, 2-140 points, as source of customer information,
density, and shipping, 2-283–2-284 2-358
dependent demand, 2-109–2-110 requirements planning, 2-122–2-126
depreciation, 1-124 distributor integration, 2-28–2-29
depression, 1-100–1-102, 1-105 DMAIC (Define, Measure, Analyze, Improve,
deseasonalizing, in forecasting, 2-42–2-44 Control) process, 3-253
design, 1-191 dock receipt, 2-337
collaboration, 1-193–1-196 documentation
for the environment, 1-212–1-213 export-import, 2-334–2-339
integral, 1-201 of risk, 3-70, 3-72–3-73
for logistics, 1-197–1-199 domestic carriers, 2-330
for maintainability, 1-204–1-205 downside supply chain adaptability, 3-186–3-
for manufacture and assembly, 1-203–1- 187
204 driver/operator costs, 2-279–2-280
modular, 1-201–1-202 DRP (distribution requirements planning), 2-
of products. See product design 122–2-126
for quality, 1-206 DSS (decision support systems), 1-305–1-
for remanufacture, 1-214–1-215 307, 2-441
for reverse logistics, 1-214 DTF (demand time fence), 2-66–2-67
for service, 1-204–1-205 due diligence on proposals, 1-242
for supply chain, 1-197 Dutch auctions, 2-449
and sustainability, 1-212–1-215 duties, customs, 2-332–2-333
for X, 1-199
development in product life cycle, 1-152, 2- E
377–2-379
DFE (design for the environment), 1-212–1- earned value/earned value measurement, 1-
213 339–1-341
DFL (design for logistics), 1-197–1-198 e-business. See electronic business
DFMA (design for manufacture and echelons (tiers), 2-171–2-173, 2-227
assembly), 1-203–1-204 e-commerce. See electronic commerce
DFX (design for X), 1-199 economic cycles, 1-100–1-101
DG (dangerous goods), 3-26–3-29, 3-127 economic indicators, 2-50–2-51
DI (distributor integration), 2-28–2-29 economic order quantity, 2-176–2-178
differentiation economic performance and triple bottom line,
delayed, 1-207–1-208 3-23–3-25
of product/service, 1-10–1-12, 1-209 economic value added, 1-151

economies of scale, 1-107, 2-207, 2-283–2- Enterprise Environmental Factors, 1-329–1-

284 330
EDI (electronic data interchange), 1-299–1- enterprise marketing automation, 2-399–2-
300, 2-273 400
EDT (electronic data transfer), 1-299 enterprise resources planning, 1-70, 1-87, 1-
EEFs (Enterprise Environmental Factors), 1- 255–1-256, 2-120
329–1-330 advanced systems, 1-258–1-259
effectiveness, 1-76, 1-77–1-78 vs. best-of-breed systems, 1-259–1-260
efficiency, 1-76–1-78, 1-114, 1-180, 1-181–1- configuration vs. customization, 1-261–1-
182 262
balancing with responsiveness, 1-187–1- database, 1-257
188, 1-190 transactional modules, 1-257–1-258
in measuring capacity, 2-139 upgrading, 1-260–1-261
80-20 rule, 3-220 Enterprise Risk Management framework,
elasticity COSO, 3-134–3-135
of demand, 1-106 environment, harm to, 2-280–2-281
price, 1-108–1-110 environmental performance and triple
electronic business, 1-243–1-247 bottom line, 3-25–3-31
B2B collaboration, 1-254 environmental risk, 3-67, 3-84, 3-86, 3-109
B2B e-commerce, 1-243, 1-251–1-252, 1- EOQ (economic order quantity), 2-176–2-178
254, 1-255 EPC (electronic product code), 1-287–288
B2C e-commerce, 1-243, 1-251–1-253 EPCglobal Network, 1-1-287–288
examples, 1-248–1-250 equilibrium, 1-102, 1-103, 1-107
requirements for success, 1-250–1-251 equity, 1-116
return on investment, 1-247–1-248 ERM (Enterprise Risk Management)
strategy, 1-246 framework, COSO, 3-134–3-135
See also electronic commerce ERP. See enterprise resources planning
electronic commerce, 1-87, 1-243 errors
B2B, 1-243, 1-251–1-252, 1-254, 1-255 controlling, 2-437
B2C, 1-243, 1-251–1-253 in forecasts, 2-35, 2-55–2-65
buy-side, 1-253 ETCs (export trading companies), 2-327–2-
content management, 1-254 228, 2-330
marketing, 2-399 European Union, and dangerous/hazardous
placement, 1-146 goods, 3-29
sell-side, 1-253 EV (earned value), 1-339–1-341
See also electronic business EVA (economic value added), 1-151
electronic data interchange, 1-299–1-300, 2- event management, 2-398
273 EVM (earned value measurement), 1-339–1-341
electronic data transfer, 1-299 exception messages/reports, 2-114
electronic documents, 1-228–1-229 Executing, in project management, 1-338
electronic product code, 1-287–288 executive dashboards, 3-166–3-167
EMA (enterprise marketing automation), 2- executive meeting, in sales and operations
399–2-400 planning, 2-95–2-96
EMCs (export management companies), 2- executive sales and operations planning, 2-95
327–2-228, 2-330 exempt carriers, 2-311
EMV (expected monetary value), 3-93–3-95 expected monetary value, 3-93–3-95
end-of-life management, 3-50 expediting, 2-233–2-235
end-to-end lead time, 2-67 expenses, 1-116
energy consumption, 1-213 expert judgment/judgmental forecasting, 2-
engineer-to-order model, 1-31, 2-103 40

exponential smoothing, 2-45–2-47 financial risk, 3-86–3-87, 3-111–3-112

export declaration, 2-334–2-335 financial statements, 2-162–2-163
export licenses, 2-335, 3-11 analysis of, 1-114
export management companies, 2-327–2- balance sheet, 1-116, 1-117–1-120, 3-196
228, 2-330 income statement, 1-116, 1-120–1-122, 2-
export packing companies, 2-329, 2-330 166–2-167, 3-196
export trading companies, 2-327–2-228, 2-330 matching concept, 1-122
exporters, 2-330 ratios, 3-153–3-155
export-import, 3-4–3-6 statement of cash flows (funds flow
compliance with requirements, 3-126–3-128 statement), 1-116, 1-122–1-124
customs, 2-323 financial value, 1-64–1-67
declared value, 2-332–2-333 finished goods inventory, 2-150
deemed export, 3-15–3-16 firm planned orders, 2-111
documentation, 2-334–2-339 firm-fixed-price contract, 2-465
duty drawbacks, 2-332–2-333 five Ss and lean production, 3-243–3-244
Harmonized Tariff Schedule, 2-331–2-332 five Whys, 3-222
import costs, 2-333 fixed amount method of determining safety
import duty, 2-332–2-333 stock, 2-184
import licensing, 2-333–2-334 fixed order quantity ordering/replenishment,
Incoterms® trade terms, 2-320–2-323 2-115–2-116, 2-175, 2-176
packaging concerns, 3-6–3-7 fixed-location storage, 2-254
participants, 2-323–2-330 fixed-price-incentive-fee contract, 2-465
strategy, 2-225 flexibility
value-added tax, 2-333 and lead time monitoring, 3-199
extended enterprise stage of supply chain metric, 3-31, 3-148
management development, 1-86–1-88, 1- floor failure events, 2-435
217, 1-219 flows
extensible markup language (XML), 1-301–1-302 of cash/funds, 1-40, 1-116, 1-122–1-124,
external communication, 1-315 1-176–1-177, 2-168, 2-169
extranet, 1-232 of information, 1-40, 1-176–1-177
of inventory, 1-176–1-177
F of product, 1-40
reverse, of products, 1-40
fashion products, 1-26 fluctuation inventory, 2-152
fast-paced environment, data capture in, 1- focus advantage strategies, 1-12–1-15
281 focused differentiation strategy, 1-8
feedback, 1-313, 2-118 focused low cost strategy, 1-8
femininity, 3-18 FOQ (fixed order quantity) ordering/
fill rate, 3-148, 3-196–3-197 replenishment, 2-115–2-116, 2-175, 2-176
filters, in communication, 1-313 forecast accuracy, 2-56
finance, contributions to sales and operations forecast bias, 2-56–2-57, 2-62
planning, 2-104–2-105 forecast error, 2-55–2-65
financial benefits, 1-62 forecast, in master scheduling grid, 2-107
financial measures/metrics, 3-149–3-157, 3- forecast-driven enterprise, 1-18–1-20
187–3-189, 3-195–3-196 forecast-driven (push) systems, 1-18–1-20, 1-
financial modeling, 1-150–1-151 21–1-22, 2-122, 2-123, 2-126
financial perspective, in balanced scorecard, forecasting, 2-33–2-34, 2-288
3-169–3-170 associative, 2-49–2-53
financial review meeting, in sales and combination methods, 2-54–2-55
operations planning, 2-94–2-95 Delphi method, 2-40

forecasting (continued) G4 Sustainability Reporting Guidelines, 3-35–

error, 2-55–2-65 3-42
judgmental/expert judgment, 2-40 GHS (Globally Harmonized System of
exponential smoothing, 2-45–2-47 Classification and Labeling of Chemicals), 2-
moving averages, 2-44–2-45, 2-46–2-47 499
principles, 2-34–2-36 global accounting standards, 3-11
process, 2-38–2-39 global asset footprint, 1-31
qualitative methods, 2-39–2-40 Global Compact, United Nations, 3-33–3-35
quantitative methods, 2-41–2-53 global logistics insurance, 3-110
and seasonality, 2-36, 2-37, 2-42–2-44, 2- global perspectives, and supply chain
47–2-49 strategy, 1-34–1-35
service sector, 2-54 Global Reporting Initiative, 3-35–3-42
time series, 2-41–2-49 global strategy, 1-9
visualizing, 2-41–2-42 global track and trace, 1-275
foreign exchange, 2-318–2-319 global trade management, 2-323
foreign freight forwarders, 2-324 Globally Harmonized System of Classification
foreign trade zones, 2-339–2-341 and Labeling of Chemicals, 2-499
forklift trucks, 2-264, 2-271 glocalization, 1-210–1-212
formal communication, 1-314–1-315 Governance, Risk, and Compliance (GRC) risk
40/30/30 rule, 2-495 management framework, 3-135
forward auctions, 2-449 government
foundation layer of B2B/B2C e-commerce, 1- compliance, 3-25–3-26
252 as stakeholder, 1-63
four Ps of marketing, 1-141–1-150 GRC (Governance, Risk, and Compliance) risk
fourth-party logistics (4PL), 2-228–2-233 management framework, 3-135
FPOs (firm planned orders), 2-111 GRI (Global Reporting Initiative), 3-35–3-42
fraud, 3-75, 3-114–3-115 GRI reporting framework, 3-35–3-36
free trade zones, 2-339–2-341 gross domestic product, 1-100, 1-102–1-103
freight gross profit margin, 1-121
forwarders, 2-324–2-325, 2-330 growth stage in product life cycle, 1-152, 2-
rating, 1-273–1-274 381
truck on railroad car, 2-306 Guidelines for Multinational Enterprises,
frozen zone, 2-66–2-67 Organization for Economic Co-operation
FTZs (foreign trade zones), 2-339–2-341 and Development, 3-42–3-43
fulfillment strategies, 1-187–1-191
functional products, 1-24, 1-25 H
funds flow statement (statement of cash
flows), 1-116, 1-122–1-124, 2-168 handling, 2-284–2-285
funds flows, 1-40, 1-116, 1-122–1-124, 1- harmonized system classification codes, 2-
176–1-177, 2-168, 2-169, 2-319–2-320 331–2-332
Harmonized Tariff Schedule, 2-331–2-332
G hazard risks, 3-86, 3-109–3-110
hazardous materials (hazmat), 1-213, 3-26–3-
GAAP (generally accepted accounting 29
principles), 1-117 hazardous waste, 2-498–2-500
gaps in strategy, 1-88–1-95 heads-up displays, 1-283
GDP (gross domestic product), 1-100, 1-102– hedge inventory, 2-152–2-153
1-103 hedging, 2-319, 3-111–3-112
general/administrative costs, 2-280 heijunka, 3-237
general cause, 2-38 hierarchical databases, 1-293

histogram, 3-218, 3-222–3-223 inflation, 1-104–1-105

Hofstede’s cultural dimensions, 3-17–3-19 influencing demand, 2-17–2-20, 2-25
holding costs, 2-160–2-161 informal communication, 1-314–1-315
horizontal communication, 1-315 informal training, 3-208–3-209
horizontal marketplace, 2-445 information content definition, in supply
hostile environment, data capture in, 1-281 chain network design, 1-180–1-181
House of Toyota, 3-236–3-241 information, customer, sources of, 2-358–2-
HTS (Harmonized Tariff Schedule), 2-331–2- 359, 2-370
332 information flows, 1-40, 1-176–1-177, 2-484
human resources, 1-71–1-72 information infrastructure, 1-182, 1-184
hybrid production strategy, 2-102 information policies/control, in supply chain
hybrid push-pull systems, 2-123, 2-126 network design, 1-181–1-182
information as substitute for inventory, 2-
I 226–2-227
information strategy, 1-179–1-180
identification of patterns, 3-214 information systems, 1-228, 2-206
IFRS (International Financial Reporting information system architecture, 1-178–1-
Standards), 1-115–1-116 184, 1-230–1-235
IMDG (International Maritime Dangerous information technology. See technology
Goods) Code, 3-28 Initiating, in project management, 1-331
implementation and change management innovation, 1-14–1-15, 1-211–1-212, 2-362
step in continuous improvement model, 3- innovation and learning perspective, in
207 balanced scorecard, 3-169
implementation reviews of IT projects, 1- innovative products, 1-24–1-25
241–1-242 inquiries, response to, 2-389–2-390
import, 2-330 insourcing, 2-205
costs, 2-333 inspection time, 2-137
declared value, 2-332–2-333 insurance, 2-280, 2-339, 3-110
duty drawback, 2-332–2-333 integral design, 1-201
Harmonized Tariff Schedule, 2-331–2- integrated enterprise stage of supply chain
332 management development, 1-84–1-85, 1-
licensing, 2-333–2-334 217, 1-218–1-219
See also export-import integration of supply chain partners, 2-225–
importers, 2-330 2-226
incentive arrangements, 2-465–2-466 intellectual property, 3-7–3-9, 3-76–3-77, 3-
incentive contracts, 2-465 116–3-117
income, 1-116 interface devices, for data, 1-295–1-298
effect, 1-107 interfaces, in supplier relationship
statement, 1-116, 1-120–1-122, 2-166–2- management, 2-439–2-441
167, 3-196 interfacing technology, 2-402
Incoterms® trade terms, 2-320–2-323, 2-467 intermodal transport, 2-303–2-306
independent aggregator with e-business internal communication, 1-315
network, 2-238–2-240 internally integrated technology, 2-402
independent demand, 2-109–2-110 International Commercial Terms (Incoterms®
independent distributor with omni-channel trade terms), 2-320–2-323
network, 2-237–2-238 International Financial Reporting Standards,
independent public trade exchanges, 2-447 1-115–1-116
indirect method, in statement of cash flows, International Maritime Dangerous Goods
1-123 Code, 3-28
individualism, 3-18

International Organization for inventory (continued)

Standardization, 3-45–3-46 lot size, 2-152, 2-286
basic concepts, 3-46–3-47 maintenance/repair/operating supplies
certification, 2-418–2-419 (MRO), 2-151
ISO 9000, 3-47–3-48 management, 2-153–2-160, 2-174
ISO 14000, 3-49–3-51 and number of warehouses, 2-250
ISO 22301, 3-119 optimization software, 1-64
ISO 26000, 3-51–3-52 ordering systems, 2-178–2-183
ISO 28000, 3-112–3-113 periodic counting, 2-189
ISO 31000, 3-136–3-137, 3-139 physical, 2-188
ISO 31010, 3-138, 3-139 pipeline, 2-151
ISO Guide 73:2009, 3-138, 3-139 planning, 2-170–2-174
internet-enabled supply chains, 1-244–1-245 policy, 2-155
interplant demand, 2-107 and product variety, 2-287–2-288
interviews, in risk identification, 3-71 raw materials, 2-150
intranet, 1-232 reduction, 3-248–3-249
in-transit inventory, 2-151, 2-226 risk of carrying too much, 2-165
introduction stage in product life cycle, 1-152, safety stock, 2-152
2-379–2-380 shrinkage, 2-187
inventory, 2-149–2-150 status, 2-111
ABC inventory classification, 2-157–2- and transportation costs, 2-286–2-287
159, 2-191, 2-254–2-255 tracking, 2-187–2-188, 2-226
accounting value, 2-166 turnover, 3-160–3-161
accuracy, 2-188–2-191 types of, 2-150–2-151
adjustment, 2-188 valuation, 1-118, 1-119–1-120
aggregate management, 2-156–2-159 velocity, 3-160
anticipation, 2-151, 2-262 vendor-managed, 2-30–2-33
as asset, 2-163, 2-164 visibility, 2-154
average (calculation), 2-165–2-166 work-in-process (WIP), 2-150
balancing with cash flow, 2-162 investors, as stakeholders, 1-62
buffer, 2-153 IP (intellectual property), 3-7–3-9, 3-76–3-77,
control, 2-174–2-191 3-116–3-117
costs, 2-155, 2-160–2-162 IS (information systems), 1-228, 2-206
cycle counting, 2-189–2-190 ISO. See International Organization for
cycle stock, 2-152 Standardization
decoupling, 2-153 IT (information technology). See technology
distribution, 2-151 item inventory management, 2-159–2-160
echelons (tiers), 2-171–2-173, 2-227 ITX (independent public trade exchanges), 2-
effect of inventory changes on cash flows, 447
2-169
finished goods, 2-150 J, K
flow of, 1-176–1-177
fluctuation, 2-152 jidoka, 3-239–3-240
functions, 2-151–2-153 JIT (Just-in-Time), 2-119–2-120, 2-144, 3-
hedge, 2-152–2-153 230, 3-239, 3-246–3-250
in-transit, 2-151, 2-226 joint replenishment, 2-114
item management, 2-159–2-160 joint ventures, 2-423
key performance indicators, 2-154–2-155 judgmental/expert judgment forecasting, 2-40
levels of, 2-173–2-174 Just-in-Time, 2-119–2-120, 2-144, 3-230, 3-
locations of, 1-185–1-186, 2-170–2-173 239, 3-246–3-250

JVs (joint ventures), 2-423 lean production (continued)

kaizen, 3-238, 3-242–3-243 major areas of waste, 3-244–3-245
kanban, 2-143–2-144 and material requirements planning, 2-
keiretsu, 1-44 119–2-120
key performance indicators, 3-211 metrics, 3-238
for inventory management, 2-154–2-155 objectives, 3-234–3-235
for process improvement, 3-211–3-212 principles, 3-235–3-236
Keynes, John Maynard, 1-101–1-102 value stream mapping, 3-241–3-242
Knowledge Areas, in PMBOK® Guide, 1-329 legacy systems, 1-295
knowledge, skills, abilities, 3-208 legal authority in contracts, 2-470
knowledge management, 2-398–2-399 lendors, as stakeholders, 1-62
known risks, 3-68 less-than-truckload segment of trucking
KPIs. See key performance indicators industry, 2-295
letter of credit, 2-316–2-318
L level of service, 1-188, 2-390
Level 1 SCOR metrics, 3-179, 3-180–3-181, 3-
labeling shipments for export-import, 3-7, 3- 182–3-194
128 Level 2 SCOR metrics, 3-179, 3-181, 3-182–3-
labor rights, 3-15 183
lagging economic indicators, 2-51 Level 3 SCOR metrics, 3-179, 3-182–3-183
land bridge, 2-305 Level 4 SCOR metrics, 3-179, 3-182–3-183
landed cost, 2-197, 2-198–2-199, 2-204–2- level production strategy, 2-101
205 level strategy, 2-101
landfill, disposal in, 2-497 leveling, 2-135, 3-237
lane volume, 2-306 leveragable materials, 1-164, 1-165
language, 2-469–2-470, 3-19 leverage ratios, 3-153–3-154
LANs (local area networks), 1-231 liability, 1-116, 2-285
lateral supply chain management, 1-43–1-45 licenses
law(s) export, 2-335, 3-11
country, 3-13–3-14 import, 2-333–2-334
of demand, 1-106–1-107 licensing
local, 3-13–3-14 compliance, 3-9–3-11
of supply, 1-107 software, 3-9–3-10
of supply and demand, 1-107 technologies, 3-10–3-11
L/C (letter of credit), 2-316–2-318 life cycle
lead time, 2-136–2-137 design, 2-486–2-489
cumulative, 2-67 product, 1-92, 1-151–1-153
end-to-end, 2-67 project, 1-327
monitoring, 3-198–3-199 lifetime customer, 2-370–2-372
safety, 2-186–2-187 line haul costs, 2-279
in segmenting suppliers, 2-362 liquid zone, 2-66, 2-67
and transportation costs, 2-287 liquidity ratios, 3-153
leading economic indicators, 2-50–2-51 litigation risk, 3-77, 3-87, 3-118
lean production, 1-180, 1-183–1-184, 2-144, live racks, 2-269–2-270, 2-272
3-230, 3-232–3-234 load, 2-135
five Ss, 3-243–3-244 and capacity, 2-141–2-142
House of Toyota, 3-236–3-241 leveling, 2-135, 3-237
jidoka, 3-239–3-240 matching, 1-273
and Just-in-Time, 3-230, 3-239, 3-246–3-250 optimization, 1-273
kaizen event/blitz(sm), 3-238, 3-242–3-243 tendering, 1-274

local area networks, 1-231 manufacture and assembly, design for, 1-

logistics, 2-220–2-222 203–1-204
contracting, 2-206 manufacturer storage with direct delivery, 2-
cost minimization, 2-223 235–2-236
design, 1-197–1-198 manufacturer storage with drop ship, 2-236
functions, 2-221, 2-225 manufacturer to distribution center to
objectives, 2-224 retailer, 2-237
parks, 2-282 manufacturing, 3-30
reverse. See reverse logistics lead time, 2-136–2-137
service providers, 2-228–2-233 resource planning, 1-85, 2-121–2-122
tactics, 2-224–2-228 sites, 2-210
total cost concept of, 2-223 supply chain model, 1-46–1-47
trends, 2-223–2-224 MAPE (mean absolute percentage error), 2-
value proposition, 2-222–2-223 64–2-65
See also transportation; warehouses maquiladora, 2-344
long-term orientation, 3-18 marginal analysis, 1-110
loose coupling, 1-302–1-303 marginal cost, 1-110
lost sale/customer costs, 2-162 marginal utility, 1-107, 1-110
lot size, and inventory, 2-152, 2-286 market
lot-for-lot ordering/replenishment, 2-115–2- access, 1-155
117, 2-175, 2-176 analysis, 1-127, 1-138–1-139, 2-99
low cost advantage strategy, 1-8–1-10 change in, 1-91–1-92
low cost strategy, 1-8 conditions, 1-33, 1-88–1-89
loyal customers, 2-388–2-389, 2-400 decisions, 1-175
LTL (less-than-truckload) segment of knowledge, 1-51–1-52
trucking industry, 2-295 plan, 1-127, 1-128
price, 1-112
M research, 1-126–1-128, 1-136–1-150, 2-
358
macro environment, 1-32 share, 1-127
macroeconomics, 1-100–1-106, 1-110–1-111 market-driven, 1-66
MAD (mean absolute deviation), 2-57–2-60, marketing
2-63–2-64 automation, 2-399–2-400
magnetic stripes, 1-290 customer-driven, 2-352
maintainability, design for, 1-204–1-205 customer-focused, 2-352–2-354
maintenance/repair/operations inventory, 2- and demand management, 2-74–2-75
151, 2-163 events, 2-400
make-or-buy cost analysis, 2-201–2-210 four Ps of, 1-141–1-150
make-or-buy decision, 2-201 mass, 1-12
make-to-order model, 1-30, 1-190, 2-103 niche, 1-12–1-13
make-to-stock model, 1-30, 1-190, 2-102–2- research, 1-127
103 role in sales and operations planning, 2-99
make-versus-buy analysis, 2-201–2-210 technology, 2-396–2-401
malfeasance risk, 3-74–3-76, 3-87, 3-112–3- marketing/sales handshake, 2-94
117 masculinity, 3-18
malfunction recovery, 3-148, 3-199 mass customization, 1-207–1-209
management accounting, 1-111 mass marketing, 1-12
management processes in SCOR model, 3- master planning, 2-84–2-85, 2-88
180, 3-192–3-194, 3-195, 3-196 master production schedule, 2-86, 2-107–2-
manifesting, 1-274 108, 2-111

master schedule, 2-106 metrics (continued)

master schedule item, 2-106 days of supply, 3-190
master scheduling, 2-86, 2-105–2-108 days outstanding, 3-190
master scheduling grid, 2-106–2-108 days sales outstanding, 3-190
matching, in financial statements, 1-122 delivery consistency, 3-148
material content reporting, 3-26 design, 1-188
material requirements planning, 1-85, 2-67, downside supply chain adaptability, 3-
2-86, 2-109–2-122 186–3-187
materials handling, 2-263, 2-271–2-272 economic, 1-105–1-106
automated systems, 2-268–2-270, 2-272 fill rate, 3-148, 3-196–3-197
information technology, 2-273–2-274 financial, 3-149–3-157, 3-187–3-189, 3-
mechanized systems, 2-264–2-268, 2-271 195–3-196
warehouse management systems, 2-272– flexibility, 3-148
2-273 inventory turnover, 3-160–3-161
mathematical models, 1-129–1-130 lean, 3-238
matrix data analysis chart, 3-228–3-229 Level 1 SCOR metrics, 3-179, 3-180–3-
matrix diagram, 3-226–3-227 181, 3-182–3-194
maturity stage in product life cycle, 1-152, 1- Level 2 SCOR metrics, 3-179, 3-181, 3-
153, 2-381–2-382 182–3-183
mean absolute deviation, 2-57–2-60, 2-63–2- Level 3 SCOR metrics, 3-179, 3-182–3-
64 183
mean absolute percentage error, 2-64–2-65 Level 4 SCOR metrics, 3-179, 3-182–3-
mean squared error, 2-63–2-64 183
mechanized warehouse systems, 2-264, 2-271 malfunction recovery, 3-148, 3-199
bridge/wagon cranes, 2-266–2-267, 2- for multiple organizations, 3-151–3-152
271 operational, 3-157–3-162, 3-195
carousels, 2-267–2-268, 2-271 order fulfillment cycle time, 3-185
conveyors, 2-264–2-265, 2-271 orders shipped complete, 3-148
forklift trucks, 2-264, 2-271 overall value at risk, 3-187
tow tractors with trailers, 2-266, 2-271 perfect order fulfillment, 3-149, 3-184–3-
towlines, 2-265–2-266, 2-271 185
media-based marketing, 2-399 performance, 2-92, 2-104, 3-148
medium, in communication, 1-313 process improvement, 3-210–3-217
mentoring, 3-209 product support, 3-148
mergers, 1-92, 1-162 productivity, 3-158–3-159
message, in communication, 1-313 profit, 3-150
metrics, 1-72–1-73 quality, 3-157–3-158
agility SCOR metric, 3-185–3-187 reliability SCOR metric, 3-184–3-185
asset management, 3-159–3-162, 3-189– repeat purchases, 3-148
3-192 response accuracy, 3-148
availability, 3-148 response time to inquiries, 3-148
backorders, 3-148 responsiveness SCOR metric, 3-185
bankruptcy risk, 3-154–3-155 return on supply chain fixed assets, 3-
cash-to-cash cycle time, 3-152–3-153, 3- 191–3-192
189–3-191 return on working capital, 3-192
cost, 3-150–3-152 selection of, 3-145–3-147
cost of goods sold (COGS), 1-112, 2-167, speed of performance, 3-148, 3-198
2-414–2-415, 3-188–3-189 stockout frequency, 3-148, 3-197
customer, 3-147–3-149, 3-148, 3-196–3- supplier capacity, 3-161–3-162
200 supplier quality costs, 3-158

metrics (continued) multiple dysfunction stage of supply chain

supply chain agility, 3-185–3-187 management development, 1-81–1-82, 1-
supply chain asset management, 3-189–3- 217–1-218
192 multiple regression, 2-53
supply chain costs, 3-187–3-189 multisourcing, 2-410
supply chain cycle time, 3-148
supply chain reliability, 3-184–3-185 N
supply chain responsiveness, 3-185
supply chain total cost, 3-151 NAFTA (North American Free Trade
total cost to serve, 3-187–3-188 Agreement), 2-342–2-344
upside supply chain adaptability, 3-186 negotiation, 2-470–2-471
upside supply chain flexibility, 3-186 nervousness, system, 2-118–2-119
value at risk (VAR), 3-187 net costs, 2-199–2-200
microeconomics, 1-106–1-111 net impact expected monetary value, 3-95
middleware, 1-295–1-298, 1-300 net profit, 1-121
min-max system, 2-181 net working capital, 1-120
misalignments in strategy, 1-88–1-95 network configuration, 1-184–1-186
mitigation of risk, 3-101 network databases, 1-293–1-294
mix forecast, 2-35 network design, 1-128–1-130, 1-133, 1-177–
mixing, in warehousing, 2-262–2-263 1-184
modeling network modeling, 1-128–1-130
financial, 1-150–1-151 networks, 1-182–1-184, 1-231–1-232
network, 1-128–1-130 next-day delivery, 2-241
modular bills of material, 2-113 niche marketing, 1-12–1-13
modular design strategy, 1-11, 1-201 “noise,” in communication, 1-313
modularization, 1-201–1-202 nonofficial communication, 1-314
money, efficient use of, 2-279–2-280 nonverbal communication, 1-315–1-316
Monitoring and Controlling, in project non-vessel operating common carriers, 2-
management, 1-338–1-341 325–2-326, 2-330
Monte Carlo simulations, 1-130, 3-96–3-97 North American Free Trade Agreement, 2-
motor carriers, 2-289, 2-293–2-295 342–2-344
move time, 2-137 nucleus firm, 1-221
moving average forecasting, 2-44–2-45, 2-46– NVOCCs (non-vessel operating common
2-47 carriers), 2-325–2-326, 2-330
moving, in warehousing, 2-259
MPS (master production schedule), 2-86, 2- O
107–2-108, 2-111
obsolescence, 1-120
MRO (maintenance/repair/operations)
OECD (Organization for Economic Co-
inventory, 2-151, 2-163
operation and Development) Guidelines for
MRP (material requirements planning), 1-85,
Multinational Enterprises, 3-42–3-43
2-67, 2-86, 2-109–2-122
official communication, 1-314
MRP II (manufacturing resource planning), 1-
offsetting, 2-117–2-118
85, 2-121–2-122
offshoring, 2-208–2-209
MS (master scheduling), 2-86, 2-105–2-108
ongoing costs, 2-199
MSE (mean squared error), 2-63–2-64
online sales, 2-401
multicountry strategy, 1-13, 1-211
online training, 3-209–3-210
multi-enterprise integrated technology, 2-
on-the-job training, 3-208–3-209
402
OPAs (Organizational Process Assets), 1-330
multilevel bill of material, 2-112–2-113
open accounts, 2-315

open orders, 2-111, 2-135, 2-440 order qualifiers, 1-137

operating exposure, 2-319 order quantity, 2-175–2-178
operating model, 1-28 order requirements, in contracts, 2-468
operating system, 1-232 order status reporting, 3-199
operational metrics, 3-157–3-162, 3-195 order winners, 1-137
operational performance ordering costs, 2-161–2-162
and customer service, 1-75 ordering systems, 2-178–2-179
measurements, 3-195 demand-driven material requirements
operations, and demand management, 2-76 planning, 2-182–2-183
operations constraints, 2-101 min-max system, 2-181
operations, contributions to sales and order point system, 2-179–2-180
operations planning, 2-100–2-104 periodic review system, 2-180–2-181
operations handshake, 2-94 time-phased order point system, 2-181–
operations planning/control, 2-84–2-86 2-182
and business plans, 2-87–2-88 orders
capacity management/planning/control, firm planned, 2-111
2-126–2-144 open, 2-111, 2-135, 2-440
capacity requirements planning, 2-135–2- planned, 2-111
137 shipped complete, 3-148
distribution requirements planning, 2- Organization for Economic Co-operation and
122–2-126 Development Guidelines for Multinational
master planning, 2-84–2-85, 2-88 Enterprises, 3-42–3-43
master scheduling, 2-86, 2-105–2-108 organizational design, 1-69, 1-73
material requirements planning, 2-109–2- Organizational Process Assets, 1-330
122 organizational strategy, 1-4, 1-15–1-26, 2-214
production activity control, 2-86, 2-137– alignment with supply chain capabilities,
2-144 1-57–1-58
resource planning, 2-88–2-89, 2-129–2- customer focus/alignment, 1-16–1-18
132 goals of, 1-16
rough-cut capacity planning, 2-132–2-134 linkages with demand management, 2-
sales and operations planning, 2-86, 2-89, 24–2-25
2-89–2-105 in supply chain network design, 1-179
and strategic plans, 2-87–2-88 and supply plan alignment, 2-214
operations research, 1-129–1-130 organizational structures, and customer
operations strategies, 2-101–2-102 relationship management, 2-375–2-376
operations, streamlined, 1-54–1-55 origin, country of, 2-343
operations synchronization, 2-440 O/S (operating system), 1-232
operations vs. projects, 1-322 outsourcing, 2-205, 2-231–2-232. See also
operator/driver costs, 2-279–2-280 contracting
opportunity management, 2-398 overall value at risk, 3-187
OR (operations research), 1-129–1-130 overseas carriers, 2-330
order fulfillment channels, 2-235–2-240
order fulfillment cycle time, 3-185 P
order losers, 1-137
order picking, 2-259 PAB (projected available balance), 2-68–2-70,
order point system, 2-179–2-180 2-107
order preparation time, 2-137 PAC (production activity control), 2-86, 2-
order processing, 2-16–2-17, 2-390 137–2-144
order promising, 2-70 package delivery services, 2-303–2-304
order/provisioning system, 2-401 package-to-order model, 2-104

packaging, 1-149–1-150, 2-259, 2-306–2-308, planned order receipts, 2-114

3-6–3-7, 3-132–3-133 planned order releases, 2-114, 2-135
packing and marking, 2-259 planned orders, 2-111
parent item, 2-113 planned value, 1-340–1-341
Pareto analysis, 2-158, 3-217, 3-220 planning bills of material, 2-113
partnerships, 1-77–1-78, 1-94–1-95, 2-212, 2- planning demand, 2-7–2-10, 2-24
213 planning factors, in material requirements
passive tags, 1-288 planning, 2-111
pattern identification, 3-214 planning horizon, 2-68, 2-155
patterns, delivery/shipping, 2-235–2-242 Planning, in project management, 1-3332–1-
payment terms, 2-314–2-315, 2-467 338
PDCA (plan, do, check, action) model, 2-17–2- planning time fence, 2-66, 2-67
19 plans, finalization of, 2-216
pegging, 2-119 PMBOK® Guide, 1-328
penalties in contracts, 2-468 Enterprise Environmental Factors, 1-
perfect order, 3-184 329–1-330
perfect order fulfillment, 3-149, 3-184–3-185 Knowledge Areas, 1-328–1-329
performance Organizational Process Assets, 1-330
alerts, 2-436 Process Groups, 1-330–1-342
analysis, 2-441 point-of-sale information, 1-290
criteria, in contracts, 2-467 point-of-sale systems, 1-290–1-292
management. See performance policy
management for demand management and
measuring, 2-92, 2-104, 2-433–2-437, 3- prioritization, 2-22
148, 3-165–3-177. See also Supply- for inventory, 2-155
Chain Operations Reference model pooling risks, 2-227–2-228
metrics, 2-92, 2-104, 3-148, 3-173–3-177 portals, 2-443–2-444
operational, 3-195 POS (point-of-sale) systems, 1-290–1-292
reviews, 2-91, 2-392 post-implementation review of IT projects, 1-
speed of, 3-148, 3-198 241–2-142
performance management postponement, 1-11, 1-209–1-210, 2-227, 2-
for customer relationship management, 261
389–2-392 post-shipment analysis, 1-274
for supplier relationship management, 2- power distance, 3-18
433–2-437 preferred channel, segmentation by, 2-357
period costs, 1-121 pre-meeting, in sales and operations
periodic counting, 2-189 planning, 2-95
periodic review system, 2-180–2-181 prepackaging, 2-258
perishables, packaging for, 3-6 preventive action, in response to risk, 3-102–
personnel improvement, 3-208–3-210 3-105
physical inventory, 2-188 price
pick-to-light systems, 1-283, 2-268 current, 1-112
piggyback service, 2-304–2-305 elasticity, 1-108–1-110
pipeline inventory, 2-151 and four Ps of marketing, 1-143–1-144
pipeline management, 2-398 market, 1-112
pipelines, 2-289, 2-299–2-301 pricing, 1-106, 1-107, 1-143–1-144, 2-466–2-
placement, and four Ps of marketing, 1-144– 467
1-147 primary stakeholder, 1-62
plan, do, check, action (PDCA) model, 2-17–2- principle-based accounting, 1-115
19 principled negotiation, 2-470–2-471

priorities in supply chain network design, 1- product design (continued)

184 for remanufacture, 1-214–1-215
private carriers, 2-310 for reverse logistics, 1-214
private fleet management, 1-273 for service, 1-204–1-205
private marketplaces, 2-447 simplification, 1-202–1-205
private trade exchanges, 2-447 for six sigma, 1-206
private warehouses, 2-248 standardization, 1-199–1-200, 2-362
proactive efficient supply chain, 1-84 for supply chain, 1-197
probability and impact assessment, for risk, and sustainability, 1-212–1-215
3-88–3-90 traditional process, 1-192–1-193
probability distributions, 3-93 universality, 1-200
problem resolution channels in contracts, 2- for X, 1-199
469 product development
process analysis in continuous improvement and customer relationship management,
model, 3-206, 3-213–3-214 2-377–2-379
process assessment in continuous and demand management, 2-74
improvement model, 3-206 product differentiation, 1-10–1-12, 1-209
process benchmarking, 3-216 product families, 2-100
process change costs, 2-199 product, fashion, 1-26
process decision program chart, 3-227 product flows, 1-40, 2-484
process decisions, 1-176–1-177 product, functional, 1-24, 1-25
Process Groups, in PMBOK® Guide, 1-330– product, innovative, 1-24–1-25
342 product life cycle, 1-92, 1-151–1-153, 2-377–
process improvement, 3-210–3-217 2-382
process mapping, 3-217, 3-218–3-219 product life cycle management, 1-153
process risk, 3-67, 3-84, 3-85, 3-108–3-109 product management role in sales and
process value supply chain, 1-236, 1-237 operations planning, 2-99
process-oriented middleware, 1-297–1-298 product movement, 2-278–2-281
procurement, 2-440, 3-30 product quality, 1-66, 2-390
producer, in basic supply chain, 1-39, 1-40 product review meetings, 2-91
product, and four Ps of marketing, 1-142–1- product, seasonal, 1-26
143 product/service differentiation strategy, 1-
product costs, 1-121 10–1-12
product design, 1-191–1-192 product, standardized, 1-199
collaborative process, 1-193–196 product support, 3-148
component commonality, 1-199–1-200 product traceability, 3-133–3-134
concurrent engineering, 1-202–1-203 product variety, 2-155, 2-288–2-289
customization, 1-207–1-212 productivity, 3-158
for the environment, 1-212–1-213 productivity metrics, 3-158–3-159
glocalization, 1-210–1-212 product-type-driven enterprises, 1-23–1-26
for logistics, 1-197–1-198 production
for maintainability, 1-204–1-205 activity control, 2-86, 2-137–2-144
for manufacture and assembly, 1-203–1- lead time, 2-136–2-137
204 plan, 2-86
mass customization, 1-207–1-209 profit, 1-121
modularization, 1-201–1-202 margin, 1-121
postponement, 1-11, 1-209–1-210, 2-227, metrics, 3-150
2-261 profitability ratios, 3-154
for quality, 1-206 profitable-to-promise, 1-265
refining, 1-139–1-140 prohibited goods, 3-127–3-128

project management, 1-321, 1-323–1-327 Q, R

Closing, 1-341–1-342
Enterprise Environmental Factors, 1- QFD (quality function deployment), 1-206–1-
329–1-330 207
Executing, 1-338 QRP (quick-response program), 2-29
Initiating, 1-331 qualitative methods for forecasting demand,
Monitoring and Controlling, 1-338–1-341 2-39–2-40
Organizational Process Assets, 1-330 qualitative risk analysis, 3-63, 3-80–3-91
plan, 1-332–1-333 quality, 1-205, 2-98, 3-205
Planning, 1-332–1-338 assurance, in contracts, 2-468
PMBOK® Guide Knowledge Areas, 1-329 design for, 1-206
PMBOK® Guide Process Groups, 1-330–1-342 function deployment (QFD), 1-206–1-207
processes in, 1-330–1-331 metrics, 3-157–3-158
See also projects of products/services, 1-66, 2-390
project(s), 1-321–1-323 tools, 3-217–3-230
attributes, 1-322–1-323 See also continuous improvement
budget, 1-337–1-338 quantitative methods for forecasting demand,
charter, 1-331 2-41–2-53
life cycle, 1-327 quantitative risk analysis, 3-63, 3-91–3-97
management. See project management queue time, 2-137
managers, 1-324–1-327 quick-response programs, 2-29
vs. operations, 1-322 quotation management, 2-398
planning, 1-327–1-328, 3-206 radio data terminal, 1-283
schedule, 1-335–1-337 radio frequency identification, 1-287–1-190,
scope, 1-333–1-335 2-273
projected available balance, 2-68–2-70, 2-107 rail transport, 2-289, 2-290–2-293
promotion, and four Ps of marketing, 1-147–1- random variation, 2-36, 2-38, 2-57
150 random-location storage, 2-254
promotions, 2-37, 2-400 rate, 1-113
prospective customers, 2-386 rated capacity, 2-139–2-140
psychological profile, segmentation by, 2-383 ratios, financial statement, 3-153–3-155
PTF (planning time fence), 2-66, 2-67 raw materials inventory, 2-150
PTP (profitable-to-promise), 1-265 RCCP (rough-cut capacity planning), 2-132–2-134
PTX (private trade exchanges), 2-447 RDT (radio data terminal), 1-283
public carriers, 2-308–2-309 reactive efficient supply chain, 1-83
public marketplaces, 2-447 reactive supply chain, 1-82
public trade exchanges, 2-447 real gross domestic product, 1-102–1-103
public warehouses, 2-248 real-time data, 1-281, 3-149
pull systems, 1-20–1-23 receiver, in communication, 1-313
in distribution, 2-122–2-123, 2-126, 2- receiving, 2-258
143–2-144 recession, 1-100–1-102, 1-105
and Just-in-Time, 3-247 Recommendations on the Transport of
purchase price/production costs, 2-197 Dangerous Goods, 3-27–3-28
purchased data, as source of customer recovery of energy, 2-497
information, 2-358 recycling, 2-496
purchasing planning, 2-440 regional asset footprint, 1-31
push (forecast-driven) systems, 1-18–1-20, 1- regression, 2-52–2-53
21–1-22, 2-122, 2-123, 2-126 regulatory compliance, 3-25–3-26, 3-130–3-
put-away, 2-137, 2-258 133. See also customs, Incoterms® trade
PV (planned value), 1-340–1-341 terms

relational databases, 1-294–1-295 reverse innovation, 1-211–1-212

relationship building, 2-370–2-372 reverse logistics, 2-477, 2-479–2-480, 3-30
relationship diagram, 3-227–3-228 benefits, 2-489–2-490
relationship management, 2-349. See also costs, 2-490
customer relationship management; design, 2-483–2-489
supplier relationship management design for, 1-214
reliability SCOR metric, 3-31, 3-184–3-185 motivating factors, 2-481–2-483
remanufacture, design for, 1-214–1-215 packaging for, 3-7
repeat purchases, 3-148 strategy, 2-483–2-489
replenishment lead time, 2-155 waste, 2-494–2-500
requirements, optimization of, 1-264 reverse product flows, 2-484
reseasonalizing, in forecasting, 2-47–2-49 reverse supply chain, 2-479
resilience of supply chain, 1-190–1-191 RFID (radio frequency identification), 1-287–
resource allocation, 1-264–1-265 1-190, 2-273
resource management, 1-264, 2-131 risk, 1-55
resource planning, 2-88–2-89, 2-129–2-132 acceptance of, 3-101
resource profile, 2-130 assessment/analysis, 2-215, 3-80–3-97
resource requirements planning, 2-129–2- appetite, 3-68, 3-69
132 avoidance of, 3-101
resource use bankruptcy, 3-154–3-155
effective, 1-76–1-77 categorization, 3-81–3-87
efficient, 1-76–1-77 checklists, 3-71
reducing, 2-494–2-495 contingent action, 3-102–3-104
resources, bill of, 2-133 corrective action, 3-102–3-104
response costs, 2-161
accuracy, 3-148 counterparty, 2-314
management, 2-400 data quality assessment, 3-90–3-91
to inquiries, 2-389–2-390, 3-148 definition, 3-72
responsible landfill, 2-497 demand, 3-67, 3-83–3-84, 3-106–3-108
responsiveness, 1-13–1-14, 1-180, 1-182 diagramming, 3-71
balancing with efficiency, 1-187–1-188, 1- documentation, 3-72–3-73
190 environmental, 3-67, 3-84, 3-86, 3-109
SCOR metric, 3-31, 3-185 financial, 3-86–3-87, 3-111–3-112
Restriction of Hazardous Substances (RoHs) frameworks, 3-134–3-135
EU directive, 2-500 hazard, 3-86, 3-109–3-110
retail customers, 2-384–2-385 identification, 3-70–3-72
retail delivery patterns, 2-237, 2-240–2-242 inventory, 2-165
retail placement, 1-145 known, 3-68
return on assets, 1-65, 3-156–3-157 litigation, 3-77, 3-87, 3-118
return on investment, 1-65, 1-240–1-241, 1- of loss, 3-74–3-77
247–1-248 management of, 1-55–1-56, 2-209, 3-64–
return on supply chain fixed assets, 3-191–3- 3-70, 3-121–3-122
192 managers, 3-66
return on working capital, 3-192 malfeasance, 3-74–3-76, 3-87, 3-112–3-
returns, 2-485 117
reuse, 2-495–2-496 mitigation of, 3-101
revenue model, 1-31–1-32, 1-80 pooling, 2-227–2-228
reverse auctions, 2-449 preventive action, 3-102–3-105
reverse cash flows, 2-484 probability and impact assessment, 3-88–
reverse information flows, 2-484 3-90

risk (continued) sales, and demand management, 2-75–2-76

process, 3-67, 3-84, 3-85, 3-108–3-109 sales channels, 1-28
qualitative risk analysis, 3-63, 3-80–3-91 sales and operations planning, 2-86, 2-89, 2-
quantitative risk analysis, 3-63, 3-91–3- 105
97 brand management role in, 2-99
rating, 3-88 buy-in for, 2-2-97–2-98
reduction, 2-207 demand forecasts, 2-99
register, 3-72–3-73 demand levels, evaluation of, 2-91–2-94
response plan/planning, 1-55–1-56, 3- demand plan commitments, 2-99
101–3-105, 3-121–3-122 demand plan numbers/assumptions, 2-99
responses, 3-100–3-105 demand review meeting, 2-91–2-94
security and regulatory concerns, 3-125– executive meeting, 2-95–2-96
3-132 executive sales and operations planning,
standards, 3-134–3-139 2-95
supply, 3-67, 3-83, 3-105–3-106 finance role in, 2-104–2-105
supply chain, 1-55–1-56, 3-59–3-61, 3- financial review meeting, 2-94–2-95
74–3-77, 3-82–3-87 implementation of, 2-96–2-105
technology, 1-242–1-243 market analysis, 2-99
threshold, 3-69 marketing role in, 2-99
tolerance, 3-68, 3-69 meetings, 2-89–2-90, 2-94–2-96
transfer of, 3-101 operations role in, 2-100–2-104
unknown, 3-68 performance, review of, 2-91
urgency assessment, 3-90 plans, reconciliation of, 2-94–2-96
ROA (return on assets), 1-65, 3-156–3-157 pre-meeting, 2-95
roadrailer, 2-305 process, 2-90–2-96
robotics, 2-269, 2-272 product management role in, 2-99
RoHs (Restriction of Hazardous Substances) product review meeting, 2-91
EU directive, 2-500 sales role in, 2-99
ROI (return on investment), 1-65, 1-240–1- supply capability, evaluation of, 2-94
241, 1-247–1-248 sales force automation, 2-397–2-399
root-cause analysis, 3-71, 3-214 sales operations, 2-369
rough ride, packaging for, 3-6 sales representatives, as source of customer
rough-cut capacity planning, 2-132–2-134 information, 2-358
routing, 1-273 sales role in sales and operations planning, 2-
routing file, 2-115, 2-136 99
rules-based accounting, 1-117 sales technology, 2-396–2-401
run time, 2-137 scatter chart, 3-218, 3-224–3-225
SCEM (supply chain event management), 1-
S 266–1-268
schedule, in supply chain network design, 1-
SA8000 (Social Accountability 8000) 184
standard, 3-52–3-54 scheduled receipts, 2-111
SaaS (software as a service), 1-233–1-234, 2- scheduling, and Just-in-Time, 3-249
400–2-401 scope creep, 1-242
S&OP. See sales and operations planning SCOR model. See Supply-Chain Operations
safety factor, 2-60 Reference model
safety lead time, 2-186–2-187 scorecards, 1-130, 2-436, 3-167–3-173, 3-
safety stock, 2-59–2-60, 2-116, 2-152, 2-183– 176–3-177
2-186 seasonal products, 1-26
sales analysis, 1-127 seasonality, 2-36, 2-37, 2-42–2-44, 2-47–2-49

security shipping associations, 2-328, 2-330

costs, 2-280 shipping patterns, 2-235–2-242
measures, 3-113–3-114 short-term orientation, 3-18
partnerships, 3-128–3-130 short-term storage, 2-282
regulations, 2-339 simple moving average, 2-44–2-45, 2-46–2-
requirements, in contracts, 2-469 47
segmentation simple regression, 2-52–2-53
by attitudes, 2-383 simplification, in product/service design, 1-
benefits of, 2-354 202–1-205
customer, 1-168–1-169, 2-351–2-360, 2- simulations, 1-130, 3-96–3-97
382–2-389 single-source supplier, 2-410
by customer needs, 2-356–2-357 six sigma, 1-206, 3-230, 3-250–3-254
by customer value, 2-355–2-356 skills, abilities, knowledge, 3-208
and customer-focused marketing, 2-351– SKU (stock keeping unit), 2-187
2-354 SLA (service level agreement), 2-473
by demographics, 2-383 slushy zone, 2-66, 2-67
of other supply chain partners, 2-362 small bucket systems, 2-119–2-120
by preferred channel, 2-357 smart cards, 1-290
by psychological profiles, 2-383 SOA (service-oriented architecture), 1-302–1-
supplier, 2-360–2-362 303
technology, 2-395 Social Accountability 8000 (SA8000)
sell-side e-commerce, 1-253 standard, 3-52–3-54
semifunctional enterprise stage of supply social performance and triple bottom line, 3-
chain management development, 1-82–1- 31–3-33
83, 1-217, 1-218 social value, 1-67–1-68
semipassive tags, 1-288 software, 1-232–1-234
sender, in communication, 1-313 application, 1-232
sensitivity analysis, 3-96 for information system architecture, 1-
service, design for, 1-204–1-205 182–1-184
service industry, 1-47 licensing, 3-9–3-10
service level, 1-188, 2-390 material requirements planning, 2-67
service level agreement, 2-473 as a service, 1-233–1-234, 2-400–2-401
service quality, 1-66, 2-390 supplier relationship management, 2-
service representatives, as source of 437–2-454
customer information, 2-358 sogo shosha, 2-328
service sector forecasting, 2-54 sole source, 2-410
service-minded customers, 2-384 sourcing, 1-177, 2-215
service-oriented architecture, 1-302–1-303 space footprint, 2-257
services space utilization, 2-257
and supply chain value, 1-66–1-67 special cause, 2-38
supply chains for, 1-47–1-48 specialized supply chains, 1-48–1-50
setup time, 2-137, 3-244 specialty segment of trucking industry, 2-295
SFA (sales force automation), 2-397–2-399 speed of performance, 3-148, 3-198
ship agents, 2-328–2-329, 2-330 spend analysis, 2-441
ship brokers, 2-328–2-329, 2-330 spend management, 1-79–1-80
shipment spot stocking, 2-262
planning, 1-272–1-273 SRM. See supplier relationship management
settlement, 1-274 stakeholder relationship management, 1-316
tracking, 1-274 stakeholders, 1-62–1-68, 1-311–1-312, 1-
shipping, 2-259 316–1-317, 1-331

standard costing, 1-111–1-114 strategy, 1-3

standard deviation, 2-62–2-63 best-cost, 1-8
standardization, 1-199–1-200, 2-362 broad differentiation, 1-8
standardized product, 1-199 business, 1-3–1-4, 1-7–1-15
standardized work, 3-237 customer focus/alignment, 1-16–1-18
standards, 3-44–3-45 customer relationship management, 2-
accounting, 3-11–3-12 372–2-389
ANSI Z.10-2012 standard, 3-54–3-55 demand-driven enterprise, 1-20–1-23
electronic data interchange, 1-299–1-300 and design of supply chain, 1-174–1-177
ISO 9000, 3-47–3-48 electronic business, 1-246
ISO 14000, 3-49–3-51 focus advantage, 1-12–1-15
ISO 22301, 3-119 focused differentiation, 1-8
ISO 26000, 3-51–3-52 focused low cost, 1-8
ISO 28000, 3-112–3-113 forecast-driven enterprise, 1-18–1-20
ISO 31000, 3-136–3-137, 3-139 global, 1-9
ISO 31010, 3-138, 3-139 information, 1-179–1-180
ISO Guide 73:2009, 3-138, 3-139 level production, 2-101
risk, 3-134–3-139 low cost, 1-8–1-10
Social Accountability 8000 (SA8000), 3- multicountry, 1-13, 1-211
52–3-54 operations, 2-101–2-102
staples, 1-26 organizational. See organizational strategy
statement of cash flows (funds flow product/service differentiation, 1-10–1-12
statement), 1-116, 1-122–1-124, 2-168 product-type-driven, 1-24–1-26
statements, financial. See financial statements supply chain. See supply chain strategy
statistical method of determining safety and supply chain design, 1-174–1-177
stock, 2-184 supply chain network optimization, 1-
statistical process control, 3-219 220–1-221
status reporting, in contracts, 2-468 supply-demand, 2-102–2-104
stock keeping unit, 2-187 streamlined operations, 1-54–1-55
stock-market style auctions, 2-449 strengths, weaknesses, opportunities, and
stockout frequency, 3-148, 3-197 threats analysis, 1-125–1-126, 3-71
stockouts, 2-59–2-60, 2-162, 2-228, 3-148 subcontracting, 2-205
stockpiling, 2-262 suboptimization, 1-159, 3-151
storage substitution
costs, 2-160 effect, 1-106
fixed-location, 2-254 goods, 1-106
locations, organization of, 253–2-255 supplier capabilities, 2-361–2-362
random-location, 2-254 supplier capacity, 3-161–3-162
short-term, 2-282 supplier certification, 2-417–2-422
temporary, 2-281–2-282 supplier co-location, 2-451–2-452
storing, 2-259 supplier database, 2-440
stowability, 2-284 supplier, in basic supply chain, 1-39–1-40
strategic alliances, 2-212, 2-213, 2-422–2-433 supplier partnerships, 2-212, 2-213
strategic analysis, tools for, 1-125–1-130 supplier performance index, 3-158
strategic driver supply chain, 1-86 supplier quality costs, 3-158
strategic plan/planning, 1-3, 2-87–2-88 supplier rating systems, 2-435–2-436
strategic profit model, 3-156–3-157 supplier relationship management, 2-211–2-
strategic relationships, 2-211–2-214 214, 2-407–2-408
strategic sourcing, 2-409–2-411, 2-441 analytics, 2-441–2-442
strategic supply chain risks, 3-82–3-83, 3-105 contracting, 2-206

supplier relationship management supply chain network

(continued) configuration, 1-184–1-186
effects on firm/suppliers, 2-452–2-454 design, 1-177–1-184
leveraging, 2-458–2-463 optimization, 1-215–1-223
performance management, 2-433–2-437 supply chain partners, 1-77–1-78, 1-94–1-95
processes enabled by, 2-450–2-452 supply chain performance, impact of
procurement, 2-442–2-443 automated data capture on, 1-292–1-293
services, 2-442 supply chain processes, 1-69, 1-73
strategic sourcing, 2-409–2-411 supply chain reliability, 3-183, 3-184–3-185
selection, 2-412–2-422 supply chain resilience, 1-190–1-191
and supply chain needs, 2-416 supply chain responsiveness, 3-183, 3-185
technology, 2-437–2-454 supply chain, reverse. See reverse logistics
web-enabled, 2-439–2-443 supply chain risk, 1-55–1-56, 3-59–3-61, 3-
supplier segmentation, 2-360–2-362 74–3-77, 3-82–3-87. See also risk
suppliers supply chain risk management, 3-65–3-66.
and Just-in-Time, 3-248 See also risk
number of, 1-163 supply chain service model, 1-47–1-48
supply, allocation of, 2-68–2-73 supply chain strategy, 1-3–1-4, 1-56
supply and demand, law of, 1-107 alignment with organizational strategy, 1-
supply capability, evaluation of, 2-94 57–1-58
supply chain agility, 3-183, 3-185–3-187 and business model, 1-7–1-32
supply chain asset management, 3-183, 3- and competition, 1-32–1-33
189–3-192 external inputs, 1-32–1-35
supply chain, basic model, 1-39–1-41 and global perspectives, 1-34–1-35
supply chain capabilities, 1-68–1-78 and market conditions, 1-33
supply chain complexity, 1-50, 1-94, 1-129 supply chain total cost, 3-151
supply chain continuity, 3-119 supply chain visibility, 3-213
supply chain cost, 3-183, 3-187–3-189 supply, law of, 1-106
supply chain cycle time, 3-148 supply plan(s)/planning, 2-196, 2-214–2-216
supply chain, defined, 1-38 supply, price elasticity of, 1-110
supply chain design, 1-133, 1-175, 1-197 supply review meeting, 2-94
and configuration, 1-174–1-186 supply risk, 3-67, 3-83, 3-105–3-106
and strategy,1-174–1-177 Supply-Chain Operations Reference model, 3-
supply chain entities, 1-39–1-40 177–3-180
supply chain, environmental impact of Level 1 metrics, 3-179, 3-180–3-181, 3-
decisions, 3-29–3-31 182–3-194
supply chain event management, 1-266–1- Level 2 metrics, 3-179, 3-181, 3-182–3-
268 183
supply chain, integrating, 2-225–2-226 Level 3 metrics, 3-179, 3-182–3-183
supply chain management, 1-1, 1-38–1-39 Level 4 metrics, 3-179, 3-182–3-183
and balance, 1-41 management processes, 3-180, 3-192–3-
evolution of, 1-80–1-88 194, 3-195, 3-196
lateral, 1-43–1-45 supply chain agility, 3-183, 3-185–3-187
objectives, 1-51–1-56 supply chain asset management, 3-183, 3-
and value, 1-41 189–3-192
vertical, 1-42–1-43 supply chain cost, 3-183, 3-187–3-189
supply chain manufacturing model, 1-46–1- supply chain reliability, 3-183, 3-184–3-185
47 supply chain responsiveness, 3-183, 3-185
supply chain maturity, 1-80–1-88 supply-demand strategies, 2-102–2-104
supply chain metrics. See metrics surveys, 2-436

sustainability, 1-18, 1-56, 1-67–1-68 technology (continued)

costs and benefits of meeting regulations, sales, 2-396–2-401
3-130–3-133 and supplier relationship management, 2-
customer impetus for, 1-67 437–2-454
Global Reporting Initiative3-35–3-42 and supply chain capabilities, 1-69–1-70,
implementing, 3-44 1-73
mandatory programs, 3-131–3-132 and warehousing, 2-273–2-274
Organization for Economic Co-operation temporary storage, 2-281–2-282
and Development Guidelines for theft, 3-113–3-114
Multinational Enterprises, 3-42–3-43 theory of constraints, 2-142–2-143, 3-230, 3-
organization-specific programs, 3-132 255–3-257
packaging for, 3-6–3-7 third-party certification, 2-418–2-419
and product/service design, 1-212–1-215 third-party logistics (3PL), 2-228–2-233
scorecards, 3-176–3-177 three Vs of supply chain management, 1-52–1-54
and transportation, 2-280–2-281 throughput time, 2-143
SWOT (strengths, weaknesses, opportunities, tiers (echelons), 2-171–2-173, 2-227
and threats) analysis, 1-125–1-126, 3-71 time, available, in measuring capacity, 2-138–
synthesized voice in warehouse automation 2-139
systems, 1-283 time, efficient use of, 2-278–2-279
system nervousness, 2-118–2-119 time fences, 2-66–2-68, 2-119
time line performance, 2-435
T time series forecasting, 2-41–2-49
time-phased order point system, 2-181–2-182
tactical buying, 2-409 time-to-market, 1-14
tags, RFID, 1-288 time-to-volume, 1-14
takt time, 3-239 TL (truckload) segment of trucking industry,
target costing, 1-9 2-294
tariffs, 2-323 TMS (transportation management systems),
taxes, 3-12–3-13 1-271–1-276
TBL. See triple bottom line TOC (theory of constraints), 2-142–2-143, 3-
TCO (total cost of ownership), 2-196–2-201, 230, 3-255–3-257
2-204–2-205, 2-413–2-414 total cost concept of logistics, 2-223
technology, 1-227–1-228 total cost of ownership, 2-196–2-201, 2-204–
account management, 2-397 2-205, 2-413–2-414
audits, 1-241–1-242 total cost to serve, 3-187–3-188
comprehensive system, 1-235–1-237 total productive maintenance, 3-244
customer care, 2-396–2-401 total quality management, 3-204, 3-205, 3-
and customer relationship management, 230, 3-254–3-255
2-376, 2-386, 2-393–2-403 total waste management, 2-493
decisions, 1-175–1-176 tow tractors with trailers, 2-266, 2-271
disconnected, 2-402 towlines, 2-265–2-266, 2-271
disruptive, 1-91 TPM (total productive maintenance), 3-244
interfacing, 2-402 TPOP (time-phased order point) system, 2-
internally integrated, 2-402 181–2-182
licensing, 3-10–3-11 TQM (total quality management), 3-204, 3-
marketing, 2-396–2-401 205, 3-230, 3-254–3-255
multi-enterprise integrated, 2-402 traceability, product, 3-133–3-134
risks, 1-242–1-243 track and trace, global, 1-275
role in supply chain management, 229–1- tracking signal, 2-61–2-62
230 trade credit, 2-315

trade disruption insurance, 3-110 unknown risks, 3-68

trading blocs, 2-341–2-345 UNRTDG (United Nations Recommendations
trading exchanges, 1-268, 2-445–2-447 on the Transport of Dangerous Goods), 3-
trading partner agreements, 2-464 27–3-28
traditional purchasing, 2-410–2-411 UPC (Universal Product Code), 1-285
training, 3-208–3-210 up-selling, 2-388–2-389, 2-400
trainship, 2-305 upside supply chain adaptability, 3-186
transaction records, as source of customer upside supply chain flexibility, 3-186
information, 2-358 U.S. GAAP (generally accepted accounting
transfer of ownership in contracts, 2-467 principles), 1-117
transfer of risk, 3-101 usage variance, 1-112, 1-113
transportation, 3-30 utilization, in measuring capacity, 2-139
air transport, 2-289, 2-301–2-303
capacity constraints, 2-283–2-289 V
capacity forecasting/planning, 2-283–2-289
costs, 2-250, 2-279–2-280, 2-286–2-287 valuation, inventory, 1-118, 1-119–1-120
economies of scale, 2-283–2-284 value, 1-28–1-29, 1-63–1-64
intermodal, 2-303–2-306 absolute, 2-55–2-56
management systems, 1-271–1-276 added, 1-29
mode selection criteria, 2-306–2-308 analysis, 2-441
modes of, 2-289–2-308 at risk (VAR), 3-187
motor carriers, 2-289, 2-293–2-295 chain, 1-58–1-59
network design, 1-272 customer, 1-66–1-67, 2-355–2-356, 2-
objectives, 2-278–2-282 383–2-384
pipelines, 2-289, 2-299–2-301 declared, 2-332–2-333
rail transport, 2-289, 2-290–2-293 delivery supply chain, 1-236, 1-237
water transport, 2-289, 2-295–2-299 density, 2-306–2-308
tree diagram, 3-226 earned, 1-340–1-341
trends, 2-36–2-37 financial, 1-64–1-67
triple bottom line, 3-22–3-23 of logistics, 2-222–2-223
economic performance, 3-23–3-25 planned, 1-340–1-341
environmental performance, 3-25–3-31 proposition, 1-28–1-29, 1-58–1-68
social performance, 3-31–3-33 social, 1-67–1-68
truckload segment of trucking industry, 2-294 stream, 1-59
truck-plane services, 2-305–2-306 stream mapping, 1-59–1-61, 3-241–3-242
turnover, inventory, 3-160–3-161 and supply chain management, 1-41
TWM (total waste management), 2-493 system, 1-28
2D bar code, 1-285–1-286 value-added network, 1-300
value-added tax, 2-333
U VAN (value-added network), 1-300
vandalism, 3-113–3-114
uncertainty avoidance, 3-18 VAR (value at risk), 3-187
United Nations Global Compact, 3-33–3-35 variability, 1-53–1-54, 3-247
United Nations Recommendations on the variance(s), 1-112, 1-113–1-114
Transport of Dangerous Goods, 3-27–3-28 analysis, 1-339–1-341
unitization, 1-197 cost, 1-112, 1-113
universal functionality, in service-oriented in logistics, 2-246–2-247
architecture, 1-302 usage, 1-112, 1-113
Universal Product Code, 1-285 variation, random, 2-36, 2-38, 2-57
universality, 1-200 variety, 1-54

VAT (value-added tax), 2-333 warehouses (continued)

vehicle costs, 2-279–2-280 materials-handling options, 2-263–2-272
velocity, 1-53, 3-160, 3-234–3-235 number of, 1-185–1-186, 2-249–2-251
vendor-managed inventory, 2-30–2-33 objectives, 2-246–2-247
vertical communication, 1-315 ownership, 2-247–2-249
vertical integration, 1-42–1-43 warranties, 2-484–2-485
vertical marketplace, 2-445 waste, 2-493, 3-231–3-232, 3-244–3-245, 3-
vertical space utilization, 2-257 247
virtual organizations, 1-153–1-154 exchange, 2-497–2-498
virtual private networks, 1-232 hazardous, 2-498–2-500
virtual services, 1-252 hierarchy, 2-494–2-497
virtual trading exchanges, 2-448 reducing resource use, 2-494–2-495
virtual training, 3-210 reusing product/components, 2-495–2-496
visibility, 1-52 See also Just-in-Time; lean production;
active, 1-267–1-268 reverse logistics
and process improvement, 3-213 Wastes of Electric and Electronic Equipment
and supplier relationship management legislation, 2-499–2-500
technology, 2-441 water transport, 2-289, 2-295–2-299
tools, 1-274 WBS (work breakdown structure), 1-334–1-335
vision systems, 1-290 web directories, 1-252
visual signals, 2-143–2-144 web services, 1-301–1-302
visualizing, in forecasting, 2-41–2-42 web-based transportation management
VMI (vendor-managed inventory), 2-30–2-33 systems, 1-274–1-275
VOC (voice of customer), 2-359–2-360, 2-391 web-based warehouse management systems,
vocalization, 1-54 1-270
voice of customer, 2-359–2-360, 2-391 web-enabled supplier relationship
voice/written communication, 1-315–1-316 management, 2-439–2-443
volume, 1-54, 1-112, 1-280, 2-283 WEEE (Wastes of Electric and Electronic
VPNs (virtual private networks), 1-232 Equipment) legislation, 2-499–2-500
vulnerable customers, 2-386–2-387, 2-400 weekly dates for specific products, 2-108
weighted average price, 1-102–1-103
W, X, Y, Z weighted moving average, 2-45, 2-46–2-47
wide area networks, 1-231
wagon cranes, 2-266–2-267, 2-271 win-back customers, 2-387, 2-400
wait time, 2-137 WIP (work-in-process) inventory, 2-150
WANs (wide area networks), 1-231 wireless radio data terminal, 1-283
warehouse automation systems, 1-283 WMS (warehouse management systems), 1-
warehouse management systems, 1-268–1- 268–1-271, 2-272–2-27
271, 2-272–2-27 work breakdown structure, 1-334–1-335
warehouses, 2-171, 2-246, 3-30 work center file, 2-136–2-137
automation in, 1-283, 2-268–2-270, 2-272 work values, 3-19
capabilities, 2-258–2-263 work-in-process inventory, 2-150
capacity forecasting/planning, 2-2255–2- written/voice communication, 1-315–1-316
258 X, design for, 1-199
information technology, 2-273–2-274 XML, 1-301–1-302
layout, 2-253–2-255 Z-score, 3-154–3-155
location, 2-226, 2-251–2-253
management systems (WMS), 1-268–1-
271, 2-272–2-273


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Course Overview and

Module 1: Supply Chain Design

Section B: Design the Supply Chain ........................................................................................................... 1-133

Chapter 1: Business Considerations ...................................................................................................... 1-136

Chapter 2: Supply Chain Design............................................................................................................... 1-174

Chapter 3: Technology Design .................................................................................................................. 1-227

Chapter 4: Implementation Tools—Communications and Projects ........................................ 1-311

Cumulative Course Bibliography ................................................................................................................. 1-345

Cumulative Course Index ................................................................................................................................ 1-367

© 2017 APICS CSCP Version 4.1, 2017 Edition

Greg P. Allgair Dave Jankowski, CFPIM, CSCP Ho Dong Rhee, CSCP

© 2017 APICS Version 4.1, 2017 Edition

The following is a general overview of these processes. The

Identifying customer The process of identifying customer and business requirements

© 2017 APICS 1-133 CSCP Version 4.1, 2017 Edition

© 2017 APICS 1-134 CSCP Version 4.1, 2017 Edition

 Communications policies or procedures

Note that implementing action plans involve the following steps:

Change management is an important part of planning and

© 2017 APICS 1-135 CSCP Version 4.1, 2017 Edition

This chapter is designed to

This chapter on business considerations addresses some of the tools

Topic 1: Market, Financial, and Product Research and Modeling

Someone must act as a liaison between the manufacturers (product

© 2017 APICS 1-136 CSCP Version 4.1, 2017 Edition

As noted in the previous section, market research is “the systematic

Demand Demand management relates to business and customer requirements in

Order qualifiers: Those competitive characteristics that a firm

Order winners: Those competitive characteristics that cause a

Order losers: Capabilities of an organization in which poor

If marketing has successfully influenced the organization to produce a

Another purpose of demand management is to convince customers to

© 2017 APICS 1-137 CSCP Version 4.1, 2017 Edition

(i.e., in a profitable manner). Marketing professionals utilize the

Purposes of The purposes of market research include finding potential markets,

 Finding potential markets. The most basic question about a

 Analyzing markets. As product design gets underway, marketing

© 2017 APICS 1-138 CSCP Version 4.1, 2017 Edition

Demand forecasting, as discussed in Module 2, Section A, Chapter 1, is

Remember: When it comes to forecasting demand, marketing has a

 Refining product design. As market researchers learn more about

In some cases a product’s features can be varied to match differences

At this point, researchers can also contribute to the reverse supply

© 2017 APICS 1-139 CSCP Version 4.1, 2017 Edition

Demand Demand generation is part of the influencing demand element of demand

Demand generation is critical for new product introductions since most

Marketing’s major responsibilities when developing a campaign for a

 Educating customers. The potential buyer has to know that your

© 2017 APICS 1-140 CSCP Version 4.1, 2017 Edition

feedback on marketing progress are necessary to increase the

The message also has to be conveyed through the appropriate

 Educating supply chain partners. Part of getting a product

the practice of using the four Ps…and other market variables to

Customer-focused marketing, customer segmentation, and customer

© 2017 APICS 1-141 CSCP Version 4.1, 2017 Edition

A customer-focused strategy may contain all of the traditional

In a customer-focused world, the starting point for a product/service

Increasingly, product/service packages may be designed to be

© 2017 APICS 1-142 CSCP Version 4.1, 2017 Edition

distinguished by features that offer values to specific groups, such as

Value-added products have various implications for a customer-focused

 The product itself must be designed to fulfill customer expectations

 The product must be manufactured or created to meet quality levels