Managing Logistics in The Supply Chain

MANAGING LOGISTICS
IN THE SUPPLY CHAIN
MODULAR LEARNING SYSTEM IN

SUPPLY CHAIN MANAGEMENT
COURSEBOOK
MODULE 10
Module 10
Managing Logistics in the

Supply Chain
Coursebook
International Trade Centre (ITC)
Acknowledgements
This Module was conceived, written and developed by a team of consultants and ITC staff made up of
the following persons:
♦ Written By : Pat O’Donoghue, Edition 2006: Donna Marshall, UCD, Dublin ♦ Selected inputs,
review and finalization: Margareta Funder, Roberto Smith-Gillespie and Ian
Sayers (ITC) ♦ Assistance in design & layout: Marie-Thérèse Renault Horvat, John Nganga and Iva
Hristova
(ITC) We also greatly appreciate the review comments received from the following persons (listed in
alphabetical order): Syed Asgar Ali, Augusto Arguelles, Eckart Dutz, Goh Hock Kee, Huang Youfang,
Willem Hugo, Alberto Lamprea, Aloysius Lim, Richard Reider and Arjan van Weele.
Nevertheless, ITC assumes full responsibility for the ways in which their most useful contributions have
been incorporated into the final text of this Module.
Note to users
The International Trade Centre (ITC) is the focal point institution in the United Nations system for
technical cooperation in trade promotion and development. One of ITC’s key programmes focuses on
developing high quality training materials and related tools and services in the area of supply chain
management (SCM®)
ITC’s Modular Learning System (MLS) was developed to promote the concept of practical,
comprehensive and user-friendly training in this area world wide.
This Module is part of a series of modules which enable you to obtain a professional certificate or
diploma in Supply Chain Management® supported by ITC and recognised by a global network of high
quality training providers. For a full List of all recognised institutions in this network, please visit our
website.
The Module and its contents are intended to be used for training and illustrative purposes only, and not
as a guide to good or bad management practice applicable to every specific situation. The knowledge
and skills presented in this Module must therefore be adapted to the reader’s particular context.
Every effort has been made to verify the sources used in this training material and to acknowledge their
contribution. The specialists that have written the texts have drawn from their experience and from the
learning gained from respected works used in their personal development. As it would be impossible to
acknowledge each of these works separately, the authors have compiled a bibliography of
recommended further reading that is being regularly updated and posted on our website
(http://www.ipscm-learningnet.net).
The designations employed and the presentation of material in this Module do not imply the expression
of any opinion whatsoever on the part of ITC concerning the legal status of any country, territory, city or
area or its authorities, or concerning the delimitation of its frontiers or boundaries. All graphic images
used in this Module are the property of ITC.
This Module may only be used within the context of an agreement with ITC.
 International Trade Centre UNCTAD/WTO 2000

Ed. 2011 / Print Dec. 2011
International Trade Centre
MLS
Contents
Page
Preface ix
Unit 1 Introduction
♦ 1.1 ♦ 1.2 ♦ 1.3
Module 10: Contents i
What is logistics? ...................................................................................... 1 Logistics and the supply
chain ................................................................... 7 What this module
covers ........................................................................... 9
Unit 2 Strategic Issues
♦ 2.1 ♦ 2.2 ♦ 2.3 ♦ 2.4 ♦ 2.5 ♦ 2.6 ♦ 2.7
Overview ................................................................................................... 13 Logistics and supply chain
strategy .......................................................... 15 Lean production philosophy, Just-in-Time and agile
supply chains .......... 24 Supply chain strategy and performance objectives .................................. 30
Developing supply chain strategies .......................................................... 34 Supply chain
structures ............................................................................. 35 Summary of strategy
issues ...................................................................... 46
Unit 3 Customer Value
♦ 3.1 ♦ 3.2 ♦ 3.3 ♦ 3.4 ♦ 3.5
Introduction ............................................................................................... 47 What is customer
value? ........................................................................... 48 Customer
service ...................................................................................... 51 Pricing, cost and profit
issues ................................................................... 56 Summary of customer value
issues .......................................................... 70
Unit 4 Operational Issues
♦ 4.1 ♦ 4.2 ♦ 4.3 ♦ 4.4 ♦ 4.5
Introduction: drivers in logistics systems and supply chains .................... 71
Inventory ................................................................................................... 72
Transportation .......................................................................................... 82
Warehousing .......................................................................................... 113 Summary of operational
issues .............................................................. 121
Unit 5 International Issues ♦ 5.1 ♦ 5.2 ♦ 5.3 ♦ 5.4 ♦ 5.5
Globalisation........................................................................................... 123 Challenges and issues in
internationalisation ........................................ 126 Trade-offs in the international
context .................................................... 132 Import and export in
practice .................................................................. 137 Summary of international
issues ............................................................ 140
Unit 6 Information Technology
♦ 6.1 ♦ 6.2 ♦ 6.3 ♦ 6.4 ♦ 6.5 ♦ 6.6
Information within the supply chain ........................................................ 141 Gathering supply chain
information ....................................................... 142 Analysing supply chain
information ........................................................ 146 Exchanging supply chain
information .................................................... 150 Accessing supply chain applications and
technology ............................ 157 Summary of information technology ......................................................
159
International MLS ♦ 7.5
Trade Centre
The future of supply chain management and logistics ........................... 161
Major forces shaping the future of supply chain management .............. 162
Unit 7 The Future Key issues in the future of supply chain management .......................... 164
♦ 7.1 ♦ 7.2 Managing the future supply chain .......................................................... 167
♦ 7.3 ♦ 7.4 Summary ................................................................................................ 172
ii Module 10: Contents
Annex 1 Inter-store Vehicles & Stores Handling Equipment
♦ 1.1 ♦ 1.2 Handling equipment ............................................................................... 181
nsiderations .......................................................................... 173
Annex 2 Packing and Containerisation

♦ 2.1 ♦ 2.2 Containerisation ..................................................................................... 192
♦ 2.3 ♦ 2.4 Commonly used packaging materials .................................................... 195
♦ 2.5 Relationship between packaging, warehouse operations
and inter-stores
♦ 2.6 transport ..................................................................... 196 Responsibility for
to packing ...........................................................................
packaging and provision 185 of services ......................... 196
r transportation ...................................................................... 188
Annex 3 International Transport Alternatives

♦ 3.1 ♦ 3.2 Choosing the most appropriate mode of transport................................. 204
♦ 3.3 Costs of alternative modes of transport ................................................. 205
al modes of transport ............................................................ 199
Annex 4 Shipping and Freight Agents, Port Services & Customer Clearance
♦ 4.1 ♦ 4.2 Port and airport services and overland transport depots ....................... 211
♦ 4.3 Customs clearance ................................................................................ 213
s of agents, representatives and brokers ............................. 207
Annex 5 Transport Documents & Conventions Covering Liability of the Carrier

♦ 5.1 ♦ 5.2 Transfer of risk, claims and insurance ................................................... 244
ocuments ............................................................................. 219 International Trade Centre
MLS
s covering liability of the carrier ........................................... 226
Annex 7 Insurance
♦ 7.1 ♦ 7.2
Annex 6 Incoterms
♦ 7.3 ♦ 7.4
♦ 6.1 ♦ 6.2
♦ 7.5 ♦ 7.6
♦ 6.3 ♦ 6.4
Responsibility for insurance ................................................................... 247
♦ 6.5
Cargo insurance policies ........................................................................ 250
ng and use of Incoterms 2010 .............................................. 231
Coverage provided in policies ................................................................ 252
Incoterms 2010 .................................................................... 232
Modifications and special clauses .......................................................... 253
the Incoterms individually ..................................................... 236
Insurance rates ...................................................................................... 258
ncoterms through the contract .............................................. 244
Use of insurance brokers ....................................................................... 259
Module 10: Contents iii
International MLS 1.1-2
Trade Centre
1.1-3
Figures 1.2-1
1.3-1
Operational aspects of logistics management ........................................... 3
Balancing costs & risks .............................................................................. 4
Unit 1 Introduction Components of total product cost .............................................................. 5 An
1.1-1 example of a simple supply chain .......................................................... 8
Logistics and supply chain management overview ................................... 10
iv Module 10: Contents
2.1-1 Elements of world class supply chain management ................................ 14
2.2-1 The logistics “pipeline” ............................................................................. 16
2.2-2 The internal value chain ........................................................................... 19
2.2-3 Product life cycle ...................................................................................... 21
2.2-4 Inventory hides underlying problems ....................................................... 23
2.3-1 The cross-over point in a supply chain from a push to pull strategy ........ 27
2.3-2 Postponement & its impact on reducing variety in inventory ................... 28
2.3-3 Where in the supply chain to keep inventory? ......................................... 29
2.6-1 Relationship types based on impact on company margin ....................... 37
2.6-2 Relationship types based on certainty and dependency ......................... 39
2.6-3 The supply positioning model & logistics management ........................... 41

3.2-1 8 4.3-9
3.3-1 4.3.10
3.3-2 4.3-11
3.4-1
3.4-2 4.3-12
3.4-3 4.3-13
3.4-4
3.4-5 4.3-14
3.4-6 4.3-15
3.4-7 4.3-16
3.4-8 4.3-17
what your customers value .................................................... 51 4.3-18
nts of customer service ........................................................... 53 4.3-19
of the “lifetime” value of a customer ...................................... 55 4.3-20
even .......................................................................................... 59 4.3-21
calculations ............................................................................. 60 4.3-22
les of good logistics costing ................................................... 62 4.3-23
mission extends across functional boundaries ........................ 63 4.3-24
rogramme budgeting ............................................................... 64
ed costing vs traditional cost bases ....................................... 66 4.3-25
profitability matrix ..................................................................... 67 4.3-26
uct profit ................................................................................. 69 4.3-27
International Trade Centre 4.4-1
MLS
Unit 4 Operational Issues 4.4-2

Functional stages in a supply chain ......................................................... 72
4.1-1 4.2-
Where to hold inventory in the supply chain ............................................ 75
1 4.2-2
Where in the supply chain and how much inventor to keep? .................. 77
4.3-1 4.3-
Combining an in-house fleet with haulage contractors ............................ 83
2 4.3-3
Vehicles used for cost comparisons ........................................................ 86
4.3-4 4.3-
Comparative unit depreciation costs over the full life of each vehicle ...... 86
5 4.3-6 3
4.3-7 4.3- Unit depreciation costs per m -km and per tonne-km .............................. 87
Unit costs of vehicle drivers/operators ..................................................... 88
sts ...........................................................................................
Star delivery plan 89 ................................................................................... 103
onents of operating costs ......................................................
Multi-point delivery 89 plan ......................................................................... 103
overall vehicle operating costs ..............................................
Multi-point delivery 90 plan with distant destination stores ......................... 104
an in-company warehouse arrangement .............................. Comparing vehicle 93 routing options ......................................................... 105
transport options ....................................................................
Bi-directional transhipment
94 between main stores .................................. 107
andling operations due to having more than two Co-ordinating
levels of supplier deliveries for long-haul transport to main store . 107
................................................................................................
Cycle for planning 95 interstores transport and intermediate & working stores
fficiency using cross-docking operations............................... configuration ...........................................................................................
97 108
equirement can be met with loads of different size The andsiting and delivery cycles ................................................................ 109
..............................................................................................
Variable vs. fixed 100 delivery schedules ..................................................... 110
osts in delivery frequency ....................................................
Required handling 101 capacity under variable vs fixed delivery schedules 111
rs to consider: perishability ...................................................
Using the centre 101of gravity technique to determine single warehouse
intermediate stores ..............................................................
location ...................................................................................................
102 118
bjectives ...............................................................................
Configuration 102 of intermediate and working stores ................................... 121
Module 10: Contents v

Unit 5 International Issues
5.1.1 The detailed four forces framework (FFF) ............................................. 124
5.2.1 Process vs product excellence benefits ................................................. 129
5.2.2 Selecting agents and representatives .................................................... 131
5.4.1 Major participants in international transactions ...................................... 137
5.4.2 International sale of goods contract ........................................................ 139

6.2-1 6.2-2
6.3-1 London ................................................................................................... 153
6.4-1 International MLS
Trade Centre
tems for specific functions .................................................... 143
ms integrate the organisation, customers and suppliers ....... 149
chain IT map ........................................................................ 149 Unit 7 The Future
a routing and scheduling software output for deliveries in
7.2-1 PEST model of the future of supply chain management ........................ 162
Annex 1 Inter-store Vehicles & Stores Handling Equipment

A1.1-1 Types of vehicles ................................................................................... 173
A1.1-2 Different designs of vehicles .................................................................. 174
A1.1-3 Enclosed commercial vans .................................................................... 175
A1.1-4 Open topped vans and pick-ups ............................................................ 175
A1.1-5 Rigid body truck designs ........................................................................ 176
A1.1-6 Rigid body truck with trailer .................................................................... 176
A1.1-7 Articulated truck ..................................................................................... 177
A1.1-8 Articulated truck designs ........................................................................ 177
A1.1-9 Specialised articulated vehicle ............................................................... 178
A1.1-10 “Artic” detached from its tractor .............................................................. 178
A1.1-11 Container / tractor operations ................................................................. 179
A1.1-12 Truck / trailer operations ........................................................................ 180
A1.1-13 De-mountable trailer operations ............................................................. 181
A1.2-1 Handling equipment ............................................................................... 181
A1.2-2 Truck crane ............................................................................................ 182
A1.2-3 Using ramps to load with a forkflift ......................................................... 182
A1.2-4 Transportable forklift truck ...................................................................... 183
A1.2-5 Tail lift truck ............................................................................................ 184
A1.2-6 Other kinds of warehouse handling equipment ...................................... 184
vi Module 10: Contents
Annex 2 Packing and Containerisation
A2.1-1 Packaging the tradeoffs ......................................................................... 187
A2.2-1 Packing and handling alternatives ......................................................... 188
A2.2-2 Grouping materials for multi-drop deliveries .......................................... 189
A2.2-3 Different materials require different vehicles and packaging ................. 190
A2.2-4 Covered vehicles are more secure than open vehicles ......................... 191
A2.3-1 Dimensions of ISO containers ................................................................ 193
Annex 3 International Transport Alternatives

A3.1-1 Some examples of maritime vessels ..................................................... 200
A3.3-1 Evaluating the costs of alternative modes of transport .......................... 205
Annex 4 Shipping and Freight Agents, Port Services & Customer Clearance
A4.1-1 Traditional role of freight forwarders ...................................................... 210
A4.2-1 Port dues or charges include fees for tugs, lighthouses and maintenance of
buoys .................................................................................................. 212 The
A4.3-1 composition of customs rates ......................................................... 216
A4.3-2 Calculation for customs landed rateable value ...................................... 217
Annex 5 Transport Documents & Conventions Covering Liability of the Carrier

A5.1-1 A6.3-1
A5.1-2
A5.1-3 A6.5-1
components of a bill of lading ................................................ 220 A6.5-2
Hierarchy of contractual
charter ..................................................................................... 222 clauses ............................................................ 232
carriage contracts based on CIF Incoterm ......................... Incoterms 2010 224– Point of delivery of the goods and transfer of risk ..... 234
International Trade Centre Delivery and transfer of risk ................................................................... 235
MLS
Transfer of costs .................................................................................... 235
Annex 6 Incoterms Point of delivery & transfer of risk for Incoterms 2010 DAP, DAT and
A6.1-1 DDP ............................................................................... 240 Pre-shipment
A6.2-1 inspection of cargo........................................................... 245 The role of the
A6.2-2 Incoterm used and custom & practice of the trade in establishing the contract
A6.2-3 of carriage ...................................................... 246
Module 10: Contents vii
Annex 7 Insurance
A7.1-1 Structure of carriage contracts and insurance policies based on CIF
A7.1-2 Incoterm ................................................................................................. 249
Insurance endorsement hierarchy ......................................................... 254
A7.4-1 International MLS
Trade Centre
insurance obligations under CIF ........................................ 248
viii Module 10: Contents
MLS
Preface
About the Modular Learning System in Supply Chain Management ®
The Modular Learning System (MLS) in Supply Chain Management® is a comprehensive training
pack covering the total purchasing & supply process. The ® symbol signifies the power of
purchasing which is one key element of this programme.
The MLS-SCM® consists of a series of complete and up to date training packs, each covering a
particular aspect of this process. For further information on this programme please refer to our
website http://www.ipscm-learningnet.net/index.php.
The aim of the MLS-SCM® is to promote the competitiveness of enterprises through better
purchasing & supply management. That is why we have given it the motto: Buying into
CompetitivenessTM.
The modules that make up the Modular Learning System are shown in the following figure.
Coverage: The Total Supply Chain
Module 10: Preface ix
Managing the Contract & Supplier Relationships
Managing Logistics in the Supply Chain
Managing Inventory
Preparing The Contract
10
9
11
Measuring & Evaluating Performance
Negotiating
8
12
7
Understanding the Corporate Environment
Obtaining & Selecting
Offers
6
1
®
5
2
Specifying Requirements & Planning Supply
Appraising & Short-listing Suppliers
4
3
Developing Supply Strategies
Analysing Supply Markets
18 Managing Finance
along the Supply Chain
16 Customer Relationship
Management
17 Operations
Management
Micro And Small
Enter- prises
International MLS
Trade Centre
About this Module

With the advances in communication and information technologies, the deregulation of markets
and the liberalisation of global trade, companies have the opportunity to see the world as a
potential market or source of supply. However, to reap the benefits of such an opportunity they
need to be able to integrate and perform internationally. This has important implications for how
logistics is managed. The scope of this Module is to go beyond the standard study of logistics –
intended as the science and practical management of the supply of materials – to examine and
understand the various steps which may help enterprises integrate international supply chains.
The Module examines how enterprises may develop strategies to achieve competitive
advantage. It explains how internal and external integration are necessary to add value to the
logistics and supply chain, increase responsiveness (with reduced costs), improve quality and
enhance delivery. It focuses on the importance of developing strategic relationships and
alliances with commercial partners and strengthens the necessity of sound, reliable top-down
but also bottom- up information systems. It underlies how crucial it is for enterprises to respond
with agility and adaptability to their customers’ needs and align accordingly so that they improve
their performance.
The Module uses a series of concepts and models to help in grasping economic, political,
managerial and operational issues relating to both supply chain management and logistics. The
Module also addresses information technology and reviews future trends for supply chain
management.
This Module will help you:
Optimising inward
Routing, logistics
scheduling and performance
packaging
Managing imports
Choosing warehouse Building and
locations & maintaining
equipment supply chain alliances
x Module 10: Preface
International Trade Centre MLS
Module 10: Preface xi
About this Coursebook
The Coursebook for this Module is made up of a series of Units. Each of

these includes, in addition to a written presentation of the relevant topics:
♦ Learning Objectives: the knowledge and skills you will have

acquired once you have completed the Unit.
♦ Key Points: highlights of particularly important issues.
♦ Definitions: explanations of concepts and specialised terminology

used in the text.
♦ Figures: a variety of graphical and visual presentations of concepts

and issues.
♦ Action Points: these are practical exercises and applications of

what you have learned, which you will find in the Module Workbook
which accompanies this Coursebook.
♦ Learning Checks: these are self-assessment checks at the end of

each Unit allowing you to verify your knowledge of the various concepts
that have been covered in the Coursebook. These are also available
through the Workbook.
International MLS Trade Centre
xii Module 10: Preface
MLS International Trade Centre
Unit 1
Unit 2
Unit 3
Unit 4 Introduction Strategic
Customer
Operational Issues
Value
Issues
Unit 1 Introduction
Learning Objectives
By the end of this Unit, you should be able to:
♦ Define the concept of logistics.
♦ Describe the operational and strategic responsibilities of logistics.
♦ Explain the role of logistics in managing the supply chain.
1.1 What is Logistics?
Logistics is the science and practical management of the supply of materials. The Council of Supply
Chain Management Professionals (previously the Council of Logistics Management) defines logistics
as: “that part of the supply chain process that plans, implements and controls the efficient, effective
flow and storage of goods, services and related information from the point-of-origin to the point-of-
consumption in order to meet customer requirements”1.
In general terms, logistics describes the entire process of materials and products moving into,
through, and out of a firm2. It describes all of the activities in this regard involved in securing:
♦ The right type(s) of material(s)
♦ In the right quantity(s)
♦ In the right condition
♦ To the right location(s) & customer
♦ At the right time(s)
1 2 Council of Logistics Management <http://www.clm1.org> Johnson, JC, Wood, DF, Wardlow, DL & Murphy, PR (1999)
Contemporary Logistics, 7th Edition. Prentice Hall:

New Jersey
Module 10: Unit 1 1
Unit 5 International Issues
1.1 What is logistics?
1.2 Logistics & the
supply chain
1.3 What this module
covers
Unit 6
Unit 7 Information
The Future Technology
MLS ♦ For the right cost.
Increasingly, two additional “rights” must be added to the above list:
♦ Delivered with the right tailored services (e.g. user technical

support, maintenance & repair, etc.) required by the buyer.
♦ With the right information required by the customer both during and at
the end of the logistics process, e.g. information needed to track
shipments, on inspections & test results, on compliance with
environmental, health, safety and social requirements (e.g. for
traceability), etc.
The buyer and supplier usually define what is “right” at the time of
negotiating the contract of sale or transportation. The supplying or logistics
organisation must make a profit for its operations to be sustainable in the
long term. The buyer’s objective is to minimise the total cost of supply over
the long term. As we shall see shortly, this should be seen in the context of
a comprehensive approach to supply chain management.
a) Operational responsibilities of logistics
❑ Logistics stages
Logistics in most organisations generally involves three stages.
♦ Stage 1: inbound logistics

The first stage involves the transportation of goods from suppliers to
the purchasing organisation’s operation or warehouse. In logistics
operations – particularly those involving international shipments – it is
essential that all the organisations involved know precisely the point
when and where they must assume responsibility – in terms of costs
and risks – for the products being shipped. This will govern the rights
and responsibilities for access, handling, security, insurance and use
of the goods.
♦ Stage 2: internal distribution (also materials management)

The second stage in the logistics process involves the
movements of materials and components within a firm,
including the breaking down of bulk loads into composite
smaller shipments for onward distribution to stores,
production lines or retail outlets.
When handling incoming supplies, it is important to remember that not

all goods being supplied will be owned or purchased by the
organisation. Some may be supplied under sample, license,
consignment, lease or rental agreements. All products should be
handled with the care and attention they deserve, but products not
owned by the organisation should be segregated in the
2 Module 10: Unit 1

MLS
warehouse for ease of identification and may require additional

status reporting. The organisation may also incur considerable
penalties if these products are damaged or delayed.
♦ Stage 3: outbound logistics

This relates to the flow of distribution and the transportation from the
organisation to a subsequent customer, either another stage in the
production process, a retailer, or some other supply chain member.
Companies generally seek to integrate their approach to logistics by linking

these operational stages to ensure that together they serve to achieve the
organisation’s corporate objectives as effectively as possible. At the level of
the supply chain, member enterprises must also closely link up their logistics
processes if the overall strategy of the supply chain is to be attained.
Figure 1.1-1 Operational aspects of

logistics management
❑ Main day-to-day responsibilities
The following list indicates the scope of the logistics manager’s

involvement in an organisation’s day-to-day business activities.
♦ Managing the interfaces relating to delivery of goods between

suppliers, transport operators and the company’s users or customers.
♦ Scheduling and organising the supply of inputs to
manufacturing operations and determining the most economic load
sizes.
♦ Organising picking and packing according to requirements and

supply schedules.
♦ Ensuring the preparation, labelling, cleaning, sorting and

arranging of goods according to purchase specifications.
♦ Managing transport in compliance with requirements and

regulations.
Module 10: Unit 1 3

MLS
♦ Tracking in-transit products, analysing performance and
recording of deliveries.
♦ Organising the handling and inspecting of goods at the points of
loading, unloading, delivery and unpacking.
♦ Administering the delivery documentation to comply with credit
and contract terms.
♦ Liaising with shipping agents and port and customs authorities
to ensure completeness of the documentation and timeliness of deliveries. Organising customs
clearance where applicable ─ depending on the contract terms.
♦ Ensuring compliance throughout the logistics process with
product handling and safety requirements.
♦ Organising “back-loads” ─ i.e. the use of vehicles otherwise
returning empty ─ wherever possible to maximise transport efficiency.
♦ Packing, transporting and controlling products that may have to
be returned to suppliers (reverse logistics) or sent for re-cycling.
❑ Balancing logistics costs & risks
One of the main tasks of a logistics manager is the continuous balancing of the costs and risks
related to the holding of inventory against the costs of transport and ordering.
Figure 1.1-2 Balancing costs & risks
Storage &
insurance risks & costs
This responsibility goes hand-in-hand with many other functions relating to managing the
international and national movements of goods for a company. International Trade Centre Freight costs, volume
discounts, ordering & handling costs
✔✔
Integrated management of the logistics process requires a change in cost accounting systems. 4 Module 10:
Unit 1
Logistics costs often cost of this capital is the value of the stock held (unit purchase price +
make up 20%-30% of the total apportioned logistics costs to the storage stage + the costs of deterioration
purchase costs of an item. and write-offs) multiplied by the percentage interest rate that the organisation
pays on short-term loans for working capital.
✔✔
1.1-1
Components of total product cost

apital tied-up in idle stock cannot be used for other purposes. The
MLS
❑ The cost of logistics
In the past, one reason that an integrated approach to logistics and

distribution management has proved difficult was the lack of accurate cost
information. Conventional accounting systems did not allow the detailed
analysis necessary to identify true costs of serving customers with particular
products and transportation. Without the ability to analyse aggregated cost
data, it was difficult to identify opportunities for greater cost-efficiency within
an existing logistics system.
Transportation, insurance, customs, handling, storage, packaging and
distribution costs make up a significant proportion of the total product cost.
Together with labour and materials costs, logistics is usually the third largest
contributor to the total delivered cost of an item. For example, in a typical
manufacturing business, logistics often accounts for about 20% – and can
rise to 30% – of the total purchase cost of an item.
The efficiency of logistics operations has both a direct and an indirect effect
on the total product unit cost and on an organisation’s operating profit. Some
logistics costs may be obvious and include the cost of transportation,
insurance, inspection, handling and shipping agents’ fees. Other costs are
less evident, and are therefore often neglected. For instance, whenever a
product rests immobile in storage, the organisation’s cash-flow cycle is
lengthened without any recoverable value being added to the product.
Total unit cost = Unit purchase price
+ Logistics costs (transportation, storage and

handling)
+ Cost of managing risk (e.g. insurance)
+ Transaction costs (e.g. exchange rate loss)
+ Deterioration and write-offs
+ Cost of capital (% interest x value and other

credit management costs) from supply invoice
payment until sales cash receipt
There are also opportunity costs to be added to the above, i.e. the results of
business profit lost and customer dissatisfaction because the product is
immobilised rather than being used or sold opportunely.
Shortening transportation and storage times and optimising load sizes

increases the profitability of an organisation through lower capital costs, faster
cash flow, less damage and obsolescence, reduced warehouse
Module 10: Unit 1 5

MLS
space requirements and lower handling costs. These issues will be examined and discussed in the
following Units of this Module.
b) Strategic responsibilities of logistics
In addition to their operational responsibilities, logistics managers have an important role to play in
business planning and business strategy. Logistics performance, advice on technical matters and
realistic capability and process evaluations are particularly important in the following situations:
♦ In mergers, acquisitions and divestments – at all stages from
initial feasibility studies through planning and negotiation to the eventual joining together or splitting
off of two or more operations – logistics managers can advise on reducing the complexity and risk of
merged, acquired or divested logistics activities.
♦ In the consolidation or separation of divisions within the same
company or group of companies – the logistics function understands the outcomes for logistics costs
on centralising or decentralising logistics activities.
♦ In new product launches – logistics advice should be sought on
the process of new product development, especially during the setting of specifications, choice of
distribution channels and plans for product promotion as well as during the choice of suppliers and
supply modes.
♦ When planning extension into new market segments, retail
operations and geographical areas, and for sourcing supplies from new markets – managers in the
logistics function can provide the information needed on relative costs of expanding into new
markets or developing new supply bases.
♦ In the choice of location for new manufacturing plants and
warehouses – logistics practitioners can provide data on the transportation and storage benefits of
new locations.
♦ In the negotiation of service level agreements (SLAs) with
customers – an understanding of logistics costs and performance requirements is essential.
♦ In cases of fluctuating fuel and other resource costs and during
times of high inflation and civil unrest – the logistics manager can use analysis skills to understand
the impact of unexpected environmental changes.
♦ When considering the implementation of Internet-based
activities requiring rapid response times in the inbound and outbound movement of goods – logistics
provides the foundation for rapid response and can provide the expertise in rapid response systems.
✔✔
Logistics issues affect virtually every dimension of corporate strategy. 6 Module 10: Unit 1
♦ In promoting logistics as a core competence of the company –
aimed at enhancing its competitive position.
1.1-2
As illustrated above, logistics should be considered at all stages and levels of the process of
developing corporate plans and strategies.
1.2 Logistics and the Supply Chain
a) Cross-functional integration 1.2 Logistics & the
supply chain
Logistics should carry out its operational duties in close co-ordination
covers
with other functions within the organisation, including purchasing, inventory management,
manufacturing and sales operations. Organisations should also be closely integrated with a number
of external bodies such as shipping and freight agencies, independent ✔✔

Logistics operations require close coordination amongst various functions in
warehousing and cross-docking centre operators, customs, transport regulatory authorities,
suppliers and end users or customers. This systemic approach benefits organisations within and
throughout the supply chain. an organisation
Logistics can generally be considered to be the management of material flows from the
perspective of an individual organisation. Supply chain management, on the other hand, is
the management of processes (not functions) that are the responsibility of all the entities in
the supply chain.
Nevertheless, logistics binds successive suppliers and customers together. As such, its practical
application cannot be restricted to an organisation and its immediate suppliers and customers, but
should extend to cover the entire supply chain. In short, companies’ logistics strategies need to be
closely aligned with the overall supply chain’s strategies.
Supply chain management is ‘the management of upstream and downstream relationships with
suppliers and customers to deliver superior customer value at less cost to the supply chain as a
whole3. This takes into consideration not only the material flow from the suppliers to the customer
but also the information and financial flows throughout the supply chain.
One example of a supply chain is as follows: an organisation produces raw materials which are then
supplied to a component manufacturer which, in turn, provides parts to an assembler which then
supplies a retail outlet that provides finished goods to the final consumer.
The profitability of each organisation will be affected by the performance of every link in the chain. If
an assembler makes a poor job of the final assembly of parts, or if a logistics company delivers the
product damaged or late to the final consumer, there will be fewer new
3 Christopher
M (2005) Logistics and Supply Chain Management: Creating value adding networks. 3rd edition. Ed.
Harlow, England: Prentice Hall.
Module 10: Unit 1 7
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orders and less new work for each and every organisation. The following figure illustrates a simple
supply chain.
Figure 1.2-1
As illustrated in the example, competition among businesses linked in the same supply chain might
negatively impact on the performance of the supply chain as a whole. Greater efficiency may be
achieved if a co-operative relationship exists, where each business realises that its 1.2-1
efforts should be co-ordinated for “the common good”. Clearly, this type of relationship cannot be
achieved without the establishment of trust and mutual respect over time.
b) Managing Supply Chain Activities
The key factors needed to develop an effective and efficient supply chain include the following:
♦ Understanding end customer needs, by market segment. The members of the supply chain
need to clearly understand the end customers’ needs and priorities in order to successfully meet
these. However, customers in different segments often have different needs, and value product /
service attributes differently. For instance, customers in the public sector may give priority to low
price and compliance with procurement regulations, whereas customers for the same product in the
private sector may give priority to quality and speed of delivery.
♦ Adopting effective supply chain strategies to meet end
customer needs. Once customer requirements are understood, strategies have to be adopted that
will serve to meeting these needs in a cost-effective manner. For instance, if the customer’s priority
is immediate delivery, then the supply chain’s strategy will be to hold stock close to the customer. If,
on the other hand, the customer’s priority is a product customised to meet very particular
requirements, then the
8 Module 10: Unit 1
An example of a simple supply chain
Material Flow
Raw materials supplier
Logistics: transport, storage, packing and handling
Final consumer
Component Retailer manufacturer
Assembler
Information Flow
supply chain’s strategy will focus on how to ensure flexibility and adaptability of supply.
♦ Integration of the members of the supply chain. This
involves supply chain members individually adopting strategies that are in line with the overall
strategies of the supply chain. If the supply chain is competing on the basis of the lowest possible
cost, for example, then member companies will have to align their orders in such a way that total
inventory is minimised throughout the whole of the supply chain, and not just within individual
member enterprises.
♦ The operational issues facing the supply chain. To implement its strategy, the supply chain will
have to successfully tackle a number of operational issues that cut across several or all of its
members, e.g. implementing total quality management at each enterprise to eliminate the need for
inspections, postponement of the last stages of production to allow for customisation based on
customers’ orders, etc.
♦ The impact of internationalisation on managing the supply
chain. Supply chains that cross borders – as most do today – face particular challenges.
Internationalisation provides for both constraints (e.g. longer lead-times and higher risks) as well as
opportunities (new customer segments) that will impact upon how a supply chain operates, and
these need to be handled appropriately.
♦ The information systems and technology, which are the glue that holds the supply chain
together. Without the required exchanges of information amongst its members, the supply chain
cannot function effectively. This includes up-to- date and reliable information in many areas such as
end customer demand, goods under production and in the pipeline, on the outcomes of quality
control processes, etc.
♦ Ensuring the value for the customer provided by the supply chain. At the end of the day, a
supply chain has to deliver value to its customers, in line with what the customers need in order to
be fully satisfied. The supply chain needs to obtain feedback from customers so as to be able to
assess its effectiveness, and
1.2-2
take corrective actions wherever needed.
This Module is designed to provide an overview of each of these factors to be used by procurement,
logistics and supply managers.
1.3 What this Module Covers
Whether an organisation is selling its products in the domestic 1.2 Logistics & the
supply chain
marketplace or exporting to many countries, it needs to minimise its total supply costs while
maximising its competitiveness and the
dependability of its services and customer commitments.
covers
Module 10: Unit 1 9
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In an increasingly competitive global business environment, the quality of logistics operations and
their costs and supply chain management capability can make the difference between the success
and failure of business ventures. Both long-established and start-up companies producing,
distributing and selling similar products are gaining significant commercial advantages over
competitors by skilful management of their supply chains.
It is important for companies to evaluate the impact of logistics and supply chain management on
their market expansion and consolidation strategies and to improve the performance and efficiency
of their existing operations. Logistics and supply chain factors should also be considered when
evaluating suppliers and in developing supply strategies.
The full scope of logistics and supply chain management is illustrated in the following figure,
highlighting the areas covered in each Unit of this Module.
Figure 1.3-1 Logistics and Supply Chain Management Overview
An additional final unit looks at future trends.
Strategy
Unit 2
• Strategy alternatives
• Integration
• Supply chain objectives
• Supply chain structures
• Relationships
• Partnerships and alliances Processes Units 3&6
Operations Units 4&5 • Customer value
• Information technology
• Gathering information
• Data analysis systems
• Hardware and information exchange
• Transportation Decisions
• Scheduling of inputs
• Warehousing location
• Global operations
• International Issues
10 Module 10: Unit 1
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The content of each unit is outlined below.
Unit 2 The focus of this Unit is to explore c

products and services for customer
Issues
techniques. Customer value, custom
as well as pricing, costs and profit i
The key difference between supply chain management and logistics is that
Unit.
logistics is a planning system and structure that tries to develop a single plan
for the flow of product and information through a business. Supply chain
Unit 4
management enhances this idea and tries to create coordination between the
Operational
processes Issues
of the other supply chain members. Its foundation is based on
satisfying the end customer through reliable and responsive flows of
materials and accurate flow of information. The industry to which a company b
of its supply chain, including its log
This Unit examines the strategies proposed to reach this common supply chain drivers apply
end, including
described in this Unit cover invento
achieving enhanced competitive advantage, globalisation and integration.
operations.
Cost-value added and supply structures (including partnerships) are also
examined.
Inventory policy, types, costs and s
Unit 3 planning (MRP), distribution require
management are explored. Transpo
r Value
transport, handling operations and
design and location are also review
Product-markets are becoming increasingly commoditised. The only way that
an organisation can differentiate its offer is by adding services that customers
Unit often
find useful and attractive. The logistics function 5 provides the main
International
regular interfaceIssues
between a company and its customers and suppliers.
The world is opening up through increased accessibility, boundaries are

becoming less important and markets are expanding. Operating in a global
environment offers both opportunities and challenges. This Unit briefly
examines the drivers of globalisation (markets, technology, costs, political and
economic forces) as well as the related opportunities and risks that companies
need to manage. Fundamental import processes are reviewed.
Module 10: Unit 1 11

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Information Technology
Information is the basis of appropriate decision-makingThis
throughout
Unit explores
the the supply chain
supply chain, including information on customer demand,analyse
inventory
information
levels, and the types o
production capacity and shipping. exchanging information. Legacy sy
International Trade Centre Planning Systems (ERP), analytica
satellite technology, geographic inf
Interchange (EDI) and the Internet
Unit 6 reviewed.
Unit 7
Unit 7 looks at the future trends that can be expected within the
previously defined areas, in particular environmental, global and
technological changes.
Learning Check
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Unit 1
Unit 2
Introduction Strategic
Issues

Learning Objectives
♦ Define the main strategic supply chain issues.
♦ Explain the main approaches to supply chain strategy, and the
factors to consider in each case.
♦ Determine when to pursue a supply alliance, and list the stages
and factors to consider in this regard.
2.1 Overview
a) The difference between logistics and supply chain
management
In many companies, logistics and supply chain management are treated as the same activity. This is
a mistake and neglects the individuality and complexity of the two concepts.
Logistics management can be viewed as one of three areas that make up world class supply chain
management1. The first area is supply management, which involves developing relationships and
integration with suppliers. The second is demand management, which uses techniques to forecast
demand accurately and develop relationships with customers. The third is logistics management,
which focuses on how members of a supply chain manage the movement and storage of their
products while interacting with other members of the supply chain.
1 Burt, Dobler and Starling (2002)
Unit 3
Unit 4
Unit 5 Customer
Operational
International Value
Issues
Issues
Unit 7 The Future
2.1 Overview
2.2 Logistics and supply chain strategy
2.3 Lean philosophy, JIT
and agile supply
2.4 Supply chain strategy & performance
2.5 Developing supply
chain strategy
2.6 Supply chain
structures
2.7 Summary of strategic
issues
Figure 2.1-1 Elements of World Class Supply Chain

Management
The key difference between supply chain management and logistics

management is that logistics management is a planning system and
structure that tries to develop a single plan for the flow of products and
information through a business. Supply chain management enhances this
idea and tries to create coordination amongst the processes of all supply
chain members, both downstream towards the end customers and upstream
towards the suppliers of raw materials2.
The foundation of supply chain management is satisfying the end customer.

Satisfaction is dependent on the reliable and responsive flow of goods and
services to the customer and the timely and accurate flow of information
throughout the supply chain. The supply chain is thus viewed as a series of
processes linked together with cross-company strategies and processes. The
key outcome is the alignment of the supply chain to the needs of the end
customer.
b) What is strategy?
The creation of strategy is focused on the long-term decisions relating to

how the supply chain will meet its customers’ needs. These decisions
include:
♦ The choice of products & services – and supply methods – to
offer to customers.
♦ The structure & capabilities of the supply chain and logistics

network.
♦ The types of supplier and customer relationships.
The difference between strategy and planning lies with the concept of time
horizons. Strategy is focused on the long-term objectives of the
2 Christopher M (2005) Logistics and Supply Chain Management: Creating value adding networks. 3rd edition.
Ed. Harlow, England: Prentice Hall..

MLS
firm while planning is concerned with the operational day-to-day running of the firm. Strategy also
concerns decisions that will have a signifcant impact on the organisation rather than decisions that
will impact only certain parts of the organisation.
Due to changes in the competitive environment – such as sophisticated customer demand, shorter
product life cycles and convergence of technologies – companies can no longer regard themselves
as separate entities working in isolation. Supply chain members have to think in terms of the entire
supply chain, thus taking a holistic systems view of doing business. In this way, supply chains can
become systems that respond to changes in markets very quickly and can consistently deliver value
to the end customer.
The key objectives of supply chain management are responsiveness, reliability and the delivery of
value. To provide these features, supply chains must think in terms of how they can compete
through their capabilities and ask which parts of the supply chain are better at which activities. This
new focus on competencies and capabilities has a direct effect on companies within supply chains
that are reliant on other members of the supply chain for their specialist skills and abilities. The
consolidation of demand with large powerful customers in many industries further changes the way
companies act within supply chains. Powerful buyers want to focus on building relationships with key
suppliers and reduce their supply base, to reduce the costs of doing business.
This Unit will focus on the issue of developing a strategy for the supply chain and will consider:
♦ The changes in logistics and supply chain strategy in recent
years.
♦ The factors involved in logistics and supply chain strategy.
♦ Logistics and supply chain objectives.
2.1 Overview
♦ The structure of the supply chain.
♦ The relationships the organisation may choose to consider. 2.2 Logistics and supply chain strategy
2.2 Logistics and Supply Chain Strategy
and agile supply
a) Logistics planning 2.4 Supply chain strategy & performance
Logistics and the delivery of materials can be considered a flow process. It is not a regular,
continuous flow process. Rather, it is 2.5 Developing supply
variable due to deliveries of discreet loads of materials of varying sizes, chain strategy
for varying periods, such as when a tap is turned on or off. Material
2.6 Supply chain
structures
deliveries are similar to the surges of data traffic that occur in computer or communications
networks, where messages or telephone calls are followed by periods of silence. The capacity of
each communications
issues
link, electric circuit or water pipe between any two points in the system is limited by its design.
International MLS
Trade Centre
The figure below shows the logistics system as a pipeline connecting the supplier, different levels of
stores or operations and the final user. The pipeline has a number of flow-limiting valves, which
control the capacity that can flow through in a short time. A valve controls the input to the main store
or operation, and each route to the next level in the supply chain has its own output valve. A
✔✔
complex "black box" control
The logistics process is regulated by “valves” that control the flow within the system. unit controls these
valves. This control unit processes the many inputs needed to move the valves to the correct
position to optimise the flow.
The logistics “pipeline”

Figure 2.2-1
Cost
Cost
• Load size
• Store size
• Frequency• Inventory
• Handling capacity
• Transport
store Main capacity

Seller
• Requirements “Valves” “Valves”
A “sensory network” is used to match the flow to the operational requirements of the organisation.
Within the diagram, the variables are operational variables – which will be discussed later in Unit 4 –
but illustrate nevertheless that it is useful to first look at logistics in terms of planning before
continuing with the strategy development at the level of supply chain management.
To develop an appropriate logistics plan, each stage in the transport and storage chain must be
analysed. Additionally, to develop a supply chain strategy, senior management must decide how
logistics can enhance the overall competitive advantage of the organisation, rather than focusing on
individual, incremental improvements. Several complex, competing, and interrelated objectives have
to be considered.
b) Supply chain strategy
Traditionally, it was thought that competitive advantage was a result of large marketing and
advertising spend with the resulting demand for products. Currently, as technologies and the quality
of products converge, companies are looking towards other activities in order to obtain competitive
advantage.
• Store size
• Inventory
• Handling capacity
Working store
User
International Trade Centre gaining competitive advantage, as
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♦ Opportunities in global marke

Supply chain activities are regarded by many companies as critical to
♦ The need for time compression strategies in order to cope with

shorter product life cycles.
♦ The provision of tailored services for customers.
♦ Rapid communication with customers and suppliers.
These opportunities have all led to the need for different structures within
supply chains and different relationships between supply chain members,
leading to supply chain integration.
❑ Achieving Competitive Advantage
One of the goals of any company is to achieve competitive advantage.

Competitive advantage is an advantage that is sustainable over a long period
and is reliant on systems of capabilities rather than on only one capability.
Supply chain management is regarded as key to competitive advantage, as it
takes a systems viewpoint of the capabilities throughout the supply chain.
There are certain factors that can be identified as a basis for

competitive advantage and opportunities for gaining competitive
advantage. These are globalisation, integration and time-based
competition.
❑ Globalisation
With advances in communication and information technologies, the
deregulation of markets, and the liberalisation of global trade, companies
have the opportunity to be global companies, regarding the world as a
potential market or source of supply. On a global level, companies may
choose to source, manufacture, research, raise capital and sell anywhere in
the world that they identify as the most appropriate to undertake that
particular activity.
For example, transportation systems throughout the world are deregulating,

which brings more competition, lower prices and higher service variety. It
also brings complexity in terms of assessing the different providers for
transportation3.
Manufacturing can happen wherever labour prices and transport costs are
optimised. Products can be sold to different countries with local
customisation. Procurement can be done anywhere in the world. Marketing
and after-sales services must be undertaken wherever customers are
located. Companies are now regarding geography as less of a constraint.
This is as true for SMEs as it is for large companies. Increasingly, SMEs are
becoming part of global supply chains.
3 Gourdin, K. N. (2001). Global Logistics Management. Oxford: Blackwell Publishers

This createsTrade Centre
innumerable opportunities – as well as risks – for enterprises
of all sizes and at all locations. There are very few places left today where
the effects of globalisation are not being felt.
With the ability to do business on a worldwide scale also comes the
challenge of optimising global supply chains, as the cost involved in
coordinating a global supply chain can be huge. Companies are trying to
understand where the cost advantage of standardising meets the trade-off of
catering for local demand. Many companies are finding this competitive
advantage through targeting to the world market while coordinating dispersed
procurement, manufacturing and logistics activities.
❑ Integration
One of the keys to supply chain success and advantage, especially for
companies operating internationally, is the concept of integration. Supply
chains are successful due to seamless physical flows from raw materials to
the end customer and efficient information flows backwards and forwards
throughout the chain. However, this cannot be achieved if supply chain
members are not integrated in terms of their processes, activities and
systems.
The advantages of integration include improved quality, innovation

sharing, reduced costs, and improved scheduling of production and
delivery. The levels of supply chain integration are described below.
♦ Internal Integration
The first step in achieving supply chain integration is through each

company in the supply chain looking to their internal structure to see if
they are aligned and integrated. Without the correct internal integration
there cannot be effective integration throughout the supply chain. The
traditional view of functional divisions needs to change to an approach
based on customer-focused material flows without boundaries.
Companies have to bring on board workers with a broad range of skills
who are oriented to market success based on managing processes that
deliver value to the customer.
In short, instead of having functional specialists with their own individual

goals and strategies, companies must align their internal functions along
processes that lead to specific product and service value. Before the
concept of integration was introduced, functions would have their own
individual goals and strategies. For instance:
✓ Production had goals about what could be produced and in what quantity,
while finance had goals about how much return on investment was desired.
✓ Manufacturing goals would be based around operating

efficiency throughout the production process (for instance, having
long production runs, minimal set-ups and changeover and
standardised products), while marketing goals would be very
different, emphasising a variety of products, high service levels
and frequent product changes.
MLS
These goals were not aligned to an overarching corporate strategy,
as functions would determine
separate goals based on their own best interests. This would often lead to inconsistency and
confusion, with functions fighting amongst themselves for resources with a focus on proving that
their functional goals were the most worthy.
Aligning goals within the organisation is about harmonising strategies throughout these functions
with a specific company-wide – and supply chain-wide – strategy at the forefront.
Porter’s internal value chain4, shown below, provides an overview of the operations that transform
any inputs received by the company into outputs. This shows how it is necessary to reduce
communication barriers amongst activities and enhance information flows throughout the
organisation. It is essential to align and integrate this internal value chain before aligning it
externally.
Figure 2.2-2 The Internal Value Chain
FIRM FIRM INFRASTRUCTURE INFRASTRUCTURE
SUPPORT SUPPORT ACTIVITIES ACTIVITIES
HUMAN HUMAN RESOURCE RESOURCE MANAGEMENT MANAGEMENT
TECHNOLOGY TECHNOLOGY DEVELOPMENT DEVELOPMENT MMAARRGGIINNPROCUREMENT
PROCUREMENT
MARKETING MARKETING & & SALES SALES LOGISTICS LOGISTICS INBOUND INBOUND
OPERATIONS OPERATIONS OUTBOUND OUTBOUND
LOGISTICS LOGISTICS
SERVICE SERVICE
N N IIGGRRAAMMPRIMARY PRIMARY ACTIVITES

ACTIVITES
The activities within the internal value chain are split into two types: primary activities and support
activities. The primary activities, also known as line functions, are those activities associated with the
physical creation of the product as well as marketing, the transfer of the goods to the buyer and
after-sales support. The support activities – also referred to as process functions – are activities that
provide support to the organisation as a whole to keep it functioning and secure the needed
company infrastructure. Margin is also included in the value chain, as this is the price paid by the
4 Porter, M. (1985). Competitive Advantage. (p. 37)
ThereTrade Centre types of relationship, including single sourcing,
are many
parallel sourcing, collaborative, coordinated and adversarial
customer taking into account the value returned to the
organisation.
♦ External Integration
External integration can only occur when internal integration has been
achieved and functional strategies have been aligned. To compete as
a supply chain there must be consistent competitive goals, objectives
and criteria across the supply chain, without conflicting priorities.
When looking outside to integration with other supply chain members,

there must be a systems view of the supply chain. The view must
encompass linkages in customer service, distribution, manufacture, and
procurement so as to deliver high service levels and low cost to
customers.
The need for this integrative view is that, for instance, achieving cost or
lead-time reduction within one enterprise at the expense of other supply
chain members simply transfers costs or delays to the end customer,
leading to higher prices and customer dissatisfaction. Therefore,
companies have to take into consideration all processes and their costs
within the supply chain. In short, individual company logistics strategies
need to be closely integrated with their supply chain’s overall strategies.
Supply chain management is about efficiency and cost- effectiveness

across the entire system, from transportation and distribution to
inventories. Supply chain management takes into account every facility
that has an impact on cost and has a role in providing the customer with
a product or service.
♦ Capability Integration
Further to the idea of integration is the concept of shared capabilities and

competencies. Previous thinking regarded the company as a separate
competitive entity, where there was no reliance on other suppliers or
customers. Within supply chain management, however, each member of
the supply chain realises that they cannot be the best at every activity
and that they need to rely on capabilities outside the organisation.
Strategy must then take into consideration which activities and
capabilities each of the supply chain members will invest in and perform
– and which will be outsourced – in order to add the most value to the
supply chain as a whole.
♦ Relationships
Due to this capability integration and the need to rely on companies that
are external to the firm, a key focus of supply chain management is
developing and understanding cooperation, trust and the management of
relationships.
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sourcing. Many relationships within supply chain management are based on the partnership idea,
which involves mutually beneficial long-term relationships. Unlike joint ventures, these usually do not
involve an equity stake or physical relocation of personnel to the venture. Partnerships also act as a
barrier to entry for competitors. Relationship types will be discussed later in this Unit.
❑ Time-Based Competition
Over the last decades, companies have focused on cost reduction and quality improvement in order
to provide competitive advantage. However, in many markets low cost and high quality can no
longer guarantee customer demand as they have become the usual standards by which companies
compete. Companies, therefore, have to find other means of succeeding. Time is now becoming one
route to competitive advantage within many industries, especially those that are fast-moving and
high-tech. This means focusing the supply chain’s capabilities on responsiveness and reliability to
the customer.
♦ Responsiveness
Product life cycles are getting shorter and shorter, and enterprises need to get products to market
quickly to stay ahead of the competition. For instance, in the personal computer market, products
are now introduced so quickly that products left on the shelves rapidly become obsolete. The
different phases of the product life cycle show that product sales rise sharply at the introduction
phase, with this rise continuing – albeit progressively less rapidly - through the growth and maturity
phases. At the saturation stage, sales reach a steady state and finally decrease in the decline phase
as the product’s sales come to an end.
Figure 2.2-3 Product Life Cycle
s s s s eeeellllaaaa
SSSSGrowth Growth Growth Growth Growth
Introduction Introduction Introduction Introduction Introduction
Time
Saturation Saturation Saturation
Decline Decline Decline
Time
Saturation
Decline
Time
Saturation
Maturity Maturity Maturity Maturity Maturity
Decline
Time
The typewriter is one example of the shortening of the product life cycle5.
The first typewriters had a life cycle of approximately 30 years from
introduction to decline. Mechanical typewriters were then replaced with
electro-mechanical machines and the life cycle from introduction to
decline was 10 years. The electronic typewriter then had a life cycle of
four years, and the word processors we now use have a life cycle of a
year or less.
Converging standards on quality and technology mean that customers

are demanding Just-in-Time (JIT) deliveries, and will buy a competing
product if a desired product is not available. This makes the ability to
respond quickly to demand critical.
The ability to respond to changing demand has been called ‘agility 6.

Agility within supply chains means meeting customer demand quickly so
that customers do not turn to substitutes from competitors. The need for
agility and responsiveness is heightened in situations where planning is
risky and demand is uncertain. This includes fast-changing markets, such
as high-technology and those where fashion and branding differentiate
products. Within these markets, supply chains must be actual demand-
driven, not forecast-driven.
The skills needed to provide time compression benefits to

customers are:
✓ New product development and introduction competencies.
✓ Cross functional development team abilities.
ppropriate and timely feedback from customers. instead of being helpful to an o

that needed to be resolved. Th
✓ Lead time management.
inventory in order to tackle the
2.2-3
inadequate processes and res
♦ Reliability
5 Christoper 6
To provide reliability at times of uncertainty in demand, holding safety

improving Ibid
stocks used to be the main approach adopted by companies to ensure
that there were enough
Logistics products
Essex: to satisfy
and Pearson orders
Supply Chainwith sufficient quality
Education.
and within the required delivery schedules. However, the Japanese
Management: Strategies for reducing costs and
automotive industry began to recognise in the 1970s that inventory,
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inaccurate schedules. The systems to reduce inventory were called Just-in-Time (JIT) systems.
Figure 2.2-4 Inventory Hides Underlying Problems
Inventory Inventory Inventory
Restricted Restricted Information Information
Quality Quality Problems Problems
Inadequate Inadequate Processes Processes Flow Flow
JIT systems also determined that poor quality within the supply chain was a symptom of inefficient
and uncoordinated supply chain processes. JIT implementation has shown that preventing (rather
than correcting) defects within the supply chain can reduce quality problems and cost. Companies
now design processes so that defects cannot occur (error proofing), design products that are easy to
make and distribute, and train personnel in continuous improvement techniques for them to
understand and improve the processes within the supply chain. It has been shown that prevention
decreases the detection and failure costs of inspecting for quality mistakes, scrap and rework. 7
Traditional thinking stated that:
✓ If you were delivering a high quality product you would have
to sacrifice quick delivery and low cost.
✓ If you wanted a product delivered quickly, this would have to
result in low quality and high cost.
✓ If you wanted a low cost product, you could not also have
high quality and fast delivery.
The trade-offs of the past are now becoming the advantages of successful supply chains, which can
deliver rapidly at low cost and 2.2-4
with high quality. This reliability in cost, quality and delivery comes from reducing inventory levels
and reducing the need for quality detection and failure correction throughout the supply chain.
7 Harrison, A. and van Hoek, R. (2002). Logistics Management and Strategy. London: Prentice-Hall
International MLS
Trade Centre
2.1 Overview
2.3 Lean Production Philosophy, Just-in-Time
(JIT) and Agile Supply Chains
a) Lean production and JIT
and agile supply
The origin of the lean production philosophy can be traced to the Japanese automotive industry and
was made famous by the assembler Toyota.8 The foundation of lean philosophy has been to
eliminate all 2.4 Supply chain strategy & performance
‘muda’ (Japanese word for waste) from the supply chain. Seven types of waste 9 have been identified
as detrimental to supply chain
performance. These are:
chain strategy
♦ Overproduction – producing too much, too early, or “just in 2.6. Supply chain
case”, is often the biggest source of waste and harms quality structures
and productivity.
issues
♦ Waiting – this is time not used effectively, including waiting by
staff, materials or customers.
♦ Transporting – this concerns the inefficient movement of parts
from one process to the next.
♦ Inappropriate processing – this involves using a large central
process that forms a bottleneck in production.
♦ Unnecessary inventory – too much inventory results in
disrupted flows of materials and an increase in lead times and space requirements.
♦ Unnecessary motions – such as bending, stretching, extending,
walking between processes, getting signatures, and decanting.
♦ Defects – these cost time and money and decrease quality at
the source.
The overarching principle of lean production is the removal of waste
2.3-1
from the supply chain, which is facilitated by JIT systems. JIT uses the idea of a pull strategy instead
of a push strategy, which means that there is no production until the customer has signalled demand
by ordering a product or service. For the system to work, it is critical to have a seamless flow of
information upstream through the supply chain and a synchronised flow of material downstream to
the customer. This idea is discussed in detail later below.
b) Agile supply chains
Although the lean model was useful in tackling problems of waste, cost and efficiency within the
supply chain, it was not an appropriate model
8 Womack, J., Jones, D and Roos, D. (1990). The Machine that Changed the World. New York: Rawson
Associates and Krafcik, J.F. and MacDuffie, J. P. (1989). Explaining High Performance Manufacturing: The 9
International Automotive Assembly Plant Study. MIT: International Motor Vehicle Program. Harrison, A. and van Hoek,
R. (2002). Logistics Management and Strategy. London: Prentice-Hall

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for all businesses. Thus, the separate concepts of efficient and responsive supply chains were
developed.10
Efficient supply chains (lean systems) using JIT were seen to work only when demand is relatively
stable and predictable and when product variety is low. The ideal structure in such a case is to have
very little inventory anywhere in the supply chain so as to reduce tied up working capital and achieve
fast throughput of products and harmonious quick information flow through the supply chain.
Within certain industries (e.g. fashion), however, it is difficult to implement JIT as the elimination of
waste is not as important as getting a variety of products to the customer quickly. Fashion items
have uncertain demand and, because of this, lean (or efficient) supply chain structures are not
appropriate. Supply chains where responsiveness to changing customer requirements is more
important than the elimination of waste have been called agile (or responsive) supply chains. 11
Agile supply chains rely on two key factors ─ integration and flexibility. That is, supply chain
members must have real-time information flows and be able to change their production equipment,
the type of products they make and their production volumes very quickly. This means having very
flexible structures, production capabilities and people within each component part of the supply
chain.
❑ Selecting the right strategy
Lean strategies are best implemented when price and quality are the key to advantage within the
marketplace, while agile strategies should be followed when customer service and responsiveness
are critical to competitive advantage.
c) More on strategy: Push vs Pull
❑ Push strategies
If a company adopts a push supply strategy, this means that it ✔✔ manufactures against
sales
forecasts. If it does not “PUSH”: “PUSH”: Produce based on

coordinate its strategy with those of other companies in its supply forecasts, to stock & sell
chain (e.g. its suppliers and its customers), then their demand forecasts and production plans will not
be aligned. In such situations, each individual company will find it difficult to accurately estimate and
meet actual demand.
Traditionally, push strategies and holding of inventories have been favoured since – wherever lead
times are long and quality is not high – having inventory at hand has appeared to be an appropriate
response to the possibility of supply disruptions, increases in demand or goods
10 11 Fisher Ibid.
(1997).
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returned by customers. Building up inventory, however, not only involves

higher costs; it also covers up process problems that should be resolved.
However, push strategies can be effective if demand forecasts are

communicated and supply strategies are coordinated throughout the
supply chain, leading to lower inventory levels.
Push strategies are most effective when:
♦ The product is standard, with little variability and required in

large volumes.
♦ Demand is relatively well known, and not subject to significant

changes.
♦ Customers wish immediate “off-the-shelf” delivery.
❑ Pull strategies
On the other hand, a pull strategy is when the supply chain is activated only
when the customer places an order. This means that the signal for the supply
chain to make a product or deliver a service can only come from direct
customer demand.
In these cases, the members of the supply chain have to align their
processes, systems and strategies to ensure that they can respond
rapidly to the signals from changing customer demand.
Pull strategies are advantageous for a number of reasons. Firstly, there are
no inventory costs as products are only made when an order is placed.
Secondly, there is constant information flow throughout the supply chain. And
thirdly, there is close collaboration between the supply chain members in
order to make the pull system responsive.
Pull strategies are most effective are when:
♦ Product configurations are highly variable, and constantly

changing.
♦ Demand is uncertain, and also highly variable.
♦ Customers are ready to wait longer for delivery in order to get

exactly the product configuration that they want.
✔
✔
“PULL”: “PULL”: “PULL”:
“PULL”: Produce Produce Produce
Produce based based based based on
on on on orders orders orders orders
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A strategy that companies are using to prevent the limitations of both the
push and pull strategies has been called the ‘push-pull’ – or postponement
– strategy. Within this combined strategy, certain (upstream) parts of the
supply chain undertake a push strategy while the other (downstream) parts
perform a (postponed) pull strategy.
Upstream in the supply chain there are commodity items which are not
customised for individual customers. For instance, in the clothing industry,
cotton fabric is produced without any dying or cutting taking place until later
in the clothing production process. The further downstream in the supply
chain one goes, the more specialised the products and services become. At
this stage, fabric is cut and dyed, or customised, to the specifications of the
individual orders.
The upstream suppliers, therefore, provide commodity parts and components

using a push strategy, as demand is smoother and more predictable for
commodity items. On the other hand, the downstream suppliers – e.g.
assemblers and end product manufacturers – employ a pull strategy and do
not customise products and services until an order from the final customer
has been made.
The following figure illustrates the types of issues that determine which will
be the cross-over point in a supply chain from a push to a pull strategy.
Figure 2.3-1
PUSHPUSH & & PULL PULL
??????????
Determining the cross-over point in the supply
chain from PUSH to PULL - factors
Demand change & forecast reliability (“all we know

about the forecast is that it will be wrong”)
Required product configurations & variability
Required customer response time (balancing

capacity with inventory)
If demand is changing rapidly and demand forecasts are unreliable, then

the Pull strategy should be applied as far upstream in the supply chain as
possible. The same would apply if there are many variable end-product
configurations. On the other hand, if rapid response to customer
requirements is a priority, then the Push strategy should be applied as far
downstream in the supply chain as possible.

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The impact of postponement on reducing variety in inventory is illustrated in the following figure:
Postponement Postponement & & its its impact
impact on on
Figure 2.3-2
reducing reducing variety variety in in inventory

inventory
Materials in
Variety
Pipeline
Postponement (delaying
Finished goods out A
=B customisation) Here, option B illustrates how – if final production or assembly of customised
items is carried out at the latest possible moment based on responding to market demand – the
variety of inventory can be kept to a minimum until the very end of the pipeline.
Postponement can also apply to the logistics process itself, by storing the goods at central locations
for as long as possible (rather than holding them further down the supply chain) and then shipping
directly to customers against orders. This strategy not only offers the advantage of economies of
scale, but also allows further tailoring to customers’ needs, e.g. of packaging.
❑ Supply strategy and inventory levels within the supply chain
The different supply strategies described above will have an impact on where inventories are held in
the supply chain.
For instance, if immediate customer response and high service levels are required, inventories will
tend to be held further downstream in the supply chain.
If cost reduction and greater supply flexibility are the customer’s highest priority, then inventories will
tend to be held further upstream in the supply chain.
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2.3-2
Figure 2.3-3 Where Where in in the the supply supply chain chain
and and how how much much inventory inventory to to
keep?
keep? ? ????
Materials
Component
Storage Retailer suppliers
manufacturer
•Response •Service •Flexibility •Cost level time Assembler
•Response •Service •Flexibility •Cost level time

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2.1 Overview
2.4 Supply Chain Strategy and Performance
Objectives12
There are various ways in which companies can compete, for instance through offering lower costs
than competitors or more innovative
and agile supply
product design or provision. The key advantages of an effective logistics capability are product
availability at low cost. The advantages provided by effective supply chain management include
lower cost and differentiation through added value.
chain strategy
a) Reducing the cost and increasing efficiency
2.6 Supply chain
structures 2.4 Supply chain strategy & performance
Cost advantage seeks to lower the total cost throughout the supply chain and thus provide cheaper
prices to customers. The reduction of the customer’s total cost of ownership is critical to cost
advantage. 2.7 Summary of strategic
issues
Often there is too much emphasis given to acquisition cost or purchase price, and other costs are
ignored. Total cost of ownership seeks to understand the total costs of the product or service
incurred by a buyer, including – in addition to the acquisition cost – both ownership and post-
ownership costs. Ownership costs comprise the costs of:
♦ Contract administration
♦ Carrying inventory
♦ Processing inventory
♦ Training
♦ Operating equipment
♦ Warranty
♦ Maintenance
♦ Repair
♦ Downtime cost of equipment.
Post-ownership costs are those costs involved in the disposal or managing the environmental
consequences of the product or service.
All of these costs will apply over the life cycle of the equipment. Therefore, the durability of the
equipment and its replacement cost will also be an important consideration.
The above costs must also take into account estimates of risk involved in the transaction. Effective
costs identification and analysis is best provided by the use of a cross-functional team. 13
To be successful, a supply chain must seek to achieve a high level of efficiency. In this regard,
companies seek to reduce their complexity,
12 Slack, N., Chambers, S., and Johnston, R. (2001). ‘Operations Management’. Third Edition, Financial Times:
Prentice Hall. 13 Burt, D., Dobler, D., and Starling, S. (2003). World Class Supply Management, 7th International Edition.
McGraw-Hill
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align their own strategies and enhance integration within their internal supply chain or value chain in
order to obtain a cost advantage. 14
This reduction in complexity, alignment of strategy and integration must also take place amongst the
overall supply chain members, so as to ensure an efficient and timely flow of materials and
information throughout the chain, and so reduce the overall costs.
Cost advantages and efficient supply chains are best suited to industries with relatively high volume
and low variety product ranges, in order to take advantage of economies of scale and the effects of
the learning experience curve.
Economies of scale occur when fixed costs are spread over a large number of standardised units.
Learning curve effects are found to be as important, if not more so, in such cases. Learning curve
effects are the advantages that result when workers have developed the required skills and abilities
to undertake tasks and understand processes.15
Logistics cost advantages result from the efficient use of capacity and the reduction in inventory
levels that come about as supply chain members integrate their processes due to faster and more
reliable information exchange.
b) The value advantage
Differentiating a product or service can be achieved by using a more advanced or more reliable
technology and / or tailored services to meet customer needs. When customers buy products, they
are not only buying the physical product itself but are also buying the benefits of that product. These
benefits can be intangible and psychological, such as enhanced self-esteem due to buying a
perceived superior brand, or they can be based on the superior technical performance of the
product.
As technologies converge, markets become more commodity-like and it becomes difficult to achieve
value through superior performance. Differentiation can then only be achieved through the provision
of value-added services, such as delivery service, after-sales service, financial service and technical
support service. The logistics value advantage includes the provision of tailored logistics services,
responsiveness to the customer, and reliability of the service to deliver to expectations.
A responsive supply chain adds value through differentiating a product or service in the eyes of the
customer. The markets best suited to responsive supply chains are markets where fashion and
branding is important, where there are frequent product changes and where products become
obsolete quickly (e.g. due to changes in seasons, the passing of festive events, etc.).
nd
14 15 Porter, M. (1985). Competitive Advantage. Christopher service. 2 edition. M (1998) Essex: Logistics Pearson and
Supply Education.
Chain Management: Strategies for reducing costs and improving

Value can be added by improving quality, enhancing flexibility,

increasing speed and improving reliability.
❑ Improving quality
The quality objective is the foundation for achieving other objectives in the
supply chain. In many industries, high quality is generally considered
necessary even to begin to be able to compete, let alone be used to
differentiate the company. Quality issues affect the other supply chain
objectives in a number of ways:
♦ Cost is affected when quality problems drive costs up, including

the need for inspections and higher inventory levels.
♦ Flexibility is affected when quality issues use up time that could have
been better used in new product or process development.
♦ Dependability is affected when the product is unavailable due to

defects.
♦ Speed is affected when quality issues increase the time taken

for the product to be manufactured, assembled and inspected.
❑ Enhancing flexibility
This is the ability to change what is being done within the supply chain as
needed, and is compatible with the concept of the agile or responsive supply
chain. This objective becomes essential in turbulent markets, where survival
of the supply chain is dependent on its ability to meet the changing needs of
new customers and to adapt to uncertain market conditions.
There are four types of flexibility on which companies can focus their
attention:
♦ Product flexibility (variety flexibility) - which is the ability to

introduce new products and services quickly to the market.
♦ Mix flexibility - which is the ability to switch production amongst

different products in a range.
♦ Volume flexibility - which is the ability to cope with changes in

customer demand by quickly increasing or decreasing the
supply capacity within the supply chain.
♦ Delivery flexibility - which is the ability to change the time it

takes to deliver a product or service to the customer (by either
advancing or delaying delivery, as required).
❑ Increasing speed
The speed objective is similar to the time concept. This involves producing
goods and services as quickly as possible and delivering these to the end-
customer more rapidly than your competitors. Speed of delivery of the
product or service to the customer is used to win orders when customers
want their products or services in a hurry and

International Trade Centre c) Winners vs. qualifiers
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The above
are prepared to pay a premium for that ability. This objective also performance objectives
relates to the agile or responsive supply chain concept.winning orders, for instance throug
performance objectives may be ord
❑ Improving reliability qualifiers16. Winners directly help p
competitors. They are the key reas
other hand,
Time is not just about speed but also about meeting promises to are the basic performa
customers. Reliability means that you can tell customers with A number of factors make
market.
will be
confidence when their product or service will be delivered. winners and which will be qu
This
2.4-1 The actions of competitors will influence the importance of a company’s

pendability of timetables and on-time deliveries. To ensure
objectives. Furthermore, the order winners and order qualifiers within a market
upply chains need to be predictable and have excellent
will tend to change over time. The product life cycle has a big influence on
exchange. which the winners and the qualifiers will be. For instance, at the beginning of a
cycle, availability and quality may be the winners,
order winners
while price
while
may
availability and quality may become the qualifiers.
er. Towards the maturity stage, price and reliability may be the 2.4-2
16 Harrison, A. and van Hoek, R. (2002). Logistics Management and Strategy. London: Prentice-Hall

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2.1 Overview
2.5 Developing Supply Chain Strategies
Supply chain strategy must be linked with the overall corporate strategy and integrated with the
strategies of other supply chain members. A comprehensive framework of six stages has been
developed for 2.3 Lean philosophy, JIT
17
managing supply chains effectively . These stages are not a linear and agile supply
progression, but rather actions that overlap and are dynamic. The six stages are: 2.4 Supply chain
strategy & performance
♦ Develop a supply chain strategy
This means looking at the elements that are most important to the success of the supply chain,
including customer service 2.6 Supply chain
requirements, plant and distribution network design, inventory structures
management, outsourcing, business processes, organisational
issues
34 Module 10: Unit 2 2.5 Developing supply
chain strategy
design, training requirements and performance goals and measurement.
♦ Supply chain information gathering
The information generated by the supply chain has to be as accurate, relevant and timely as
possible, which means the use of Enterprise Resources Planning (ERP) and analytical application
technology. ERP technologies integrate information from across the organisation and, sometimes,
across the supply chain (e.g. information on stock usage rates, wastage rates, hours of operation,
staffing, time between shutdowns, time between changeovers, time per changeover, wastage per
changeover, etc.). Analytical applications then use this information to help managers make optimal
supply chain decisions18.
♦ Develop effective partnerships and alliances
Once sufficient information is gathered, analysed and used, then the firm has to look to its
relationships with other supply chain members to specify the competences and capabilities each
member will develop and provide. Furthermore, not all members will be partners and it is important
to define which companies will have a relationship at which level. Once relationships have been
defined and the requisite processes put in place, effective information flow can occur throughout the
supply chain.
♦ Pilot new supply chain solutions
Piloting initiatives on a small scale can have many advantages, including the ability to identify and
resolve failures within a process to test a project before its full implementation. This can also bring
together the parties involved for clear communication of improvement ideas and a deeper
understanding of the project itself.
♦ Organise for supply chain performance
17 18 Harrison and Van Hoek (2002). See Unit 6 for a full discussion of ERP and analytical applications.
International Trade Centre 2.1. Overview
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2.2 Logistics and supply

chain strategy

and agile supply
2.4 Supply chain strat-

egy & performance

chain strategy
2.6 Supply chain

structures

issues
✓ Order to delivery lead-time
2.5-1
ly Chain Structures
3PL stands
ompetitive nature of today’s business environment, for “Third party logistics”. 3PL involves the use of an outside
many
are moving towards outsourcing components company
neededtofortake
theirover some or all of a company’s logistics activities.
Traditionally,
d services rather than making or manufacturing these relationships with logistics providers were single function and
transactional.
One of the services increasingly being outsourced They would cover transportation or warehousing, and the
is logistics.
relationship with the provider would be arms- length. Modern 3PL providers
offer a range of services, and relationships are usually longer-term and
d 4PL Providers viewed as partnerships or strategic alliances.

This involves developing cross-functional teams and thinking,
implementing efficiency and simplification techniques and adopting a
mindset which values and rewards continuous improvement.
♦ Develop measurement systems for supply chain performance
Many measurement systems only view functional activities rather than

cross-functional activities. Therefore, new performance indicators for
supply chains often have to be developed and implemented. These
should be simple to understand, limited in number, relevant to the
strategy of the supply chain and capable of being shared across supply
chain members. Useful performance indicators across the supply chain
include:
✓ On time in full (OTIF) delivery, outbound and inbound
✓ Internal defect rates
✓ New product introduction rates
✓ Cost and cost reduction per unit
✓ Stock turns
The use of 3PL providers has both advantages and disadvantages. For
instance, companies who use 3PL providers can focus their activities on their
real strengths with the knowledge that the 3PL providers are focusing on
providing excellence in logistics with the latest information and technological
advancements in the field.
Disadvantages may include the loss of contact with the customer, when the
3PL provider takes over the distribution of the product. This can
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eventually result in the loss of essential market information and of
control over both the supplier and customer knowledge.
❑ 4PL providers
Fourth Party Logistics (4PL) providers take the concept of 3PL a stage further.
4PL providers offer all the services related to managing the supply chain for
another organisation. The 4PL provider undertakes not only the logistics
operations but also the coordination of the entire supply chain.
The key difference between 3PL and 4PL providers is that 3PL providers are
asset-based companies who undertake the logistics operations for another
company. 4PL providers are Information-based and use information both
operationally and strategically to coordinate and manage the supply chain.
Indeed, there may be several 3PL providers managed by one large 4PL
provider, the 3PL providing the physical materials management and
distribution while the 4PL uses information to optimise the entire supply chain
process.
b) Relationship management in the supply chain
Supply chain management is based on the idea of integration and harmony

of strategy and operations across the supply chain. To experience integration
across the supply chain, supply chain members have to rely on each other
for specialist skills and knowledge. These relationships within the supply
chain have to be managed very carefully, and there are a number of
approaches to consider. Whereas in the following pages we will tend to focus
on relationships with suppliers, it is important to consider that many of the
same considerations will apply with regard to relationships with customers.
Supply chain structures can range from companies that are vertically
integrated – meaning that they own and operate all parts of the supply chain
(although there are very few examples of fully vertically integrated companies
today) – to companies that undertake a relatively small operation within the
supply chain and rely on a network of supply chain partners.
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Figure 2.6-1 Relationship Types Based on Impact on Company

Margin
Internal Internal
Merger and
Strategic Strategic Contracts (vertical

Acquisition Alliances Alliances Supplier Supplier Preferred Suppliers integration)
A company may have an activity either undertaken as a capability inside the organisation, or
supported by an outside company, or provided entirely by another company. The relationship type
will be determined by the relevance of the activity to the sustainability of the company’s margin. 19
The option selected may depend on factors such as the required capital, its cost (interest rates) and
the risk of obsolescence.
For instance, activities where there is no real capability or competence within the organisation and
that do not have a substantial impact on the organisation’s profit will generally be managed by
having an arms length relationship with suppliers and by the ability to switch suppliers due to the
relative ease and multiplicity of available supply. These are the low risk and/or low expenditure items
in the Supply Positioning Model, as described later below. 20
In the case of activities that will have a medium effect on margin, it is more difficult to presume an
appropriate management structure, as there may be variances in how relevant the activities are to
the sustainability of the company’s margin. For those activities that are at the low end of the medium
scale, the usual strategy is to choose preferred suppliers. This is undertaken by using vendor rating
techniques, resulting in a restricted number of suppliers considered for the activity. In the middle of
this medium scale is single sourcing. This approach applies for activities that have a higher strategic
importance to the firm and impact on the margin. Single sourcing means that the
19 Cox, A. (1996). ‘Relational Competence Analysis and Strategic Procurement Management: Towards an
Entrepreneurial and Contractual Theory of the Firm.’ European Journal of Purchasing & Supply Management, 20 Vol.
2, No. 1 pp.57-70. See also Module 4 – Developing Supply Strategies.

Single Single
Network Network Sourcing Sourcing Sourcing Sourcing
Preferred Suppliers
Arms-Length
High
Activity’s Impact on Profit Low
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Strategic supplier alliances, or joint ventures, are the final stage before
merger & acquisition and vertical integration. At this stage, there is a power
balance between the companies involved. The relationship is based on a
mutually advantageous activity and thus collaborative actions are the likely
outcome. This type of relationship is extremely complex, and strategies for
managing these relationships shall be discussed shortly.
company reduces transaction costs without incurring the costs of
vertical integration.
Network sourcing arrangements follow on from single sourcing as the impact

on profit increases. This is a hybrid form in which the prime contractor is the
‘locomotive’ for reducing transaction costs throughout a supply chain. At this
stage, it is assumed that this member of the supply chain will inform and
educate partners in order to reduce costs throughout the chain.
Other than using profit margin, another method for deciding on the type of
relationship appropriate for certain circumstances is to explore the impact of
certainty and dependency.21 Certainty involves the probability of the success
or failure of an event or transaction and is linked with the amount of
information and knowledge an organisation may have regarding the behaviour
of a supplier. The more knowledgeable it is about supplier behaviour, the less
uncertainty exists. Dependency refers to the degree to which a firm is reliant
upon a supplier, perhaps for a strategic or unique item where supply is limited.
The more reliant it is upon a supplier, the more dependent it will be.
Using the concepts of certainty or dependency, one can then map the type
of relationship it is possible to have with a supplier, as shown in the
following figure22:
21 Cousins, P. (2002). ‘A Conceptual Model for Managing Long-Term Inter-Organisational Relationships.’ 22
European Journal of Purchasing and Supply Management, Vol. 8 (71-82). This is another variant of the Supply
Positioning Model described later and also in Module 4 – Developing

Supply Strategies.
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Figure 2.6-2 Relationship Types Based on Certainty and

Dependency
H H Opportunistic Opportunistic
Strategic Strategic Behaviour Behaviour
Collaboration Collaboration
Traditional/ Traditional/
Tactical Tactical Adversarial Arms-length
Collaboration Collaboration L L
LL
H H Certainty Certainty If there is low certainty and low dependency, this means that there is
limited information about supplier behaviour but that the organisation is not reliant on the supplier for
any unique skill or capability. In such cases, the most appropriate relationship type is traditional (or
arms- length), with no need for long-term contracts or communication.
If there is low certainty and high dependency (e.g. bottleneck items in the Supply Positioning Model),
then the relationship will often be characterised by opportunistic behaviour on the part of the
supplier. For instance, if a supplier is providing something unique or of high strategic importance to
the buyer organisation but there is not a great deal of knowledge about the behaviour of this
supplier, there could be the possibility that the supplier will increase its prices. At this stage,
managers have to understand how to move out of this box and into either the strategic box or the
traditional/arms-length box. This can be done by developing more suppliers and therefore reducing
the uniqueness of the supplier, or by creating a mutual dependency, for instance, through a joint
initiative with the supplier to create a technological advance or enhancement in the supply item.
When the relationship is characterised by high certainty but low dependence (e.g. routine items in
the Supply Positioning Model), this involves a situation of tactical collaboration. In this case, the
organisation will work with several suppliers whose contribution is not unique over the long-term,
creating certainty in the behaviour of the suppliers. Tactical collaboration involves managing process
and quality improvements.
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Such partnership relationships are complex and need to be carefully
managed. Strategies for managing these relationships are discussed
Strategic collaboration is the necessary relationship type when there is both
high certainty and high dependency (e.g. Critical items in the Supply
Positioning Model). In this relationship, there is mutual benefit from working
closely together. There is mutual dependency, it is strategic to both firms and
there is a high level of mutual certainty, which means that both parties regard
the probability of the venture to be successful, with long-term working
relationships providing certainty regarding the behaviour of the other party.
c) Supply chain alliances
It is important to understand how to investigate and create supply chain

alliances. Partnerships and added-value services throughout the supply chain
are important in achieving international competitiveness. As previously shown,
relationships between organisations can range from arms-length relationships
(e.g. one-time exchanges or multiple transactions without joint commitment or
operations) to vertical integration of two organisations (e.g. merger, takeover
or acquisition). Between these two extremes lie partnership relationships.
❑ Types of partnership arrangements
A partnership is different to a joint venture, as it does not involve shared

ownership between companies. Most writers refer to three types of
partnership-based supply chain relationships 23 24.
♦ Type I is a short-term partnership coordinated on a limited basis through

a single function or department in each organisation. This is known as the
cooperative partnership. This type of partnership consists of relationships
with a few suppliers based on short-term contracts.
♦ Type II progresses beyond the organisation to the integration of

several activities. This relationship has a longer-term view involving
multiple departments or functions and is known as a coordinated
partnership.
♦ Type III involves the integration of many activities between two

organisations, where each organisation views the other as an
extension of its own firm. This type of partnership relationship is
referred to as collaborative.
The main reason to consider forming a supply chain alliance is to improve the
overall efficiency of the supply chain in order to raise competitiveness in
domestic and international markets. This will include reducing the cost of
logistics and inventory by sharing information throughout the supply chain.
23 24 Harrison, Stock, J.R., A. and and Lambert, van Hoek, D.M. R. (2002). (2001). Logistics Strategic Management
Logistics Management, and Strategy. 4th London: Edition, McGraw-Hill: Prentice-Hall. New York.
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We shall now review the process of evaluating the benefit of a supply chain alliance or alliances, the
search for the appropriate partner(s), and the evaluation of the performance of the alliance.
❑ Evaluating opportunities for forming supply chain alliances
In analysing the need for an alliance, the company must consider what benefit the alliance will bring.
Will it add value to products, improve access to certain markets, strengthen operations, provide
technological strength, provide strategic growth, add to organisational skills or build financial
strength?
One way to evaluate opportunities for supply chain alliances is to plot all the company’s bought-in
supplies and services on the Supply Positioning Model25, taking account of two dimensions:
♦ The company’s total annual expenditure on each purchase
item.
♦ The item’s criticality to the company (based on its impact and
supply opportunity and risk).
These two dimensions are shown on the following figure.
The The Supply Supply Positioning Positioning Model Model & & logistics
logistics management... management...
Figure 2.6-3
...when ...when to to outsource outsource & & use use supply supply chain chain alliances
alliances
HHH
Bottleneck Bottleneck Items Items Critical Critical Items Items
Ensure Ensure availability availability of of supply supply
Develop Develop supply supply chain chain alliances alliances
M
Impact/ MM supply opportunity/
Routine Routine Items Items Leverage Leverage Items Items risk
L LL
Manage Manage efficiently efficiently or or
Impact/ supply opportunity/ risk
Reduce Reduce supply supply
variety variety & & use use your your outsource
outsource
company’s company’s leverage leverage
NNN80% 80% 80% of of of items items items = = = 20% 20% 20% of of of value value value 20% 20% 20% of of of items
items items = = = 80% 80% 80% of of of value value value
Expenditure Expenditure
Expenditure (on the horizontal axis) is broken down into two broad categories, based on Pareto’s
80/20 rule. On the right-hand side, the category comprises 20% of all purchased items that make up
80% of total expenditure. On the left-hand side is the group comprising 80% of
25 For more detailed information on the Supply Positioning Model, see Module 4 – Developing Supply Strategies.
Arranging Trade Centre
competitive bidding amongst suppliers to keep prices low is usually
preferred for the leverage (or “commodity”) type purchase items categorised
in the bottom right hand quadrant (high expenditure and low risk).
Consolidating requirements and reducing supply variety can improve the
company’s leverage even further. 26

the purchased items, which constitutes the remaining 20% of total
expenditure.
The second dimension, impact / supply opportunity & risk (on the
vertical axis), is broken down into four groups:
H = High impact/ supply opportunity/risk M =

Moderate impact/ supply opportunity/risk L = Low
impact/ supply opportunity/risk N = Negligible
impact/ supply opportunity/risk
Supplier partnerships are likely to provide the most benefit for items in the
top right-hand quadrant – i.e., goods and services highly critical to the
company’s business and high in expenditure.
When a potential partner in this quadrant is identified, organisations should

apply to these companies the same thinking that applies to their own
situation, i.e. if the same goods and services that are in top right- hand
quadrant are also highly critical and valuable to the supplier, then these
companies should be approached first.
The majority of partnerships in this area work well because both parties will
benefit from working closely together to perfect their processes, reduce costs
and otherwise improve their competitive advantage.
Another area where longer-term relationships may be worthwhile is in the
lower left-hand quadrant of the matrix, i.e. routine items. These are the low-
expenditure, low risk goods and services. For items in this quadrant, the
company’s main goal should be to minimise administrative costs and
management time spent on supply operations. In this quadrant, consider
outsourcing, vendor-managed inventory, forming framework contracts with a
local supplier, or automating the process using Internet technology.
It is important to “lock in” those suppliers of bottleneck items, categorised

as low in expenditure but high in risk – i.e., the top left- hand quadrant –
either with long-term contracts or some other incentive to ensure long-
term supply.
❑ Step-by-step approach to partnership development
Managing an alliance is not easy. Alliances are susceptible to certain risks if

performance is not reviewed regularly. The first risk is that one partner
becomes dominant and selfish in its demands. The second is that the
parties forget the original reason why they came together and
26 For more information on supply strategy, see Module 4 – Developing Supply Strategies.
MLS
the alliance degenerates into a mere paper agreement. Despite these risks, there are many
productive examples of alliances around the world.
Before forming an alliance, it is essential to consider how it will develop in the future. Most
successful alliance partners state at the outset the criteria that they would use to end the
partnership, and define the process to be followed if they decide to take that step. This can avoid lost
time, productivity and litigation if business strategies and markets ✔✔

It is important not to “cut corners” the process of
change.
in
The process of forming alliances often follows the stages described below: developing supply alliances.
♦ Awareness of the need for an alliance
The initiating firm becomes aware that a change in strategy is required and considers an alliance as
a possible solution or opportunity. The organisation completes the analysis of all its purchase items
using the Supply Positioning Model.
♦ Conceptualising the alliance
The firm then determines that a collaborative arrangement will be advantageous, and provides a
potential alternative to traditional adversarial relationships. It seeks detailed information on alliance
practices to determine the implications of this strategy.
♦ Pursuing the alliance
The firm then makes the final decision to form an alliance and establishes the strategic and
operational considerations that will be used to select alliance partners. This stage includes the
following steps: ✓ Determining the selection

criteria
2 3 1 The company must identify the strategic and operational characteristics required of its
potential alliance partner. These criteria serve to reduce the number of potential candidates in order
to facilitate final partner selection.
✓ Searching for partner candidates
The firm then seeks detailed information from potential partners to analyse opportunities for
productive synergies.
✓ Selection decision stage
The company must then evaluate the small pool of candidates short-listed based on its selection
criteria, and choose a final partner or group of partners. At this point, all of the firms
involved need to assert their commitment to pursuing the

formation of an alliance.
♦ Confirming the alliance
This begins when the firms fully agree to become alliance partners.
Strategic and operational expectations for the arrangement are then
jointly determined, and the relationship is solidified. Operating standards
are agreed, written down and publicised amongst the work force of the
partner organisations. This stage includes the following steps:
✓ Formalisation
The intentions and expectations of all parties

should then be finalised in a memorandum of
understanding (MOU) or agreement. This
document should define the procedures to be
followed to ensure adherence to standards and to
continuous performance measurement.
✓ Identifying performance measurement
The operational performance measures for the alliance must then

be developed and agreed.
✓ Feedback mechanism to ensure continuity

This involves creating a feedback mechanism that will allow the
partners to continually assess and manage the performance of the
alliance and determine whether it can be sustained or should be
modified or terminated.
♦ Implementing and managing the alliance
The partners are committed to the alliance and proceed with its
implementation. Necessary operational modifications are identified and
implemented along the way. Dispute investigation and settlement
mechanisms are clarified and implemented.
♦ Assessing the alliance
At this stage, the partners formally assess the relationship and review
the original goals. They evaluate the alliance’s strategic effectiveness
and its adherence to operating standards. They then determine whether
the alliance will be sustained, modified or terminated.
♦ Terminating the alliance
Arrangements can have problems and may have to be brought to an

end, or agreements changed significantly due to a change in market
conditions. Considering and agreeing upon termination

working well.
MLS
arrangements at the outset of any alliance prevents misunderstandings later and helps preserve
business relationships.
❑ Determining if an alliance is working
There are six issues to explore when determining the strategic effectiveness of a supply chain
partnership. Strategic effectiveness is the measure of how well an alliance achieves the expectations
and requirements that were set at the beginning.
The six issues are:
♦ Adherence to operational standards and service level
satisfaction.
♦ Operational co-operation, measured in terms of information
access and fluidity, and the degree to which the partners integrate their communication and
production systems to allow joint decision-making in real-time.
♦ Partner co-ordination, as a substantive measure of alliance
effectiveness relating to character-based trust and co-operation amongst individuals.
♦ Organisational compatibility and style, and the sustainable
length of the partnership relationship. The duration of the relationship should be assessed at every
review milestone, when the partners’ concerns and benefits are expressed.
♦ Power imbalance, which can result in an alliance operating
without mutual benefit. It can only really be assessed if partners are open about the relationship. It
may be helpful to obtain feedback from other customers and suppliers outside of the alliance for this
assessment, as it is often not possible to evaluate clearly from within.
♦ The level of strategic co-operation. This can be
assessed by the degree of joint planning of new products that takes place and whether the partners
2.6-5
share the same or similar business goals. Development of interdependence might also occur in a
truly symbiotic relationship.
International MLS
Trade Centre
2.1. Overv iew
2.7 Summary of Strategic Issues
In today’s highly competitive global environment, it is essential for companies to have a well-
designed supply chain strategy that includes harmonising and integrating across the supply chain.
and agile supply
♦ Performance objectives have to be identified and aligned
2.4 Supply chain strategy & performance
across supply chain members to allow integration and to create value for the customer. These
include cost, value, quality, speed, reliability and flexibility. 2.5 Developing supply
chain strategy
♦ Appropriate relationships should be identified, managed and re-
examined as strategic priorities and the competitive
2.6 Supply chain
environment change. structures
Companies also have to ensure that their own logistics strategies are 2.7 Summary of strategic
issues
closely aligned with their supply chain’s overall strategies.
Unit 1
Unit 2
Unit 3
Introduction Strategic
Customer Unit Issues
Value

3.1 Introduction
Many product markets are becoming increasingly commoditised, i.e. their prices and specifications
are becoming less differentiated. In such cases, the only way that a company can distinguish its
products from others is by adding services that customers find useful and attractive.
The logistics function often provides the main regular interface between a company and its
customers and suppliers. It therefore plays a critical role in enhancing or diminishing both the
customer’s appreciation of the company and the supplier’s ability to fulfil its contractual obligations.
During supply contract negotiations, buyers should be aware of the scope that they have for
requesting suppliers to provide valuable additional services during the packing and distribution
phase of product supply. This can often produce a win-win situation advantageous to both parties.
But what exactly is value? How can it be identified and created for the customer? There are many
means by which a firm can add value to its
7 The Future
3.1 Introduction
3.2 What is customer
value?
3.3 Customer service
3.4 Pricing, cost and
profit issues 3.5 Summary Unit 4
Unit 5 Operational
International Issues
Issues
Learning Objectives
♦ Define the concept of customer value.
♦ Describe the different customer service elements.
♦ Explain the advantage of customer retention.
♦ Explain the differences between price, cost and profit.
♦ Explain the importance of stakeholder expectations in
measuring performance.
MLS
activities. This Unit will focus on the opportunities for adding value in logistics and in the supply chain
overall through customer service.
3.2 What is Customer Value?
3.1
Introduction a) Who is the customer?
Depending on the nature of a firm, the customer can be either another value?
business or the end customer. The relationships with business
customers are also referred to as business-to-business (B2B) while the equivalent for the end user is
referred to as business-to-customer (B2C). While the business customer may be categorised as
different 3.4 Pricing, cost and
profit issues
from the end user, it is important to realise that the latter is only – at most – a few steps further down
the chain from the business customer.
3.5 Summary
The success of a supply chain is ultimately measured by the value it provides to a customer, i.e. how
well it meets customers’ needs.
b) Value
The definition of value depends on the perspective of the individual. Value has different meanings to
different parties in the supply chain. Organisations often base value around costs, while customers
and other stakeholders have their own perception of what constitutes value to them.
Depending on the perspective of the business stakeholders, value can sometimes be defined as 1:
♦ Return on Investment (ROI)
♦ Sales
♦ Cost reductions
♦ Working capital
♦ Inventory
♦ Creditors
♦ Fixed assets 3.2-1
In order to add value to all the stakeholders in relation to a firm, it is important to understand their
view of value and align the activities of the organisation in such a way that it adds value for the main
stakeholders.
1 Harrison A & Van Hoek R (2002) Logistics Management and Strategy. Essex. Pearsons Education.
❑ Customer value defined

Customer value drives both development and improvement in the supply chain as well as what the
supply chain will look like. What the customer values has to be translated into the activities in the
supply chain to provide the desired value in the most efficient manner 2.
Customer value can be defined as ‘the way the customer perceives the entire company’s offerings,
including products, services and other intangibles. These perceptions can be divided into several
dimensions. Three essential forms are conformance to requirement, product service range and price
& brand. In addition, there are value-added services and relationships, which are useful to
differentiate products but are not necessarily critical.
♦ Conformance to requirements
Conformance to requirements relates to the firm’s ability to offer what the customer desires and
requires. This also includes access to the firm in terms of how easily a product can be found and
bought.
♦ Product service range
This dimension is difficult to measure in terms of its contribution to customer value. However, three
successful business models can be identified which relate to product service range: some firms
specialise in offering only one type of product (e.g. Machine tools); others operate as one-stop shops
offering a wide variety of products (e.g. department stores); a third option are mega-stores that focus
on one product area (e.g., hardware, IT, etc.) but offer a wide variety within this product area.
♦ Price and brand
Price is an important factor for customers, but it is not the only one factor. Brand names not only
allow a firm to ask for a premium price when selling products; they also act as a quality assurance to
the customer. A higher price in itself can be seen as an expression of prestige and quality but it is
also often a reflection of the incurred cost in the supply chain of providing higher service levels.
♦ Value-added services
Another means of differentiating a product from competition is by adding services. The introduction
of a service that increases the perceived value of a product not only allows the firm to ask for a
higher price but also distinguishes it from products that have similar features. An additional benefit is
that providing the service allows the firm to identify future customer needs through ongoing
interaction with its customers.
____________________________ 2 Simchi-Levi Strategies and D, Kaminsky Case Studies, P & Simchi-Levi 2nd
International E (2003) Edition. Designing NY: McGraw-Hill/Irwin
and Managing the Supply Chain: Concepts,

MLS ♦ Relationships and experience
A customer’s good experience of, and relationship with, a firm can act as
a barrier for customers to move their custom to a competitor. Thus, a
satisfied customer is more likely to stay with the firm, and the information
that is obtained from existing customers can be used to attract new
customers.
❑ Measures of customer value
Customer value needs to be measured through the eyes of the customer, as it

is defined through the customer’s perception.
Common measures of customer value are customer satisfaction and service

levels. However, there are also some additional measures that are particularly
applicable to the supply chain3.
♦ Service level
The definition of this measure varies depending on the organisation. A

generally accepted measure, however, is the ability to deliver what is
required on time.
♦ Customer satisfaction and loyalty
Customer satisfaction is measured through services delivered, and is

generally seen as reflecting the performance of the sales department and
its individual employee performance. While customer satisfaction gives
insight into the customer’s current view of the firm, customer loyalty is of
more importance as it gives insight into the likely future commitment of a
customer to the organisation. It is also easier to measure, as it does not
require contact with the customer but can be solely based on past and
present order information.
♦ Supply chain performance measures
The performance of the supply chain has an impact on the customer value
that can be created. Consequently, it is important to establish measures
that consider the performance of the supply chain itself. This requires not
just a review of the processes within the supply chain but also a
comparison with best practice wherever possible. Such a comparison
allows benchmarking against competitors and discovering where there is
room for improvement.
The following figure provides an illustration of the type of review that can
be made of a supply chain’s performance against a set of criteria
reflecting what its customers value. These can be weighted to show their
relative importance.
3 Geary S & Zonnenberg J P (2000) “What it Means to Be Best in Class”. Supply Chain Management Review,
July/August, pp 42-48.

Figure 3.2-1 Measuring Measuring what what your your

customers customers value... value... Level5432
1Features
3.2-2 Weshall review these concepts in more detail throughout the rest of
this Unit.
3.1 Introduction
3.3 Customer Service
There are many ways in which an organisation can provide service to 3.2 What is customer
value?
its customers. For example, customer service is evident in deliveries that are sent to the customer
on time, without damage and constant
quality.
A variety of alternative definitions describe customer service as an 3.4 Pricing, cost and
activity that has to be managed, as performance measures that have to profit issues
be achieved, or as a corporate philosophy. Customer service reflects
3.5 Summary
what the customer values; it is therefore imperative that an organisation understands what a
customer values and expects in order to provide a service that is valued. The product that a firm
produces is important as it forms the core of the purchase, but its value is improved by the addition
of service.
The “seven R’s rule” describes how customer service can be created through integrated logistics:
having the right product, in the right quantity, in the right condition, at the right place, at the right
time, for the right customer, at the right cost4. Inadequate functioning of any of these seven areas
can result in poor customer service. It is important to note that it is rare that an organisation can
provide all elements at all
4 Shapiro
R D & Heskitt JL (1985) Logistics Strategy: Cases and Concepts. St. Paul, MN: West Publishing
Company [p.6] as cited in Bloomberg et al (2002)
Customers’ requirements
Gap
Gap
Your offer
Weighting % (25) (20) (10) (15) (30)
MLS
times. However, this does not mean that a firm should not strive towards improving their customer
service to this ideal.
It is important that the firm is able to identify measures that allow it to identify the degree to which it
is successful in offering service to its customers. At the same time, it is important to consider the
costs and benefits of providing customer service. Questions to ask and investigate in this regard
concern the costs of providing customer service and the resulting extent of benefits (i.e. “added
value”) offered to the customer. This does not imply that customer service is purely an added cost –
it can often be offered while reducing costs in other areas 5.
a) Customer service elements
Customer service consists of a number of elements that can be grouped into different stages: pre-
transaction, transaction and post- transaction6 7.
♦ Pre-transaction
Customer service elements in the pre-transaction stage refer to those services that pave the way to
the actual core service. This includes management decisions and organisational policies on
customer service, organisational structure, and flexibility of the enterprise’s operations.
♦ Transaction
The next stage, transaction, concerns the application of the elements identified in the pre-transaction
stage. The concern is the physical delivery of a product or service to the customer. Of particular
interest is the order cycle, which refers to the customer’s time period between placing an order and
receiving the goods or services, i.e. the transmittal, processing, preparing and shipping of an order.
Other elements relevant to providing value to the customer include the degree of convenience of
placing orders, order information, order fill level, the accuracy of the system, stockout levels, and
product substitution.
♦ Post transaction
The post-transaction stage refers to the offer of services after the product has been delivered, while
the customer is using it. Warranties, guarantees, claims, repairs, alterations, providing of parts and
dealing with returns (including for recycling at the end of the product’s life cycle) are all elements of
this stage. This stage is 3.3-1
as important as the previous stages, as it can be seen as an
5 Bloomberg D J, LeMay S & Hanna J B (2002) Logistics, International Edition. Upper Saddle River, NJ: 6 7 Pearson
Education Harrison A & Van Hoek R (2002) Logistics Management and Strategy. Essex: Pearsons Education LaLonde B
J & Zinszer P H (1976) Customer Service: Meaning and Measurement. Chicago, IL: National Council of Physical
Distribution Management as cited in Bloomberg et al (2002) & Christopher M (2005)
opportunity for firms to build lasting relationships with their customers, resulting in repeated
business.
Figure 3.3-1 The Elements of Customer Service8
Stages of
Description Examples Customer Service Pre-transaction Customer service
• Written customer service policies set up prior to
policies which are communicated the customer
internally and externally. transaction.
• Accessibility of the firm to the customer.
• Ability of the customer service system to adapt to customer needs. Transaction
Customer service elements directly related to the customer transaction
• Order cycle: how long after the order will the product be delivered.
• Availability of inventory to meet the customer’s demand.
• Provision of order status information.
• Response time to customer queries. Post-transaction Customer service
elements supporting the customer during the use of the product
• Response time to customer complaints and claims after purchase.
• Availability of service parts/spares.
• Fixing customer’s problem with first call.
b) Effects of customer service
Customer service has an effect on the end customer, but when one considers the above-stated
definition of customers it becomes clear that customer service also impacts on the intermediate
customer or the business customer prior to affecting the end customer.
8 Adaptedand Improving from Christopher Service. 2nd M edition. (1998) Essex: Logistics Pearson and Supply
Education
Chain Management: Strategies for Reducing Cost

MLS
c) Defining customer service
Focusing on providing service to the customer also has implications for the
organisation’s processes and systems. The traditional internal focus of the firm
centres primarily around increasing efficiency, and only secondly on the
market it is serving. This can result in disadvantages such as reduced
flexibility and extended lead-time. A more effective approach is to focus on the
external factors first (i.e. customer service requirements) and translate these
then into the firm’s internal processes and operations.
Although no two customers are alike in their needs,delivery,
it is possible
low price
to or
find
need for indivi
similarities amongst customers, which means that they characteristics
can be grouped
of a particular
into group
segments. In order to identify segments there are threecustomers.
steps
Once those1:needs
♦ Step have
Identify keybeen defined,
customer it is important
service to develop
components, from the a strategy
which will satisfy the customer segment’s
customer’s perspective. needs in a cost- efficient and
consistent manner. Although it would be ideal to offer the highest level of
♦ Step
service 2:customers,
to all Define the relative importance
this is not of each
realistic. To makecomponent.
a decision as to whom
to prioritise in the provision of service, it is essential to know who the most
♦ Step 3: Group customers based on similarity in service
profitable customers are, as they are the ones who should receive the most
preferences.
consistent customer service levels.
3.3-2
As a consequence, for instance, elements such as either timeliness of
d) Measuring customer service performance
One way of assessing customer service performance is by setting

customer service standards and then comparing these with actual
achievements.
Standards are essential in the following areas 10:
♦ Order cycle time
♦ Stock availability
♦ Order size constraints
♦ Ordering convenience (including online ordering)
9 10 Ibid Ibid; See also Module 12 – Evaluating Performance

MLS
♦ Frequency of delivery
♦ Delivery reliability
♦ Order completeness (e.g. order fulfilment rate)
♦ Documentation quality
♦ Claims procedure
♦ Technical support
♦ Order status information
As evident from the above list, standards refer to all elements of customer service, from pre-
transaction through transaction to post- transaction stages.
e) Customer Retention11
Firms invest considerable effort in attracting new customers while often overlooking the importance
and advantage of retaining existing customers. There are a number of arguments that advocate the
importance of retaining customers. The cost of winning a new customer is much higher than the cost
of keeping a customer; it can cost up to five times more to attract a new customer than to retain an
existing customer12. Customers should therefore be viewed not just in terms of their present
spending, but rather in terms of their lifetime spending.
Figure 3.3-2 Calculating the “lifetime value” of a customer13
Loyal customers bring a considerable number of advantages 14. They have a tendency to buy more
than new customers, will increase spending over time and are more likely to be willing to pay a
premium. Some customers will spend spent up to 20 times the value of the original sale on
subsequent sales15. The organisation hence benefits from long-term revenue streams and cost
savings.
11 See also Module 16 – Customer Relationship Management. 12 Peters T J (1987) Thriving on Chaos: Handbook
Average
for management revolution. NY: Harper and Row as cited in 13 14 International Trade Centre
Average
Average value per purchase
X number of purchases
X ‘lifetime‘
value of a ($)
(per year)
customer ($)
Harrison A & Van Hoek R (2002) Logistics Management and Strategy. Essex: Pearsons Education Based on Harrison
A & Van Hoek R (2002) Logistics Management and Strategy. Essex: Pearsons Education. Johnston R & Clarke G (2001)
Service Operations Management. London: Pearson as cited in Harrison A & 15 Van Hoek R (2002) Logistics
Management and Strategy. Essex: Pearsons Education. Poole K (2003) “Seizing the Potential of the Service Supply
Chain”. Supply Chain Management Review, July/August, pp54-61. Module 10: Unit 3 55
Average life account
of
= (in years)
MLS
It is comparatively easy to measure customer retention16, especially in the B2B context. The number
of customers can be compared at two specified points in time or over a period of time: How many of
the customers that we had last year are still our customers this year? While insights are offered by
looking at the percentage of customer retention, it is also important to look at their spending over
that time period to ensure that customer retention is valuable for the firm. For the end customer this
calculation is more complicated as it is often difficult to track them. Some companies – especially
airlines and retail chains – issue customer loyalty cards that allow them to know what their
customers are buying, how much and when.
Looking at customers in terms of their loyalty to the firm also allows the organisation to categorise
them depending on their commitment and benefit to the organisation. Such categories might be
labelled “gold” for the most valuable customers, “silver” for the second most important customer
group and “bronze” for other valuable customers whose benefit is not as substantial for the firm as
for the top two categories. In response to this categorisation, the importance of the customer for the
firm should be reflected in terms of service and the relationship with
3.3-3
those customers17. Loyal customers should be treated with special attention to their needs, e.g.
provision of special requests or last minute deliveries without hesitation.
3.1 Introduction
3.4 Pricing, Cost and Profit Issues
a) Pricing
value?
Price can be defined as cost plus profit in the context of a firm’s 3.3 Customer service
competition18. The right price is fair to both the customer and the firm. It is therefore dependent on
their individual relationship; hence there is no one formula to calculate a fair price. In an environment
of perfect 3.4 Pricing, cost and
profit issues
competition the price is set by market mechanisms, while in a monopoly the producer can set the
price freely.
3.5 Summary
❑ Price Analysis
Every purchase should be preceded by a price analysis that benchmarks the price proposal against
available data. Depending on the circumstances and information available, a price analysis can be
conducted by19:
♦ Comparing the proposal with a competitor’s proposal.
To compare two proposals it is necessary to ensure that the quality and content of the proposals are
comparable.
♦ Comparing the proposal with regulated, catalogue or market
prices.
16 17 18 19 Harrison A & Van Hoek R (2002) Logistics Management and Strategy. Essex: Pearsons Education. Ibid Burt
management.7D N, Dobler th edition. D & Starling NY: McGraw-Hill. S L(2003) World Class Supply Chain Management:
The key to supply chain
Ibid
Some prices are regulated by authorities and a firm must be aware of the set prices that must be
adhered to. For non-regulated prices, the market often sets the price through the forces of supply
and demand.
♦ Employing web-based e-procurement.
Using the Internet allows access to a wider range of suppliers, providing a platform to assess
worldwide alternatives to price proposals and to place demands on the supplier.
♦ Comparing the proposal with historical prices.
This technique refers to the comparison of a current proposal with past proposals for the same
content. Historical prices, however, need to be tailored to the present context taking account of
market changes which would result in price variations.
♦ Using independent cost estimates.
This method is generally only employed when it is not possible to compare the price proposal by any
of the other means identified above. The estimation has to be grounded in reality to be of any value
and can refer back to a cost analysis as a means of identifying the underlying sources for
determining a price.
❑ Pricing strategies
Smart pricing strategies influence customers through price offerings. Two distinct but complementary
strategies are20:
♦ Customised pricing
The objective of customised pricing is to make a distinction between different customer segments
based on their price sensitivity. A possible customer distinction is, e.g. between private users,
business users and government users.
♦ Dynamic pricing
In dynamic pricing, prices are not distinguished based on customer groups but change over time
taking account of market conditions. For this strategy to work, the change over time has to be of
greater benefit than a fixed pricing strategy. Dynamic pricing is beneficial when planning horizons
are short and demand varies substantially.
Using smart pricing strategies requires great skill. Firms have to avoid the impression of treating
their customers unfairly as this will result in the customer leaving for a competitor.
Strategies and D, Kaminsky Case Studies, P & Simchi-Levi 2nd International E (2003) Edition. Designing
20 Simchi-Levi
NY: McGraw-Hill/Irwin.
and Managing the Supply Chain: Concepts,

MLS
b) Costs
The costs that are incurred in the supply chain can be defined in many
different ways21.
❑ Cost Categories
One of the most common distinctions between the natures of costs is fixed
versus variable cost and direct versus indirect costs. A less common way of
representing costs is by looking at them as engineered versus discretionary.
Categorising costs allows the identification of the source of costs and hence
to make decisions about possible improvements in efficiency, and to manage
them. However, choosing different ways of categorising them does not affect
the total costs.
♦ Fixed versus variable costs
Fixed and variable costs need to be seen from the perspective of how
they impact on profitability and also how they are affected by the
organisation’s volume of activity. If it is likely that the volume of activity
will change substantially (either upwards or downwards), then it will be
important to pay attention to those costs that will be most significantly
affected.
Fixed costs are those that generally do not change with changes in the
level of production. An example is the rental of a warehouse. The same
rent has to be paid regardless of the volume of material stored in the
warehouse. It is only necessary to rent additional warehouse space when
the volume of activity has increased to the extent that the original
warehouse is not able to accommodate the expanded output.
Fixed costs are allocated across the organisation’s total output.

Therefore, fixed costs per unit will go up if the volume of production goes
down, and will go down if the output increases. If there is a risk that
production volumes will go down, a company will therefore have to pay
particular attention to cutting its fixed costs. If production volumes go up,
fixed costs will be less important.
On the other hand, total variable costs go up or down in direct proportion

to the volume of production. At the unit level, however, variable costs are
relatively stable. An example of a variable cost is a raw material; the
amount required depends directly and immediately on the number of
items to be produced.
As shown in the following figure, the “break-even point” is that point where
total revenue begins to exceed total cost (i.e. fixed cost plus variable
cost). The break-even point will require a higher level of production if
either the fixed costs (the blue horizontal line) or the variable costs (the
slope of the purple total cost line) go up.
The higher the fixed cost, the higher will be the company’s
dependency on a high level of production. If demand for the
21 Harrison A & Van Hoek R (2002) Logistics Management and Strategy. Essex: Pearsons Education.

company’s products goes down and therefore production also decreases, the fixed costs will
become an increasingly large proportion of total cost, reducing profitability. If production goes down
below the break-even point, the company will be operating at a loss.
Figure 3.4-1 Breaking even22
Revenue/Cost ($)
Profit
Sales Revenue
Break even
Total point
Cost
LossVariable Cost
Fixed Cost
Volume of Activity
♦ Direct versus indirect costs
When costs are categorised as direct or indirect it means that costs are looked at in terms of their
allocation to a certain product. If costs can be linked to a particular product, one considers them
direct costs. However, if they cannot be associated with a particular product, they are referred to as
indirect costs. Examples of direct costs are materials needed to create a product and required
labour. Indirect costs are such items as salaries for directors and managers. The more products a
firm offers, the more complicated it becomes to allocate indirect costs to a particular product, as
facilities and personnel are shared.
♦ Engineered versus discretionary costs
This categorisation is based on the relative ease of allocating costs to a product. Engineered costs
imply that there is a clear input- output relationship. For discretionary costs, the input is easily
identified while it is difficult to identify the actual output. For example, a security guard: the input in
terms of salary is clear while the actual benefit is less defined and difficult to quantify.
22 Adaptedfrom Harrison A & Van Hoek R (2002) Logistics Management and Strategy. Essex: Pearsons
Education, p58
MLS
Attempts are made to convert discretionary costs into engineered costs by breaking them down into
costs drivers such as prevention, appraisal and the consequences of internal or external failures 23 24.
The sum of all the different costs defines the total costs of a product 25. If a firm is not able to recover
the total costs in the long run, it will not be able to survive. In the short run, however, it might be
necessary to accept the recovery of only part of the costs as pointed out above.
Figure 3.4-2 Basic Cost Calculations
❑ Total ownership costs
The philosophy of total ownership costs draws the attention to the many sources of costs in the
supply chain, and moves the focus away from the emphasis on the acquisition costs as the main
cost. The cost sources can be grouped into three categories 26:
♦ Acquisition costs
Acquisition costs include the purchase price, planning, administrative, quality and financing costs as
well as taxes. Those are the initial expenses that the organisation has to consider when making a
purchase.
♦ Ownership costs
These are the ongoing costs of a firm following the initial purchase. This includes the costs for
operation or use, maintenance,
23 Dale B G & Plunkett J J (1995) Quality Costing. 2nd Ed. London: Chapman & Hall as cited in Harrison A & Van 24 25 26
Hoek R (2002) Logistics Management and Strategy. Essex: Pearsons Education Burt management.7D N, Dobler th
edition. D & Starling NY: McGraw-Hill S L(2003) World Class Supply Chain Management: The key to supply chain
Ibid Ibid
Total Costs = Variable Costs + Fixed Costs

Total Revenue = Price x Quantity Sold
Profit: Total Revenue – Total Cost > 0
Break Even: Total Revenue – Total Cost = 0
Loss: Total Revenue – Total Cost < 0
3.4-1
3.4-2
✔✔
Cost information systems are often unable to provide the data needed to assess logistics process alternatives.
✔✔
Logistics-oriented costing must focus on the output of the logistics system, i.e., the service provided.
downtime, risk, cycle time and conversion, in addition to network costs and other non-value adding
costs.
♦ Post-ownership costs
Post ownership costs are associated with the long-term costs of purchases. This includes not just
the disposal costs but any effects on the environment, warranty and liability cost, and cost of
customer dissatisfaction.
Understanding the various cost sources enables the firm to cut costs in many areas, not just the
actual production stage. This can make the processes of a firm more efficient and allow it to offer
lower costs to the end customer.
❑ Costing the logistics process
Evaluating performance is one of the most cost-productive activities undertaken in logistics and supply chain
management. In the past, one of the reasons that the adoption of an integrated approach to logistics and
distribution management has proved so difficult is the lack of appropriate cost information. The need for
organisations to manage the logistics process as a complete system − taking account of the effects decisions
taken in one cost area have on other cost areas − has implications for how the cost accounting systems will
function.
Conventional accounting systems grouped costs into broad, aggregated categories. These did not
allow the more detailed analysis necessary to identify the real costs of process alternatives. Without
the ability to analyse aggregated cost data in more detail, it was difficult to appreciate the potential
for cost trade-offs that occur when analysing options within the logistics system. However, modern
analytical applications have minimised some of these problems (see Unit 6).
Generally, the effects of these trade-offs are assessed in two ways:
♦ From the point of view of their impact on total costs.
♦ From the point of view of their impact on sales revenue.
For example, it may be possible that an option (e.g. shipment by air) results in a total cost increase,
yet because of the better service now offered, sales revenues also increase. If the difference
between revenue and cost is greater than before, the trade-off may be beneficial. However, without
an adequate logistics-oriented cost accounting system it is extremely difficult to identify the extent or
the advantage of a particular trade-off.
The difficulty in developing an appropriate logistics-oriented costing system is, primarily, one of focus. What
is required is the ability to focus on the output of the logistics system − in essence, the provision of a service −
and to identify the unique costs associated with that output. Traditional accounting methods lack this focus,
mainly because they were designed for a different purpose. This is particularly so when
MLS
The principles of good logistics costing

It should mirror the logistics process
It should be able to separate costs and revenues by...
it comes to assessing the cost of logistics operations within an organisation.
Unless the organisation operates an activity-based costing (ABC) system or other form of internal
service charging, it may be difficult to find historical data on these costs. However, to justify
outsourcing all or part of the logistics operation, it is necessary to collect cost data in order to
compare it to the rates offered by contractors.
One of the basic principles of logistics costing systems is that the costing system should mirror the
materials flow, i.e., it should be capable of identifying the customers that are serviced by the logistics
mission and allocate the costs to each of these.
A second principle is that the system should be capable of enabling separate cost and revenue
analyses to be made by supplier/customer type, by supply/sales market segment, and by
inbound/outbound distribution channel. This latter requirement emerges because of the dangers
inherent in dealing solely with averages – e.g., the average cost per delivery – since these can often
conceal substantial variations on either side of the mean.
Figure 3.4-3
...type of supplier/
...distribution customer
...supply/sales
channel
market segment
A number of elements can affect the costs and efficiency of an enterprise, including the capabilities
of a firm’s management, the efficiency of its labour, the amount and quality of subcontracting and the
capacity of the plant itself27.
✔✔
Those elements are variable both over time and in relation to different products.
Missions aim at specific outputs, and cut across company lines. ❑ Linking costs to the logistics
mission
To operationalise these principles requires – as we have mentioned above – an ‘output’ orientation
to costing. In other words, first define the desired outputs of the logistics system or supply chain and
then seek to identify the costs associated with providing those outputs.
27 ibid
A useful concept here is the idea of a ‘mission statement’. In the
context of logistics and supply chain
management, a mission statement is the foundation from which a company develops strategies,
plans and tactics. When combined with a set of performance goals and objectives, a logistics and
supply chain mission can provide goals and direction for logistics, purchasing and supply personnel.
Missions can be defined in terms of the type of customer served, the type of products, and the constraints of
service and cost. A mission − by its very nature − extends across traditional company lines. The following
figure illustrates the concept and demonstrates the difference between an ‘output’ orientation based on
missions and the ‘input’ orientation based upon functions.
Figure 3.4-4 Logistics’ Logistics’ mission mission extends

extends across across functional functional
boundaries boundaries
Purchasing Purchasing
Sales Sales
Warehousing Warehousing
Production Production
MarketingMarketingEtc.. Etc..
Logistics/supply Logistics/supply chain chain OOmission mission A
A UULogistics/supply chain
mission B Logistics/supply chain mission B TTPPUULogistics/supply Logistics/supply chain

chain mission mission C C
TTS S
The successful achievement of defined missions and goals involves input from a large number of
functional areas and activity centres within the organisation. Thus, an effective logistics costing
system seeks to determine not only the total system’s cost of meeting desired logistics or supply
chain objectives (the ‘output’ of the system), but also the costs of the various inputs involved in
meeting these outputs. This approach is known as ‘mission costing’ because it is linked to the
logistics missions referred to above28.
The following figure illustrates how three logistics missions have an impact upon functional
area/activity centre costs and, in so doing, provide a logical basis for costing within the company. As
a cost or budgeting method, mission costing is the reverse of traditional techniques. Under this
scheme, a functional budget is determined by
28 Christopher, M.G., Total Distribution: A Framework for Analysis, Costing and Control, Gower Press, 1971.
✔✔
An attributable cost is one that can be avoided by dropping a particular operation without changing the basic
organisation structure.
MLS
the demands of the corporate missions that it serves. Thus, in this figure, the cost per mission is
identified horizontally and from this the functional budgets may be determined by summing vertically.
Figure 3.4-5 Logistics programme budgetingFunctional

activity area/
centre
Functional
activity area/ Functional
centre
activity area/ Functional activity area/
centre centre
Total
mission cost 1
234
1. Determine the cost of Mission A

100 90 20 80
290
each mission
Mission B
50 70 200 20
340
Mission C
70 30 50 70
220
2. Allocate mission costs to individual centre Area/ 220 areas/centres
190 270 170
850 inputs
3. Determine the total cost
3.4-3
allocated to each area/ centre
29
The pioneering work of Barrett developed a framework for the application of mission costing. This
approach requires, firstly, that the activity centres associated with a particular logistics mission be identified −
e.g., transport, warehousing, inventory, etc. − and, secondly, that the incremental costs for each activity centre
incurred as a result of undertaking that mission, be isolated. Incremental costs are used because it is important
not to take into account ‘sunk’ costs, i.e., costs that would still be incurred even if the mission were abandoned.
We can make use of the idea of ‘attributable costs’30 to operationalise this concept. Attributable cost
is a cost per unit that could be avoided if a product or function were discontinued entirely without
changing the supporting organisation structure.
In determining the costs of an activity centre, e.g. transport, attributable to a specific mission, the
question should be asked: “What costs would be avoided if this supplier / customer / segment /
channel were no longer serviced?” These avoidable costs are the true incremental costs
29 Barrett, T., ‘Mission Costing: A New Approach to Logistics Analysis’ International Journal of Physical Distribution and
Materials Management, Vol. 12, No. 7, 1982. 30 Shillinglow, G., ‘The Concept of Attributable Cost ‘, Journal of
Accounting Research, Vol. 1, No. 1, Spring

1963.

Managing Logistics in The Supply Chain

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Managing Logistics in The Supply Chain

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MANAGING LOGISTICS

IN THE SUPPLY CHAIN

MODULAR LEARNING SYSTEM IN

Managing Logistics in the

International Trade Centre (ITC)

 International Trade Centre UNCTAD/WTO 2000

Annex 2 Packing and Containerisation

Annex 3 International Transport Alternatives

Annex 5 Transport Documents & Conventions Covering Liability of the Carrier

Unit 3 Customer Value

Unit 4 Operational Issues 4.4-2

Module 10: Contents v

Unit 6 Information Technology

Annex 1 Inter-store Vehicles & Stores Handling Equipment

Annex 3 International Transport Alternatives

Annex 5 Transport Documents & Conventions Covering Liability of the Carrier

About this Module

The Coursebook for this Module is made up of a series of Units. Each of

♦ Learning Objectives: the knowledge and skills you will have

♦ Key Points: highlights of particularly important issues.

♦ Definitions: explanations of concepts and specialised terminology

♦ Figures: a variety of graphical and visual presentations of concepts

♦ Action Points: these are practical exercises and applications of

♦ Learning Checks: these are self-assessment checks at the end of

Contemporary Logistics, 7th Edition. Prentice Hall:

♦ Delivered with the right tailored services (e.g. user technical

a) Operational responsibilities of logistics

Logistics in most organisations generally involves three stages.

♦ Stage 1: inbound logistics

♦ Stage 2: internal distribution (also materials management)

When handling incoming supplies, it is important to remember that not

2 Module 10: Unit 1

warehouse for ease of identification and may require additional

♦ Stage 3: outbound logistics

Companies generally seek to integrate their approach to logistics by linking

Figure 1.1-1 Operational aspects of

❑ Main day-to-day responsibilities

The following list indicates the scope of the logistics manager’s

♦ Managing the interfaces relating to delivery of goods between

♦ Organising picking and packing according to requirements and

♦ Ensuring the preparation, labelling, cleaning, sorting and

♦ Managing transport in compliance with requirements and

Module 10: Unit 1 3

Components of total product cost

❑ The cost of logistics

In the past, one reason that an integrated approach to logistics and

Total unit cost = Unit purchase price

+ Logistics costs (transportation, storage and

+ Cost of managing risk (e.g. insurance)

+ Transaction costs (e.g. exchange rate loss)

+ Deterioration and write-offs

+ Cost of capital (% interest x value and other

Shortening transportation and storage times and optimising load sizes

Module 10: Unit 1 5

of external bodies such as shipping and freight agencies, independent ✔✔

The content of each unit is outlined below.

Unit 2 The focus of this Unit is to explore c

The world is opening up through increased accessibility, boundaries are

Module 10: Unit 1 11

Unit 2 Strategic Issues

Figure 2.1-1 Elements of World Class Supply Chain

The key difference between supply chain management and logistics

The foundation of supply chain management is satisfying the end customer.