ỦY BAN NHÂN DÂN THÀNH PHỐ CẦN THƠ

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READING PART
ANH VĂN CHUYÊN NGÀNH

NGÀNH: Quản lý Công nghiệp & Kỹ thuật hệ thống Công Nghiệp

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Tài liệu lưu hành nội bộ

TP CẦN THƠ – Tháng 05 /2018
Học phần: ANH VĂN CHUYÊN NGÀNH KỸ THUẬT HTCN
(ENGLISH FOR INDUSTRIAL SYSTEM ENGINEERING)

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Nội dung Số tiết

Chương 0: Introduction 3
Chương 1: Supply chain management 3
Chương 2: Supply chain strategy 3
Chương 2: Logistics management 3
Chương 3: Project management 3
Chương 4:Total quality management- Six sigma- Product
3
design and development
Chương 5: Marketing mix 3
Presentation 9
Final test

Tài liệu tham khảo:

i
 [1] Yair Holtzman. 2012. Advanced Topics in Applied Operations Management.
ISBN 978-953-51-0345-5, Hard cover, 200 pages, Publisher: InTech, Published:
March 16under CC BY 3.0 license.
[2] Nigel Slack. Stuart Chambers and Robert Johnston. Operations Management.
Fourth edition

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Table of Contents
READING 1: SUPPLY CHAIN MANAGEMENT ..............................................1

READING 2: SUPPLY CHAIN STRATEGY ......................................................7

READING 3: LOGISTICS MANAGEMENT ................................................... 22

READING 4: PROJECT MANAGEMENT....................................................... 31

CHAPTER 5: TOTAL QUALITY MANAGEMENT- SIG SIXMA-PRODUCT

DESIGN & DEVELOPMENT ............................................................................ 35

READING 5: MARKETING MIX ..................................................................... 41

Image names ......................................................................................................... 43

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 READING 1: SUPPLY CHAIN MANAGEMENT
https://aims.education/study-online/what-is-supply-chain-management-
definition/Supply Chain Management Definition
Let us first understand What is Supply Chain Management? A supply chain is a
global network used to deliver products and services from raw materials to end
customers through an engineered flow of information, physical distribution, and
cash. A supply chain, in view of the above supply chain management definition,
comprises a network of both entities and processes (the engineered flow). A supply
chain doesn't have to be global, but the massive chains that interest us in this course
-the ones that run through corporations, are decidedly global in scope.
Figure below illustrates a very basic supply chain (one that is not necessarily
global) with three entities--a producer with one supplier and one customer.

What is Supply Chain Management? Its Basics and Introduction:

Three “entities” that perform the processes can be business or governmental
organizations or (at least in theory) individuals. They can also be departments or
functional areas or individuals within a larger organization; there are internal as
well as external supply chains. For the most part the model applies to corporations.
Most work on supply chains, both theoretical and applied, involves a manufacturing
firm in the middle (although service firms also have supply chains) with a supplier
of materials or components on the upstream side and a customer on the downstream
side. As per the supply chain management definition and speaking technically, a
supply chain needs only those three entities to exist. But that isn't realistic for the
types of global supply chains of interest in this course.
To understand what is supply chain management? we have simplified the concept
in a figure. It might be made up of these organizations:

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  A supplier, a provider of goods or services or a seller with whom the buyer
does business, as opposed to a vendor, which is a generic term referring to all
sellers in the marketplace. The supplier provides materials, energy, services, or
components for use in producing a product or service. These could include items as
diverse as sugar cane, fruit, industrial metals, roofing nails, electric wiring, fabric,
computer chips, aircraft turbines, natural gas, electrical power, or transportation
services.
 A producer that receives services, materials, supplies, energy, and
components to use in creating finished products, such as dress shirts, packaged
dinners, air-planes, electric power, legal counsel, or guided tours. (Note that supply
chain management for services may be more abstract than those for
manufacturing).
 A customer that receives shipments of finished products to deliver to its
customers, who wear the shirts, eat the packaged dinners, fly the planes, or turn on
the lights.

Introduction to Supply Chain Management Structures

An organization’s supply chain management or network can have many forms. It
can be a simple chain structure with a single strand, as shown in Figure 1-1, a
complex network, or any structure between those two extremes. No matter whether
it is a product or service chain, or what types of entities are involved, companies
require their supply chain to guarantee a steady flow of supply while at the same
time striving to reduce their supply chain costs. They can improve operating
efficiency by employing the right supply chain management structure.
Depending upon the type of industry, supply chain costs can be as high as 50%
of a company’s revenues. According to research done by A. T. Kearney, a global
consulting firm, inefficiencies in the supply chain can total 25% of a firm’s
operating costs. When a company is faced with thin profit margins, like 3% to 4%,
even a small improvement in efficiency can double profitability. Implementing the
appropriate cost-centered structure and strategy is critical.

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 There are three main types of supply chain strategies: stable, reactive, and
efficient reactive. The stable supply chain strategy is appropriate for chains:
 With a significant history of stability between demand and supply.
 That are focused on execution, efficiencies, and cost performance.
 That use simple connectivity technologies and have little need for real-time
information.
What is Supply Chain Management? - Understanding Using an Example:
Consider, as a very simplified instance of this stripped-down supply chain model,
a young street vendor who sells just a few light snacks. This is a familiar sight on
warm summer days around the globe, whether it is fresh crepes in Paris, roasted
chestnuts in New York, or small servings of spicy tapas in South America. In many
ways, the food vendor on the street resembles small family businesses that exist in
cities all across the world.
This simple street vendor represents one end of a supply chain. The supplier is
probably a small wholesale food distributor that sells basic ingredients to many one-
or two-person food kiosks. The worker is the “producer” who turns the raw
ingredients into crepes, roasted nut mixes, or a variety of easy-to-cat tapas. The
stand, operated by one or two owners, is the retailer that sells the finished delicacies
to the customers or passes by who are cajoled into making a purchase.
Notice that even in this simplest of supply chains, the basic model needs
amplification. For instance, there are more suppliers than one. While flour and nuts
may be procured from the same supplier, water to warm the stainless steel food
containers comes from the employee’s kitchen facet, and the supplier of that water
may actually be a government entity rather than another business. Electricity is
supplied to light this mini “manufacturing center.” Nearby is a food preparation area
with refrigeration for storing the perishables needed plus shelves and drawers to
hold various basic supplies, such as tongs and other utensils. There is also wood to
build the stand and a white board and markers for making signs to advertise the
day’s offerings. Somewhere in the chain, though they remain invisible in our model,
are suppliers’ suppliers, who bring materials, components, or services to the food
wholesaler and the utility companies.
What is Supply Chain Management? - in Manufacturing:
Discussions of supply chains typically put manufacturing at the center and
suppliers of components to the immediate left. It may be that component suppliers
are the most crucial consideration when designing and managing a supply chain
management for manufactured products, but utilities and other services are not
inconsequential contributors to the cost of operations.
In the case of our food vendor on the street, services most obviously include
utilities, transportation, warehousing, carpentry, and cleanup, among others.
Utilities, which are suppliers to all manufacturers, are crucial considerations when

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locating plants and warehouses. If water and electricity (or natural gas, or both) are
not available at a proposed site, they cannot be readily made available.
Tier 1 suppliers have their own suppliers in Tier 2. The wholesale food
distributor that supplies the daily ingredients and raw materials for the menu items
has its material and service suppliers—and they have their suppliers, and so forth.
The flour for the crepes, for instance, is not a raw material but a product with its
own supply chain management that begins in a farmer’s wheat field and is
processed in a plant, shipped to a wholesaler, and distributed to the corner store. No
matter how far you travel toward the left, you will never run out of new tiers of
suppliers.
Even a raw material extractor, such as a coal mine, has its own suppliers of
extraction machinery and services. In fact, the coal mine may ship coal to a
generating plant that supplies power to the manufacturer that produces a machine
that is shipped to a distributor that sells mining equipment to the same mine that
began the process; supply chains can double back on themselves. (A distributor is a
business that does not manufacture its own products but purchases and resells these
products.)
What is Supply Chain Management?- In Services
Although the traditional supply chain management model was developed in
manufacturing, the service industry, too, has supply chains. According to the A
PICS Dictionary, 13th edition, a firm in the service industry is “in its narrowest
sense, an organization that provides an intangible product such as medical or legal
advice.” It may also be derived from supply chain management definition. In its
broadest sense, service industries include “all organizations except farming, mining,
and manufacturing. It includes retail trade; wholesale trade; transportation and
utilities; finance, insurance, and real estate; construction; professional, personal, and
social services; and local, state, and federal governments.”
Service-oriented supply chains also require sophisticated management. The
supply chain of an electric utility. It receives products, services, and supplies of its
own and dispenses its services into three distribution channels: home customers,
commercial customers, and other utilities.
The flows in our street vendor example aren’t quite as simple as might be
supposed, either. The “products” that move through the chain could include
materials, supplies, and the components used in the production of the menu items.
Information flows may be fairly rudimentary orders submitted by end users (caters)
of the product, by the distributor (the person on the street with the cart) to the
manufacturer (the person who assembles the ingredients), and by the manufacturer
to the supplier (the source of the food). There will be recipes and shopping lists,
discussions of potential demand, perhaps records of last year’s results. The flows of

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cash may be based upon information contained in cash register or credit card
receipts.
Cash travels in several separate flows from the manufacturer to suppliers of
products and services and, of course, to any lenders or investors for debt or dividend
payments. There are also logistics concerns: transportation from one entity to the
other - perhaps drawing upon the private fleet of a car or two - as well as the
warehousing decisions. And, finally, the reverse supply chain management - you’ll
read more about that later - exists to return any unacceptable menu items, to recycle
the vegetable waste into a composter, to reuse utensils and other supplies after
sterile cleansing, and to dispose responsibly of any packaging.
Many global businesses began in someone’s home office, garage, or basement
with the glimmering of an idea for, let us say, a computer operating system or a new
idea for consumer-to-consumer e-commerce. Perhaps the food vendor comes up
with a new twist on the old recipe for crepes; a customer is impressed and asks if
the vendor can make 50 crepes for a lunch-time birthday celebration at his nearby
office; someone at the birthday lunch owns a neighbourhood restaurant...and before
long the vendor has rented space in a small commercial kitchen facility to supply
special made-to-order crepes for local businesses within a few blocks. It’s
surprising how many challenges and opportunities can be anticipated and can be
seen most easily in a very simple model.
Summing Up the Concept of Supply Chain Management
There are many variations on the basic supply chain management concepts and
models presented so far. Here are some basic points to keep in mind as the
discussion continues and grows more complex.
 A supply chain involves, directly or indirectly, everyone and everything
required to extract materials, transform them into a product, and sell the product to
a user.
 Supply chains include various entities, such as raw material extractors,
service and component suppliers, a material product manufacturer or a producer of
services, distributors, and end customers.
 Supply chain management structures vary based on demand history, business
focus, and needs for connectivity, technology, and equipment.
 Supply chains can be viewed in terms of processes, such as the gathering and
processing of marketing data, distribution and payment of invoices, processing and
shipping of materials, scheduling, fulfilment of orders, and so forth. Such functions
cut across entities.
 Supply chains include various flows as well as various entities. Materials
and services flow from suppliers toward customers; payment flows from customers
toward suppliers; information flows both ways. Supply chains also run in reverse,
starting with the customer who sends back such items as components for

5
replacement or repair, returned goods for re-manufacture, and obsolete goods for
recycling or disposal. The reverse chain, like the forward chain, also comprises
information flows and cash or credits.
Supply chain management expertise is so important in today’s business world
that an annual survey is conducted to identify the 25 best supply chain leaders based
on specific criteria. It’s a major accomplishment to be named to that list and an even
higher compliment when a company manages to remain in that top echelon of
supply chain performers for consecutive years. Check the online Resource Center
for a link to those survey results and to see which companies are top-ranked for
their supply chain management expertise.
Note: This lecture on "what is supply chain management?", is taken from series
of lectures designed for the supply chain management courses. These courses are
designed for supply chain management diploma and supply chain management
degree online programs. These programs are globally recognized in the SCM
industry and they are offered by the Academy for International Modern Studies in
UK - through online and interactive learning.

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 READING 2: SUPPLY CHAIN STRATEGY
https://aims.education/study-online/supply-chain-strategy/
Supply Chain Strategy or Strategic Supply Chain Management is defined as:
“A strategy for how the supply chain will function in its environment to meet the
goals of the organization’s business and organization strategies”.
UNDERSTANDING STRATEGIC SUPPLY CHAIN MANAGEMENT
There’s a kind of magic in some words, “strategy” and “strategic” being key
examples. Place “strategic” in front of the name of any business process and
suddenly that process acquires an aura of great importance. Strategic objectives cry
out to be achieved in a way that simple objectives do not. Strategic planning sounds
considerably more sophisticated and powerful than plain old planning. There’s a
reason those words have such power. Strategy, originally a military term, is how
generals marshal all available resources in pursuit of victory. Strategy wins football
games and chess matches—or loses them.
It’s really the same in the business world. Each company has a business
strategy that paints a broad picture of how they will compete in the marketplace.
Since business strategy is like military strategy in that it requires the marshaling and
organizing of all its resources, then it becomes clear that the business’s supply chain
can be its most potent strategic resource. Designing and building the right supply
chain, one that promotes the business strategies, may just be the most powerful way
to gain an edge on the competition, to move faster, deliver more value, and be more
flexible in the face of both steady change and surprises. The supply chain strategy is
a complex and evolving means that organizations use to distinguish themselves in
the competitive contest to create value for their customers and investors.
As illustrated in figure mentioned below, you can see how the direction of a
firm or organization is predicated on its business strategy. Of course many
organizations now also use mission and vision statements to give clarity to their
purpose.

7
 If these strategies are not aligned, the direction and fit will be askew. All three
strategies are linked and dependent.
BUSINESS STRATEGY:
A plan for choosing how to compete. Three generic business strategies are:
 Least cost.
 Differentiation.
 Focus.
ORGANIZATIONAL STRATEGY:
The strategy of an enterprise identifies how a company will function in its
environment. This supply chain strategy specifies how to satisfy customers, how to
grow the business, how to compete in its environment, how to manage the
organization and develop capabilities within the business, and how to achieve
financial objectives.
Prior to discussing organizational and supply chain strategy in more detail, the
first topic in the section addresses business strategy and competitive advantages.
Competitive advantages are closely related to business strategy because they outline
the advantages the organization should realize once it has decided how it will
compete. Other concepts covered in this section includes:
 Organizational and supply chain strategy.
 Prioritization options.
 Organizational capabilities.
 Alignment of capabilities and strategy.
 Resolving misalignment or gaps.
STRATEGIC SUPPLY CHAIN MANAGEMENT:
BUSINESS STRATEGY:
Typically a business strategy among supply chain strategies will outline how
to grow the business, how to distinguish the business from the competition and
outperform them, how to achieve superior levels of financial and market
performance, and how to create or maintain a sustainable competitive edge. As per
the definition provided previously, business strategies include least cost,
differentiation, and focus. Least cost relates to a lower cost than the competition for
an otherwise equivalent product or service. Differentiation relates to a product or
service with more features, options, or models than the competition. Focus relates to
whether the product or service is designed for a broad audience or a well-defined
market segment or segments. There are many ways that these generic strategies can
be combined or made into hybrids. For example, common business strategies that
are generic to many industries and manufacturers include the following variations:
 Best cost—creates a hybrid, low-cost approach for providing a differentiated
product or service.

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  Low cost—focuses on delivering low price and no-frills basics with prices
that are hard to match.
 Broad differentiation—creates product and service attributes that appeal to
many buyers looking for variety of goods.
 Focused differentiation—develops unique strategies for target market niches
to meet unique buyer needs.
 Focused low cost – designed to meet well-defined buyer needs at a low cost.
COMPETITIVE ADVANTAGES:
Competitive advantages mirror the strategies used to create them: A
competitive advantage exists when an organization is able to provide the same
benefits from a product or service at a lower cost than a competitor (low cost
advantage), deliver benefits that exceed those of a competitor’s product or service
(differentiation advantage), or create a product or service that is better suited to a
given customer segment than what the competition can offer (focus advantage). The
result of this competitive advantage is superior value creation for the organization
and its customers. If this advantage is successfully implemented and marketed, it
should result in improved profits and market share.
FOCUS ADVANTAGE STRATEGIES:
The following discussion is divided into two ways to create a focus advantage:
 Niche marketing (versus mass marketing).
 Responsiveness.
Niche marketing (vs mass marketing)
Firms can choose to develop products and services for a mass market or for a
relatively small slice of a larger market – a market niche. Some examples of niche
market approaches include
 Catering to high-net-worth customers with products such as luxury
automobiles, yachts, large homes, or specialized services such as estate
planning, personal training, or expensive cruises.
 Designing for a limited age group, such as children or senior citizens with
special needs instead of serving a broader population.
 Providing products or services for residents of a particular geographic area,
such as growing vegetables for a neighbourhood market rather than for
packaging and shipping around the nation or world.
Niche marketing shares some characteristics with product service
differentiation. In both cases, the product or service provided to customers has
special features. Differentiation by quality, for example, can be the same thing as
catering to high-net-worth customers. (Low-net-worth customers, or value shoppers,
can also be niche.) Therefore, some supply chain strategies will work for both
approaches. Collaboration to achieve distinctive design is one example. Depending

9
upon the niche, sourcing may focus more on finding special expertise or high-
quality materials rather than on low-cost labor.
Responsiveness:
Perhaps the most obvious example of responsiveness is the fast-food industry
that grew up in the last half of the 20th century, led by McDonald’s. Diners at fine
restaurants will happily wait half an hour for their specially cooked steak, but
employees on short lunch breaks become impatient with even a few minutes in line
as their sandwiches are prepared, using the supply chain strategy. In the early days
of the Toyota Prius automobile – a highly differentiated car—buyers were known to
wait for months for a new vehicle. (The same phenomenon occurred when the
Volkswagen “Beetle” first came to the United States, where it was both highly
differentiated and a low-cost option.) But businesspeople or diplomats on
assignment expect a rental car or limousine to be ready immediately when they
arrive at the airport. Manufacturers of clothing prosper or go bankrupt by their
ability to bring the latest seasonal designs to market rapidly. Perishable products,
such as raw food items, must be delivered rapidly, unlike preserved foods. Services
may also compete on the basis of speed by cutting time spent waiting on the phone,
standing in line, or processing paperwork.
Supply chains designed for responsiveness may rely on substantial supplies of
safety stock to avoid outages. (Overstocked seasonal items typically go on sale at
the end of the season.) They may also have multiple warehouses to place products
nearer to users. Third-party providers of rapid transportation, such as package
delivery services, were developed to suit the needs of such supply chains.
Choosing business strategies:
While some firms may focus primarily on one business strategy, others may
pursue a mix of strategies. Note, however, that making one strategy the priority may
make other strategies difficult to achieve. For example, providing high quality at the
lowest price is a challenge. But not all the strategies are mutually exclusive. Product
differentiation and niche marketing fit well together. Either responsiveness or low
cost may be a key competitive factor that differentiates a firm from its market rivals.
Once an organization has decided on a business strategy, it uses these choices
to drive the organizational strategy and eventually the supply chain strategy.
ORGANIZATIONAL AND SUPPLY CHAIN STRATEGY,
PRIORITIZATION, CAPABILITIES, AND ALIGNMENT
Organizational strategy:
Recall that the supply chain strategy of an enterprise identifies how a company
will function in its environment. The strategy specifies how to satisfy customers,
how to grow the business, how to compete in its environment, how to manage the
organization and develop capabilities within the business, and how to achieve
financial objectives.

10
 Where do you start when building an organization’s strategy? As author and
business consultant Stephen R. Covey says in The Seven Habits of Highly Effective
People, “begin with the end in mind,” that is, think first about the goals of the
supply chain strategy.
Goals of Organizational Strategy:
Whatever strategy the corporation adopts to satisfy customers, grow, compete,
organize itself, and make money, the supply chain has to operate in a manner that
furthers those goals. To give a simple example, if customers are clamoring for
deeply discounted prices on durable, high-volume goods with stable demand, a
supply chain strategy that invests heavily in sourcing lower-cost materials in
emerging markets would be on target for accomplishing that goal. Low-cost
sourcing is probably the best option for this strategy because purchasing machines
involves a high capital investment and lower labor expenses could help offset the
investment costs. However, you might also look into investing in equipment, as the
high investment is covered by lower labor costs and increased revenue. (It is
possible for an organization to do both¬ invest in automation and move into a
geographic area where labor costs are less. That decision would be based on
volume, payback period, product life cycle, etc.).
Horizontal supply chains will contain a number of independent organizations,
each with its own goals, processes, operations, technology, and strategy. So, when
we refer to the necessity of aligning supply chain strategy with organizational
strategy, we are referring to the strategies of a channel master or nucleus firm.
Traditionally, that’s the manufacturer of a product—the company that sits right at
the center of the chain (or network) with suppliers in tiers on one side and
customers on the other.
However, if a supply chain has a dominant firm with a dominating supply
chain strategy (one that is dictating its requirements to others), for example, a large
retailer, then supplier and manufacturer strategies and goals must align with that
retailer’s organizational and supply chain strategies. The suppliers of suppliers also
have strategies to be brought into alignment. Finally, the strategies, once aligned,
have to do two things: serve the end customers’ needs and be profitable for the
chain as a whole and each company individually.
The following looks at four types of organizational strategy in detail: customer
focus and alignment, forecast-driven enterprise, demand-driven enterprise, and
number of supply chains.

Supply Chain Strategy: Customer Focus and Alignment

When it comes to supply chains, it’s what’s good for the customer that counts
not what’s good for the nucleus company or even what seems to be good for the
supply chain itself Supply chain management needs to be focused on giving the

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final customer the right product at the right time and place for the right price. It isn’t
necessarily about the most advanced product or service, nor is it always about the
lowest price, the fastest time, or the most convenient place. It’s about the balance of
quality, price, and availability (timing and place) that’s just right for the supply
chain’s customer.
How does one determine what is the right amount of each of those factors?
There isn’t a simple formula that will help the supply chain manager with this
decision. But there are some basic premises that will help you get started in
determining the appropriate balance:
 Serving the end-user customer is the primary driver of supply chain
decisions.
 Organizations in the supply chain have to make a profit and stay in business
to serve the customer.
Functional teams in the organization will provide their input and research on
the optimal balance for the supply chain to meet customer needs. Design engineers
– or, better yet, design teams from across the network—design products that are
right for the end customer and can be sold profitably. Market research looks for the
true, and not always obvious, needs in potential consumers that the supply chain can
be engineered to satisfy profitably. Logistics supply chain strategy begins with data
about customer demands for availability—of materials, components, service, or
finished products, depending upon the customer—and then it looks for ways to
move products in a cost-effective way with acceptable risk.
Decisions are not just about product features or price or speedy delivery. They
are about the right features at the right price on the right schedule. DOS was not a
great operating system; it was just the right operating system for the time and the
market.
The term “customer” can be a complex concept in relation to supply chains
because there are multiple customers with different stakes in the process. When we
talk about customer focus, we mean the end user, the consumer of the product. But
usually only the retailer actually sees the end user and has a direct relationship with
that person or entity.
Everyone else in the supply chain has a more immediate customer just
downstream to our right in the supply chain diagram. If the supply chain is
completely aligned in its focus on the end customer, then, at least in theory, serving
the customer just to an organization’s downstream side would automatically serve
the end user and also be in the supplying organization’s best interest as well as the
interest of investors.
Moreover, within each supply chain partner there are internal “customers”
whose needs also must be aligned with corporate and supply chain strategies. Each
manager must understand his or her role in making the supply chain profitable, and

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staff, too, must be rewarded, motivated, and trained in alignment with the needs of
the supply chain’s end customer.
Consider sustainable supply chain management. Successfully managing for
sustainability requires a strategic mindset, involving numerous personnel and
financial resources and a commitment from suppliers from first to lower tiers of the
supply chain as well as consumers further up the supply chain. Departments must
cooperate with other departments in their organization (e.g., purchasing and
environmental or design departments) and with their counterparts at suppliers. This
type of collaboration between supply chain partners necessitates breaking down
cultural barriers and building a culture of trust to ensure that the focus is on end-to-
end supply chain activities and not just discrete supply chain processes. Creating
and managing a sustainable supply chain requires an organization to be informed,
exercise leadership, and cooperate with all supply chain partners in achieving
positive results on the triple bottom line.
Supply Chain Strategy: Forecast-Driven Enterprise
A second organizational strategy is the forecast-driven enterprise. Simply put,
this strategy is one in which the nucleus firm, usually their manufacturer, utilizes a
forecast, an estimate of future demand, as the basis of its organizational strategy.
Here is the complicating factor: It is difficult to know what customer
requirements will be from day to day, month to month, quarter to quarter, and so on.
For instance, if a manufacturer was guaranteed that its wholesale or retail customers
were going to need 1,000 SKUs (stock keeping units) every Wednesday afternoon,
then getting those products to customers at the right time and place would be a
matter of simple calculation based upon lead times for production and delivery. In
turn, the manufacturer would look at the bill of material, determine the lead time for
each, and submit schedules to its suppliers. Unfortunately, it’s difficult to predict
even the most stable demand—say, for a product like diapers. There is some
variability in demand for diaper, even though they aren’t subject to seasonal style
changes or rapid peaks and valleys in response to outside influences affecting
ability to pay. (That’s why Procter & Gamble cooperates with Wal-Mart to plan for
demand and replenishment of diapers.) The chain of demand begins at the far retail
end of the supply chain and works its way back toward the source of raw materials
used in making the product. The traditional way of attempting to satisfy this
demand is to forecast it.
In this retail example, forecasting along the chain works like this:
 The retailer forecasts demand from parents who purchase diapers.
 The wholesaler forecasts demand from all its retailers.
 The manufacturer forecasts demand from the wholesale distributors.
 The component suppliers forecast demand from manufacturers.

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  The raw materials suppliers forecast demand from the component
manufacturers.
How effective is this supply chain strategy? Let’s say you don’t want to be
placing large bets on the accuracy of all those forecasts. Here’s what actually
happens:
 Parents vary their diaper-buying patterns in fairly small increments due to .
factors nobody fully understands. They may go to different stores for a
change, shop on Tuesday instead of Wednesday, or buy two or three weeks’
worth at one time because the diapers are on sale. So, actual demand never
quite meets the forecast
 Meanwhile the retailer had already ordered enough to allow a little extra
“safety stock” to put in its storeroom. (For retailers, safety stock is a quantity
of stock planned to be in inventory to protect against fluctuations in demand
or supply.) Or maybe the retailer runs a promotion that is not communicated
to the distributor, thus resulting in needing a larger order than was previously
forecasted. These fluctuations impact forecasting for the distributor.
 The wholesale distributor had forecasted demand based on past orders from
its retailers. But now those demand patterns have a wider variability than the
demand pattern at the retailer’s checkout counters due to that safety stock the
retailer held on to. Sometimes the safety stock accumulates because demand
is less than the forecast, and this means that the retailer’s next order is for
less than its forecast—or perhaps it doesn’t have to order at the usual time at
all, because it has a glut of diapers—which it probably sells off in a
promotion. The upshot of all this is that the small variations in end-user
demand are magnified at the distributor.
 Up the chain, the manufacturer of those diapers looks at the demand pattern
from the distributor and makes its own forecasts, which show an even wider
swing in variability.
 And this variability goes up the chain with ever-wider swings.
As mentioned earlier in this chapter, this pattern of variability is called the
bull-whip effect, and it affects all manner of supply chains that are based on serial
forecasting by each independent division or firm that touches the product as it
travels from raw material to finished retail item.
Strategy: Demand-Driven Enterprise
The next organizational strategy we’ll look at is the demand-driven enterprise.
The bull-whip effect is driven by demand forecasts; the solution is to replace the
forecasts with actual demand information. This isn’t necessarily a simple matter
either, but supply chain professionals have evolved techniques for letting actual
orders (not forecasts) drive production and distribution. In the demand-driven chain,
supply management is focused on customer demand. Instead of manufacturers

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planning their operations based on factory capacity and asset utilization, the
demand-driven supply model operates on a customer-centric approach that allows
demand to drive supply chain planning and execution—moving the “push-pull
frontier,” as it’s called, back up the chain at least to the factory. Instead of
producing to the forecast and sending finished products to inventory, the production
process is based on sales information. There is, in other words, no fixed production
schedule in a strictly demand-driven supply chain. Product is turned out only in
response to actual orders, “on demand,” in other words. (Note, however, that on the
supplier side of the plant, forecasts still determine delivery of raw material. The art
of forecasting remains crucial, even in a demand-driven chain.)
This is also known as a “pull system,” and it entails the following:
 In production, the production of items only as demanded for use or to replace
those taken for use.
 In material control, the withdrawal of inventory as demanded by the using
operations. Material is not issued until a signal comes from the user.
 In distribution, a system for replenishing field warehouse inventories where
replenishment decisions are made at the field warehouse itself, not at the
central warehouse or plant.
 When a supply chain works in response to forecasts, it’s called a “push”
chain, and it entails the following:
 In production, the production of items at required times based on a given
schedule planned in advance.
 In material control, the issuing of material according to a given schedule or
issuing material to a job order at its start time.
 In distribution, a system for replenishing field warehouse inventories where
replenishment decision making is centralized, usually at the manufacturing
site or central supply facility.
Everything in a push system is pushed downstream from one point to the next
according to schedules based on the forecasts. The supplier delivers components in
the amounts determined by the schedule to inventory, where they await use in
manufacturing. The plant turns them into finished products and pushes the products
to the distribution center or the retailer, where they await an order from
downstream.
The challenge in changing from forecast-driven (push) to demand-driven
(pull) systems is in reducing inventory without also lowering customer satisfaction.
When a demand-driven system is set up and managed properly, it can actually
enhance customer service while reducing costs. But stockouts are a risk. As always
with supply chains, the decision to switch to a demand-pull process trades one type
of risk for another:

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  In the forecast-push process, the risk is related to the build-up of inventory
all along the chain. Not only does inventory cost money while it sits in a
retail stockroom, distribution center, or preproduction storage area; it runs
the risk of becoming Obsolete or irrelevant for a number of reasons. In a
world of sapid innovation, inventory obsolescence is a very real threat. (For
example, Cisco Systems, for years an exemplar of successful and innovative
supply chain management, had to dispose of US$2.25 billion worth of
useless inventory when the dot-coin bubble burst at the beginning of this
millennium. All those season close-out sales you see in clothing and
department stores are a way of clearing out the overstock. Bookstore
remainder tables (which are much less in evidence than they were a decade
or two in the past) are a sign of inventory overhang caused by failed
forecasting.
 Magazine distributors used supply chain strategy to destroy huge quantities
of monthly magazines 12 times a year when they came back from retail
outlets. (Since magazines are inexpensive to produce and destroy compared
to their retail price, the distributors would rather destroy ten copies than miss
one sale.) Those are the results of producing to forecasts that no one trusts
and purposely overstocking to be sure of meeting unexpectedly high demand.
 In the demand-pull, make-to-order model, on the other hand, the risk is that
orders will begin to come in above capacity and al/ along the chain there will
be expensive activity to run the plant overtime, buy more and faster
transportation, or sweet-talk customers into waiting for their orders to be
filled or substituting a different product. (Running short of stock is also a risk
in the forecast-driven chain. Forecasts can be wrong in either direction.
That’s why the safety stock builds up at each point where orders come in.)
One technique to prepare for uncertain demand is kitting, which is preparing
(making/purchasing) components in advance, grouping them together in a
“kit,” and having them available to assemble or complete when an order is
placed.
In Gartner’s annual supply chain report, they rank the top 25 demand-driven
supply chains, thereby underscoring the importance of this strategy. In fact, the
companies that gain a position on this list have all applied demand-driven principles
to coordinate supply, demand, and product management to better respond to market
demand. If you would like additional information about this report, a link is
provided in the online Information Center.
In reality, most organizations pursue a push-pull supply chain strategy and the
point where push moves to pull is the key strategic decision. Once that decision has
been made, building a demand-driven enterprise can require significant changes in
all supply chain processes. The following are some major steps:

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  Provide access to real demand data along the chain for greater visibility of
the end customer. The first requirement is to replace the forecasts with real
data. The only supply chain partner with access to these data first hand is the
retailer, and retailers in the past have been no more willing to share business
data than any other firms. The other partners lack “visibility”—one of the
main supply chain principles. They simply cannot see what’s going on with
the end customer. But visibility supply chain strategy is a necessity for
building a pull system, and pioneers like Wal-Mart have led the way in that
regard. With point-¬of-sale scanning or radio frequency identification
(RFID), a retailer can alert its suppliers to customer activity instantaneously.
Instead of producing to the monthly forecast, manufacturers with that kind of
immediate signal from the front lines can plan one day’s production runs at
the end of the preceding day. They produce just enough to replace the sold
items.
 Establish trust and promote collaboration among supply chain partners.
Collaboration is implied in the sharing of information. But more is at stake
than simply sharing sales information. Partners may have to invest in new
technology and develop new systems to be able to use the real-time data.
With orders going out without a schedule, all processes will have to be
altered—warehousing (storage no longer needed), packaging, shipping, and
planning will all be handled differently in the new system. In return for
receiving real-time data that allow reduction of inventory; suppliers and
distributors have to agree to change their processes in whatever ways may be
necessary to make the new system function without disrupting customer
service.
 Increase agility of trade partners. Because the inventory buffers will not exist
or will be much reduced in this demand-driven supply chain, the trade
partners need to develop agility—the ability to respond to the variability in
the flow of orders based on sales. The plant, for example, may have to
undergo considerable change if it has to produce several different kinds of
products under the new circumstances. When making to forecast, a plant can
run a larger volume of each product to send to inventory. But when making
to order, the plant may have to produce several different types of products in
a day. There will be no room for long changeover times between runs of
different products; therefore, equipment, processes, work center layouts,
staffing, or siting—or all these things—may have to change to create the
capacity required to handle the new system.
Strategy: Number of Supply Chains
The last strategy we’ll cover is based on a company having more than one
supply chain, depending upon the number and types of products that are passing

17
along the chain and other variables. For a product with a complex bill of material
(many parts that combine into many components to make the final product), a
manufacturer may be bringing in materials from many suppliers. And these
materials might range from low-priced commodities to fragile or sophisticated
materials that require special shipping and handling. Suppliers might range from
small specialized firms to raw materials giants larger than the manufacturer. Some
are key accounts; some might be occasional buyers. The finished products may be
sold through several different channels—c-commerce, printed catalogs,
commercial, and retail. These variables may combine in different ways, each
suggesting its own type of supply chain strategy. Next we’ll explore how product
types, functional versus innovative, often require different supply chain strategies.
In “What Is the Right Supply Chain for Your Product?” Marshall L. Fisher
distinguished two types of products, functional versus innovative, that require
different supply chain strategies. Functional products that change little from year to
year have longer life cycles (perhaps more than two years), relatively low
contribution margins, and little variety. Because demand for them is stable, they are
fairly easy to forecast, with a margin of error of about 10 percent, very few
stockouts, and no end-of season markdowns. The appropriate supply chain for these
products should emphasize predictability and low cost with performance indicators
such as the following:
 High average utilization rate in manufacturing.
 Minimal inventory with high inventory turns.
 Short lead time (consistent with low cost).
 Suppliers chosen for cost and quality.
 Product design that strives for maximum performance and minimal cost.
However, make-to-order functional products, such as replacement parts for
customized equipment, usually have long lead times (six months to a year).
Innovative products have unpredictable demand, relatively short life cycles (three
months for seasonal clothing), and high contribution margins of 20 to 60 percent.
They may have millions of variants in each category, an average stockout rate from
10 to 40 percent, and end-of-season markdowns in the range of 10 to 25 percent of
regular price. The margin of error on forecasts for innovative products is high-40 to
100 percent—but the lead time to make them to order may be as low as one day and
generally is no more than two weeks. The supply chain for innovative products
should emphasize market responsiveness rather than physical efficiency, with
performance indicators such as the following:
 Excess buffer capacity and significant buffer (or safety) stock of parts or
finished items.
 Aggressive reduction of lead times.
 Suppliers chosen for speed, flexibility, and quality (rather than cost).

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  Modular design that postpones differentiation as long as possible.
Innovative products, with their high margins and unpredictable demand,
justify the extra expense for holding costs. (Fisher also proposes, however, that
manufacturers of innovative products can look for other solutions to the problem of
unpredictable demand, such as aggressively reducing lead times and producing
products to order rather than for inventory.)
Here is a conundrum… What happens when a product can fall into either
category? Fisher says that some products can be either innovative or functional.
Automobiles fit that description, with a low-priced, no-frills car like a base model
Chevrolet Cobalt or Hyundai Excel representing the functional end of the spectrum
and a Porsche representing the other end. Similarly, coffee can be functional—as
anyone who has worked in an office knows, in which case it should be available
quickly at a low price with perhaps cream and sugar as options. At a high-end
coffee shop, on the other hand, patrons are willing to endure longer lead times and
pay more money for their coffee, but they want variety in return.
The idea that the same type of product can be either functional or innovative
implies that one company might have more than one supply chain. And that’s the
contention of Jonathan Byrnes, a professor at MIT. Writing in the Harvard Business
School’s Working Knowledge, Byrnes asserts that one supply chain is not enough;
two, three, or more would be preferable. “One size fits all” supply chains may have
been sufficient in the past, he believes, when that was the competitive norm, but
new information technology makes it possible to have multiple, dynamic chains that
can accommodate different product and information flows.
Byrnes breaks products into three categories: staples, seasonal products, and
fashion.
 Staples (which are much like Fisher’s functional products) have steady, year-
round demand and low margins. White underwear is an example. Byrnes
advises stocking staples only in retail outlets in small quantities and
transporting them in truckload quantities. (A full truck, is more cost-effective
for the shipper than a partially loaded vehicle.)
 Seasonal products could include outdoor patio furniture, holiday decor, etc.,
for which the demand is more predictable since it is tied to the holiday
season.
 Fashion products are like Fisher’s innovative items, with unpredictable
demand. Zara, the Spanish clothing manufacturer, has two supply chains, one
for staples and the other for fashion clothing. To get the fastest response
time, Zara uses European suppliers for the fashion items. But for the more
predictable demand items, it uses eastern European suppliers that have poor
response time (not a concern) and lower cost.

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 In addition to varying the supply chain by product type, Fisher recommends
several other variables to consider—store type and time in season or product cycle.
Demand varies considerably over the life cycle of many products. The same item
might have infrequent demand at first, more stable demand in its maturity phase,
and falling demand at the end of its life cycle. With more than one supply chain, the
nucleus firm can move its products from one chain to the other in response to
changing variables, such as type of channel or life-cycle stage. Business and
organizational strategies are formalized and clearly specified within an
organization’s business plan, so this is discussed next.
BUSINESS PLAN
A business plan is a written document that describes the overall direction of
the firm and what it wants to become in the future. A business plan is defined in
part as follows:
A statement of long-range strategy and revenue, cost, and profit objectives
usually accompanied by budgets, a projected balance sheet, and a cash flow (source
and application of funds) statement. A business plan is usually stated in terms of
dollars and grouped by product family. The business plan is then translated into
synchronized tactical functional plans through the production planning process (or
the sales and operations planning process). Although frequently stated in different
terms (dollars versus units), these tactical plans should agree with each other and
with the business plan.
The business plan provides general direction regarding how the firm plans on
achieving its long-term objectives. Key functions such as finance, engineering,
marketing, and operations typically have input into the plan. The overall strategic
plan cascades down to those same functions.
The finance function manages and tracks the sources of funds, amounts
available for use, cash flows, budgets, profits, and return on investment.
Engineering is responsible for research and development and the design and
redesign of products that can be made most economically. Marketing’s focus is on
analysis of the marketplace and how the firm positions itself and its products. (You
will learn more about the role of marketing in the next section.) The goal of the
operations function is to meet the demands of the marketplace via the organization’s
products. Operations also manages the manufacturing facilities, machinery,
equipment, labor, and-materials as efficiently as possible. These functional roles
collectively support the success of the supply chain.
The business plan is based on and aligned with the business strategy and with
market requirements. It provides a framework for the organization’s performance
objectives that are tied to strategic goals. In the ideal world, formation of and
changes to the business plan come from top management’s modifications to the
business strategy and organizational strategy. But in reality that may not always be

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the case. This topic is discussed in more details in the supply chain management
courses designed for the diploma in supply chain management and supply chain
management degree programs. These programs are offered by AIMS’ institute of
supply chain management.
SUPPLY CHAIN STRATEGIES:
The supply chain has the overarching goal of providing customers with goods
and services when they want them, at a competitive price, while being consistent
with the organization’s and extended supply chain’s strategies. If the supply chain
cannot successfully execute this supply chain strategy, the business, or product line,
may cease to exist.
When you think about the role the supply chain plays in the bigger context of
your company, the functional strategies underlying supply chain management must
articulate with the business plan, and remember also that the purpose of supply
chains is to be globally competitive. Time, distance, and collaboration are basic
elements in modern supply chains that impact the chain’s ability to respond to
competitive changes in the global marketplace. The relationships of time, distance,
and collaboration weave like three bright threads through the fabric of any supply
chain on the globe. Therefore, collaborative relationships are explored further as
they are a primary component of supply chain strategy.

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 READING 3: LOGISTICS MANAGEMENT
https://aims.education/study-online/what-is-logistics-management/What is
Logistics?
Let us start this topic with the understanding of What is Logistics? and What is
Logistics Management? Logistics is defined as “the art and science of obtaining,
producing, and distributing material and product in the proper place and in proper
quantities.” It is a rapidly evolving business discipline that involves management of
order processing, warehousing, transportation, materials handling, and packaging—
all of which should be integrated throughout a network of facilities. Now that’s a
tall order! Although logistics has been performed around the globe since ancient
civilizations were at war with one another, we’re still learning and trying to become
experts at managing it. Despite the research and progress that’s been made, logistics
is still one of the most dynamic and challenging operational areas of supply chain
management.
To understand what is logistics at the most basic level, we must know that
logistics management includes the various related tasks required to get the right
goods to the right customers at the right time. Others tout a broader definition:
getting the right product in the right quantity and right condition at the right place at
the right time for the right customer at the right price.
No other function in the supply chain is required to operate 24 hours a day, seven
days a week from New Year’s Day to New Year’s Eve—there are no days off. That
is why customers often take logistics for granted; they have come to expect that
product delivery will be performed as promised. But it’s not that simple, as you will
learn. It can be expensive and takes expertise.
Logistics management adds value to the supply chain process if inventory is
strategically positioned to achieve sales. But the cost of creating this value is high.
According to the 19th annual “State of Logistics Report” by the Council of Supply
Chain Management Professionals published in 2008, United States companies spent
US$1,398 billion performing logistical services in 2007. Transportation costs for
the same year ran US$857 billion, and that constituted nearly 62 percent of total
logistics costs.
As these statistics indicate, the largest contributor to logistics cost is
transportation: the movement of raw materials to a processing plant, parts to a
manufacturer, and finished goods to wholesalers, retailers, and customers. But
getting the goods from one point to another requires performing a number of other
functions related to shipment. Goods need to be packaged, loaded, unloaded,
warehoused, distributed, and paid for whenever they change hands.
Supply chain partners must efficiently and effectively carry out these logistical
tasks to achieve competitive advantage. In an increasingly global market, this may

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require mastery of languages, currencies, divergent regulations, and various
business climates and customs.
Defining logistics precisely presents a challenge. Everyone agrees that logistics
management is (or should be) a part of supply chain management. As Douglas Long
writes, “Supply chain management is logistics taken to a higher level of
sophistication.” The exact line of demarcation between the two management
systems is understandably a bit vague.
In their classic text Supply Chain Logistics Management, authors Bowersox,
Closs, and Cooper include several functions that are treated outside the logistics
section of this course, such as forecasting and inventory management. Some
authorities may place those two functions within the scope of logistics management,
while others may not, but all agree that inventory and forecasting must be
considered when designing and managing an effective, efficient system for moving
goods quickly from place to place.
What is Logistics in Supply Chain Management?
The supply chain is about “moving” - or “transforming” - raw materials and ideas
into products or services and getting them to customers. Well the question is, what
is logistics management? in supply chain. Logistics is about moving materials or
goods from one place to another. Logistics is, in that sense, the servant of design,
production, and marketing. But it is a servant that can bring added value by quickly
and effectively doing its job. The following areas of logistics management
contribute to an integrated approach to logistics within supply chain management.
Figure below combines several perspectives to illustrate what is logistics?, in a
broader scope.
Note: Lecture on the topic, What is Logistics Management? is compiled by the
SCM Department at the Academy for International Modern Studies (AIMS). AIMS
is an educational institution based in UK and offering globally recognized supply
chain certification, diploma of supply chain management and online mba supply
chain management programs globally, through an efficient distance learning system.

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 Transportation:
Many modes of transportation play a role in the movement of goods through
supply chains: air, rail, road, water, pipeline. Selecting the most efficient
combination of these modes can measurably improve the value created for
customers by cutting delivery costs, improving the speed of delivery, and reducing
damage to products.
Warehousing:
When inventory is not on the move between locations, it may have to spend some
time in a warehouse. Warehousing is “the activities related to receiving, storing, and
shipping materials to and from production or distribution locations. It is a very
important factor, we need to consider to know what is logistics.”
Third- and fourth-party logistics:
Like other aspects of supply chain management, the various logistics functions
can be outsourced to firms that specialize in some or all of these services. Third-
party logistics providers (3PLs) actually perform or manage one or more logistics
services. Fourth-party providers (4PLs) are logistics specialists and play the role of
general contractor by taking over the entire logistics function for an organization
and coordinating the combination of divisions or subcontractors necessary to
perform the specific tasks involved. This growing trend incorporates the supply
chain management philosophy of concentrating on core competencies and
partnering with other firms to perform in areas outside your competence. We’ll
learn more about 3PLs and 4PLs later in this section.
What is Logistics in Reverse logistics (or the reverse supply chain):
Another growing area of supply chain management is reverse logistics, or how
best to handle the return, reuse, recycling, or disposal of products that make the
reverse journey from the customer to the supplier. This business can be handled at a

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loss, or it can actually become a profit center. We’ll also cover this topic in more
detail later in this section.
What is Logistics Value Proposition:
Being able to match key customer expectations and requirements to your firm’s
operating competency level and customer commitment is the essential ingredient in
optimizing the value of logistics. The logistics value proposition stems from a
unique commitment of your firm to an individual customer or select group of
customers. The value stems from your ability to know exactly how to balance
logistics costs against the appropriate level of customer service for each of your key
customers.
So you’ll need to determine the exact recipe and proportion of ingredients in
order to meet a particular customer’s logistical expectations and requirements. How
will you know when you’ve got the right balance? If you keep in mind that logistics
must be managed as an integrated effort to achieve customer satisfaction at the
lowest total cost, then it makes sense that service and cost minimization are the key
elements in this proposition.
Service:
What company hasn’t had to pay a painfully high price to ship a product
overnight to meet a deadline of some sort? It can be done, but it’s not fiscally
prudent. In the same manner, any level of logistical service can be achieved if a
company is willing and able to pay for it. So technology isn’t the limiting factor for
logistics for most companies—it’s the economics. For instance, what does it cost to
keep the service level high if a firm keeps a fleet of trucks in a constant state of
delivery readiness or it keeps dedicated inventory for a high volume customer that
can be delivered within minutes of receiving an order. How do you decide if that’s
money well spent?
The key is to determine how to outperform competitors in a cost-effective
manner. If a table manufacturer needs a specific type of wood to produce all its
table legs but that wood type is not available, it may force the plant to stop or close
down until the material arrives, thereby incurring expensive delays, potential lost
sales, and decreased customer satisfaction. In contrast, if a home improvement store
experiences a one-day delay in inventory replenishment of 20-watt night-light bulbs
at its warehouse, the impact on profit and operational performance is likely to be
very low and insignificant.
In the majority of situations, the cost-benefit impact of a logistical failure is
directly related to the importance of the service to the customer. When a logistical
failure will have a significant impact on a customer’s business, error-free logistics
service should receive higher priority. Such service implies that the customer order
was complete, delivered on time, and consistently correct over time.
Cost Minimization

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 The second element of the value proposition, cost minimization, should be
interpreted as the total cost of logistics in order to be accurate. The total cost of
logistics as “the idea that that all logistical decisions that provide equal service
levels should favor the option that minimizes the total of all logistical costs and not
be used on cost reductions in one area alone, such as lower transportation charges.”
For many decades, the accounting and financial departments in organizations
sought the lowest possible cost for each logistical function, with little or no
attention paid to integrated total cost trade-offs. As they learned later, that did not
work very well. So today’s leading supply chain companies develop functional cost
analysis and activity-based costing activities that accurately measure the total cost
of logistics. The goal now is for logistics to be cost-effective as determined by a
cost-benefit analysis, taking into account how a logistical service failure would
impact a customer’s business.
What is Logistics Goals and Strategies:
At the highest level, logistics management shares the goal of supply chain: “to
meet customer requirements.” There are a number of logistics goals that most
experts agree upon:
 Respond rapidly to changes-in the market or customer orders.
 Minimize variances in logistics service.
 Minimize inventory to reduce costs.
 Consolidate product movement by grouping shipments.
 Maintain high quality and engage in continuous improvement.
 Support the entire product life cycle and the reverse logistics supply chain.
An effective logistics management strategy depends upon the following tactics:
 Coordinating functions (transportation management, warehousing,
packaging, etc.) to create maximum value for the customer.
 Integrating the supply chain.
 Substituting information for inventory.
 Reducing supply chain partners to an effective minimum number.
 Pooling risks.
We’ll analyze each of these tactics.
Coordinating Functions:
Logistics can be viewed as a system made up of interlocking, interdependent
parts. From this perspective, improving any part of the system must be done with
full awareness of the, effects on other parts of the system. Before the advent of
modern logistics management, however, the various operations contributing to the
movement of goods were usually assigned to separate departments or divisions,
such as the traffic department. Each area had its own separate management and
pursued its own strategies and tactics.

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 Decisions made in any one functional area, however, are very likely to affect
performance in other areas, and an improvement in one area may very well have
negative consequences in another unless decisions are coordinated among all
logistics areas. Adopting more efficient movement of goods, for example, may
require rethinking the number and placement of warehouses. Different packaging
will almost certainly affect shipping and storage. You may improve customer
service to a level near perfection but incur so many additional expenses in the
process that the company as a whole goes broke.
You need a cross-functional approach in logistics, just as you do in supply chain
management as a whole. Teams that cross functions are also very likely to cross
company boundaries in a world of international supply chains with different firms
focused on different functions.
The overall goal of logistics management is not better shipping or more efficient
location of warehouses but more value in the supply network as measured by
customer satisfaction, return to shareholders, etc. There is no point, for instance, in
raising the cost of shipping—thus, the price to the customer—to make deliveries
faster than the customer demands. Paying more to have a computer delivered today
rather than tomorrow may not be a tradeoff customers want to make. Getting a still-
warm pizza delivered in less than 20 minutes, however, might be worth a premium
price (and a tip). Fast delivery, in other words, is not an end in itself, and the same
is true of any aspect of logistics management or supply chain management.
Integrating the Supply Chain:
Integrating the supply chain requires taking a series of steps when constructing
the logistics network. In a dynamic system, steps may be taken out of order and
retaken continuously in pursuit of quality improvements; the following list puts the
steps in logical order.
LOCATE IN THE RIGHT COUNTRIES:
 Identify all geographic locations in the forward and reverse supply chains.
 Analyze the forward and reverse chains to see if selecting different
geographic locations could make the logistics function more efficient and effective.
(Not all countries are equal in terms of relevant concerns such as infrastructure,
labor, regulations, and taxes).
DEVELOP AN EFFECTIVE IMPORT-EXPORT STRATEGY:
 Determine the volume of freight and number of SKUs (stockkeeping units)
that are imports and exports.
 Decide where to place inventory for strategic advantage. This may involve
deciding which borders to cross and which to avoid when importing and exporting
as well as determining where goods should be stored in relation to customers.
(Some shipping companies now add a “war risk surcharge” if they’re required to

27
pass through or near a nation with civil unrest or at war.) Both geographic location
and distance from the customer can affect delivery lead times.
SELECT WAREHOUE LOCATION:
 Determine the optimal number of warehouses.
 Calculate the optimal distance from markets.
 Establish the most effective placement of warehouses around the world.
SELECT TRANSPORTATION MODES AND CARRIERS:
 Determine the mix of transportation modes that will most efficiently connect
suppliers, producers, warehouses, distributors, and customers.
 Select specific carriers.
SELECT THE RIGHT NUMBER OF PARTNERS:
 Select the minimum number of firms freight forwarders and 3PLs or a 4PL to
manage forward and reverse logistics. In selecting logistics partners, also consider
their knowledge of the local markets and regulations.
DEVELOP STATE-OF-THE-ART INFORMATION SYSTEMS:
 Reduce inventory costs by more accurately and rapidly tracking demand
information and the location of goods. Developing state-of-the-art information
systems may be difficult in some regions. Such situations make defining the
processes and information flows even more critical.
Substituting Information for Inventory
Physical inventory can be replaced by better information in the following ways:
 Improve communications. Talk with suppliers regularly and discuss plans
with them.
 Collaborate with suppliers. Use HT to coordinate deliveries from suppliers.
Remove obsolete inventory. Use continuous improvement tools and share
observations about trends.
 Track inventory precisely. Track the exact location of inventory using bar
codes and/or RFID (radio frequency identification) with GPS (global positioning
systems).
 Keep inventory in transit. It’s possible to reduce systemwide inventory costs
by keeping inventory in transit. One method of keeping inventory in motion the
maximum amount of time is a distribution strategy called cross-docking. Used with
particular success by Wal-Mart, cross-docking involves moving incoming shipments
directly across the dock to outward-bound carriers. The inventory thus transferred
may literally never be at rest in the warehouse.
Another example of cross-docking can be taken from the airline industry. When
a passenger travels from Seattle to New York, he or she might be cross-docked in
Chicago. The airline has configured their network in this way as opposed to having
direct flights from city to city. Passengers are not warehoused per se but simply pass
through the airport in an hour or two, getting off of one plane and onto another. At

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the end of the day, ideally the airport should be empty, as should all cross-docking
locations.
A trailer, railcar, or barge can be considered a kind of mobile warehouse. Rolling
inventory should be closely tracked by GPS to facilitate rapid adjustments if a
shipment is delayed or lost or if a customer changes an order at the last minute.
 Use postponement centers. Avoid filling warehouses with the wrong mix of
finished goods by setting up postponement centers to delay product assembly until
an actual order has been received.
 Mix shipments to match customer needs. Match deliveries more precisely to
customer needs by mixing different SKUs on the same pallet and by mixing pallets
from different suppliers.
 Don’t wait in line at customs. Reduce the time spent in customs by clearing
freight while still on the water or in the air.
Reducing Supply Chain Partners to an Effective Number
Though you have to watch out for tradeoffs in effectiveness when knowing what
is logistics and reducing the number of logistics partners, you can generally increase
efficiency by doing so. If possible, look for an entire echelon (tier) you can do
without such as all the wholesale warehouses or factory warehouses
The more partners there are in the chain, the more difficult and expensive the
chain is to manage. Handoffs among partners cost money and eat up time. Having
many partners means carrying more inventory. Reducing the number of partners can
reduce operating costs, cycle time, and inventory holding costs. There is, however,
some lower limit below which you create more problems than you solve. If you
eliminated all partners other than your own firm, you’d be back to the vertical
integration strategy pursued in a simpler marketplace during the early 20th century
by U.S. auto-maker Henry Ford.
Pooling Risks:
In regard to inventory management, pooling risks is a method of reducing
stockouts by consolidating stock in centralized warehouses. The risk of stockouts
increases as supply chains reduce the safety stock held at each node and move
toward Just-in-Time ordering procedures. With every entity attempting to keep
inventory costs down in this manner, the risk of stockouts rises if buying exceeds
expectations. Statistically speaking, when inventory is placed in a central warehouse
instead of in several smaller warehouses, the total inventory necessary to maintain a
level of service drops without increasing the risk of stockouts. An unexpectedly
large order from any one customer will still be small in relation to the total supply
available.
Risk pooling also works with parts inventories. Risk pooling is defined as
follows:

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  A method often associated with the management of inventory risk.
Manufacturers and retailers that experience high variability in demand for their
products can pool together common inventory components associated with a broad
family of products to buffer the overall burden of having to deploy inventory for
each discrete product.
 By using a central warehouse to hold parts common to many products, a
supply network can reduce storage costs and the risks of stockouts that would be
experienced in smaller, decentralized warehouses.
 There are tradeoffs to consider. Because the central warehouse may be
further away from some production facilities than the smaller warehouses would be,
lead times and transportation costs are likely to go up. Again, logistics has to be
managed from the point of view of improving the value of the overall system, not
just one part of the system.
Flow of Goods and Information:
If you recall, there are flows of goods (product or inventory) and information in
each supply chain. Customer information flows through the enterprise via orders,
sales activity, and forecasts. As products and materials are procured, a value-added
flow of goods begins. The enterprise must have internal process integration and
collaboration between functions as well as alignment and integration across the
supply chain.
With a foundation in the role of logistics and its operational areas, we’re ready to
discuss how and why firms outsource some or all of their logistics operations.

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 READING 4: PROJECT MANAGEMENT
https://aims.education/study-online/what-is-project-management-definition/What is
Project Management? Definition and Fundamentals
To answer the question What is Project Management?, let us first understand the
project management definition. “A project is a temporary endeavour undertaken to
create a unique product, service, or result.” The project management definition may
also be given as, “the application of knowledge, skills, tools and techniques to
project activities to bring about successful results and meet the project
requirements.”
It is the responsibility of the project manager to ensure that project management
techniques are applied and followed. Project managers must not only strive to meet
specific scope, time, cost, and quality requirements of projects, they must also
facilitate the entire process to meet the needs and expectations of the people
involved in or affected by project activities. Project management is a process that
includes initiating a new project, planning, putting the project plan into action, and
measuring progress and performance. It involves identifying the project
requirements, establishing project objectives, balancing constraints, and taking the
needs and expectations of the key stakeholders into consideration. Planning is one
of the most important functions you’ll perform during the course of a project. It sets
the standard for the remainder of the project’s life and is used to track future project
performance.
Managing a project typically includes, but is not limited to:
 Identifying requirements;
 Addressing the various needs, concerns, and expectations of the stakeholders
in planning and executing the project.
 Setting up, maintaining, and carrying out communications among
stakeholders that are active, effective, and collaborative in nature.
 Managing stakeholders towards meeting project requirements and creating
project deliverables.
Balancing the competing project constraints, which include, but are not limited
to:
 Time.
 Scope.
 Quality.
 Schedule.
 Budget.
 Resources.
 Risks.
Project Management Definition and Fundamental Concepts
Consider the following scenario:

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 You work for a wireless phone provider and the VP of marketing approaches you
with a fabulous idea—“fabulous” because he’s the big boss and because he thought
it up. He wants to set up kiosks in local grocery and big-box stores as mini-offices.
These offices will offer customers the ability to sign up for new wireless phone
services, make their wireless phone bill payments, and purchase equipment and
accessories. He believes that the exposure in grocery stores will increase awareness
of the company’s offerings.
After all, everyone has to eat, right? He told you that the board of directors has
already cleared the project, and he’ll dedicate as many resources to this as he can.
He wants the new kiosks in place in 12 stores by the end of this year. The best news
is he has assigned you to head up this project. Your first question should be “Is it a
project?”
The temporary nature of projects indicates that a project has a definite beginning
and end. The end is reached when the project’s objectives have been achieved or
when the project is terminated because its objectives will not or cannot be met, or
when the need for the project no longer exists. A project may also be terminated if
the client (customer, sponsor, or champion) wishes to terminate the project.
Temporary does not necessarily mean the duration of the project is short. It refers to
the project’s engagement and its longevity. Temporary does not typically apply to
the product, service, or result created by the project; most projects are undertaken to
create a lasting outcome. For example, a project to build a national monument will
create a result expected to last for centuries.
Every project creates a unique product, service, or result. The outcome of the
project may be tangible or intangible. Although repetitive elements may be present
in some project deliverables and activities, this repetition does not change the
fundamental, unique characteristics of the project work. For example, office
buildings can be constructed with the same or similar materials and by the same or
different teams. However, each building project remains unique with a different
location, different design, different circumstances and situations, different
stakeholders, and so on.

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 What is Project Management - Understanding through Examples of
Projects:
Projects can be large or small and involve one person or thousands of people.
They can be done in one day or take years to complete. Examples of projects
include the following:
 A young couple hires a firm to design and build them a new house.
 A retail store manager works with employees to display a new clothing line.
 A college campus upgrades its technology infrastructure to provide wireless
Internet access.
 A construction company designs and constructs a new office building for a
client.
 A school implements new government standards for tracking student
achievement.
 A pharmaceutical company launches a new drug
 A television network develops a system to allow viewers to vote for
contestants and provide other feedback on programs.
 The auto-mobile industry develops standards to streamline procurement.

Project Attributes
As you can see, projects come in all shapes and sizes. The following attributes
help to define a project further:
 A project has a unique purpose. Every project should have a well-defined
objective. For example, many people hire firms to design and build a new house,
but each house, like each person, is unique.
 A project is temporary. A project has a definite beginning and a definite end.
For a home construction project, owners usually have a date in mind when they’d
like to move into their new home.
 A project is developed using progressive elaboration or in an iterative
fashion. Projects are often defined broadly when they begin, and as time passes, the
specific details of the project become clearer. For example, there are many
decisions that must be made in planning and building a new house. It works best to
draft preliminary plans for owners to approve before more detailed plans are
developed.
 A project requires resources, often from various areas. Resources include
people, hardware, software, or other assets. Many different types of people, skill
sets, and resources are needed to build a home.
 A project should have a primary customer or sponsor. Most projects have
many interested parties or stakeholders, but someone must take the primary role of
sponsorship. The project sponsor usually provides the direction and funding for the
project.

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  A project involves uncertainty. Because every project is unique, it is
sometimes difficult to define the project’s objectives clearly, estimate exactly how
long it will take to complete, or determine how much it will cost. External factors
also cause uncertainty, such as a supplier going out of business or a project team
member needing unplanned time off. Uncertainty is one of the main reasons project
management is so challenging, because uncertainty invokes risk.
The lecture giving project management definition and explaining What is Project
Management? is taken from the lectures that students study at AIMS' project
management academy. The programs offered by AIMS includes project
management degree, online diploma in project management and certified project
managerprograms.

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CHAPTER 5: TOTAL QUALITY MANAGEMENT- SIG SIXMA-PRODUCT
DESIGN & DEVELOPMENT
4.1. TOTAL QUALITY MANAGEMENT
https://www.youtube.com/watch?v=YKwcxjUnots
What is quality?
Quality means that a product fulfils its purpose and meets the expectations of the
user
Example: Honda or Ford motor car can be of good quality so long as the vehicles
meets the standards desired by the customer

Customers perceive quality by observing and comparing several factors:

 Physical appearance and design
 Image and reputation of manufacturer or seller
 Reliability
 Durability
 Fit for purpose
 Safety features
 Customer service
 After – sales services

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 PERCEIVED VALUE

 The importance of quality

 In operations management, quality can have a slightly different meaning to
the producer
 Quality means that a product matches the design specifications
- Increasing consumer awareness
- Increasing competition
- Government legislation
- Increasing consumer incomes
How business can measure quality?
 Reject rates: the higher the reject rate, the lower quality assurance tends to
be.
 Level of product returns: faulty and substandard products are returned by
disgruntled customers.
 Customer complaint: dissatisfied customers are more likely to complain
about the quality of a product or a firm’s service
 Level of customer satisfaction: by contrast, good quality leads to enhanced
customer relations and satisfaction.
 Degree of customer loyalty: good quality is likely to encourage repeat
purchases (customer retention level)
 Market share: good quality is likely to earn a business greater market share
as sales improve.

36
 Total quality management
- Total quality management (TQM) is a process that requires the dedication of
everyone in the organization to commit to achieving quality standards.
- Quality is seen from the perspective of the consumer rather than the
producer.
- TQM will remove wastage and inefficiencies in all forms of business
activity.
4.2. SIX – SIGMA QUALITY PROGRAM
https://www.youtube.com/watch?v=tj8Saa1MbrI
Six – Sigma Program
- Six – Sigma refers to the philosophy and methods using to eliminate defects
in the products and processes.
- When performance of an activity or process reaches “Six – Sigma quality”,
there are no more than 3.4 defects per million iterations (equal to 99.9997 percent
accuracy).
 DMAIC : DMAIC (define, measure, analyze, improve, control) is an
improvement system for existing processes
 DMADV : DMADV (define, measure, analyze, design, verify) is used to
develop new processes or products
DMAIC : The standard approach to Six-Sigma projects is the DMAIC
methodology developed by General Electric
1. Define (D) : What constitutes a defect
2. Measure (M) : Collect data to find out why, how, and how often this
defect occurs
3. Analyze (A) : Determine the most likely causes of defects
4. Improve (I) : Identify means to remove the causes of defects
5. Control (C) : Determine how to maintain the improvements

TOYOTA ANALYSIS

- Toyota overview
- Toyota Production System
- What was the key problem of Toyota
 What reasons made Toyota face to the problem?
 How worse the problem in 2009?
- The solution (recommendations)

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 4.3. PRODUCT DESIGN & DEVELOPMENT
https://www.youtube.com/watch?v=KWy4UgbzCBU

What is product development?

A product is something sold by an enterprise to its customers

Product development is the set of activities beginning with the perception of

market opportunity and ending in the production, sale and delivery of a product
 Focusing on
Products:
 Engineered products: power tools, computer peripherals
 Discrete goods: comprised of parts, components such as automobiles,
computers…
 Physical products: real, tangible items; not emphasize services or software
 Range of product
 Consumer electronics
 Sport equipments
 Machine tools
 Scientific instruments
 Medical devices
Characteristics of successful P.D
 Product quality: How good is the product resulting from the development
effort? Does it satisfy customer needs?
 Product cost: What is the manufacturing cost of the product? Product cost
determines how much profit accrues to the firm for a particular sale volumes.
 Development time: How quickly did the team complete the product
development effort?
 Development cost: How much did the firm have to spend to develop the
product?
 Development capability: Are the team and the firm better able to develop
future products as a result of their experience with a product development project?
- Development capability is an asset the firm can use to develop products more
effectively and economically in the future.
THE CHALLENGES OF P.D

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  Trade-offs: one of the most difficult aspects of P.D is recognizing,
understanding and managing trade-offs
 Dynamics: Technologies improve, customer preferences, competitors
introduce new products and the macroeconomic environment shifts
 Details: Developing a product of even modest complexity may require
thousands of such decisions
 Time pressure: Product development decisions must usually be made
quickly and without complete information
 Economics: Developing, producing and marketing a new product requires a
large investment. To earn a reasonable return on investment, the resulting product
must be both appealing to customers and relatively inexpensive to produce.
GENERIC DEVELOPMENT PROCESS
A product development process is the sequence of steps or activities which an
enterprise employs to conceive, design, and commercialize a product.
The six phases of the generic development process

39
40
 READING 6: MARKETING MIX
https://www.youtube.com/watch?v=oMZMrnNWY-A
DEFINITION
The function of marketing includes all the activities a business undertakes in order
to satisfy the need of the customer
- Getting the product right.
- Suiting the price to the market.
- Telling the customers about the products and persuading them to buy through
promotion activities.
- Making sure the product is in the right place at the right time and in the right
quantities.
What is a product?
- Consumer products: are sold to the consumers to satisfy their immediate and
personal needs and wants
- Industrial products: are those sold to other businesses for use in their production
process or for resale to the final customer
Product Life Cycle

Introduction: This is the most expensive stage in the life cycle of a product (the
costs of technical research and marketing)
Introduction: This is the most expensive stage in the life cycle of a product (the
costs of technical research and marketing)
Maturity: The market has been fully exploited, the market is said to be saturated
Decline: Total sales are falling
Business may attempt to extend the maturity phase of a product’s life by Extension
strategies
- Finding new markets

41
 - Researching new uses for the product
- Changing the physical appearance or packaging of the product to appeal to
new taste
- Improving technical specifications
What is brand?
A brand is a name, term, sign, symbol or design, or a combination of them,
intended to identify the goods or services of one seller or a group of sellers and to
differentiate them from those competitors

Legal protection against use by other businesses

Types of Brand name

The owner’s name or name

Abbreviation names

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Coined names

Image names

5.2. BRANDING STRATEGIES

43
44
What is packaging?
Packaging is a process of covering, wrapping of goods into the package. Packaging
includes designing and producing the wrapper for a product

What is price?
- The price is a critical element of the marketing mix which generates a
turnover for the organization.
- Price is the amount of money charged for a product or a service.
Pricing strategies
Skimming pricing
- A high price from high profit margins means a quick recovery of
development cots.

45
 - During introduction of product or because the limit of distribution channel.
Penetration pricing
- Offer low price, usually in FMCG
- The main objective is to capture a large share of the market as quickly as
possible.
Price discrimination
Price discrimination is a pricing strategy that charges customers different prices for
the same product or service. In pure price discrimination, the seller charges each
customer the maximum price he or she will pay. In more common forms of price
discrimination, the seller places customers in groups based on certain attributes and
charges each group a different price.
BREAKING DOWN 'Price Discrimination'
Price discrimination is most valuable when the profit from separating the markets is
greater than profit from keeping the markets combined. This depends on the relative
elasticities of demand in the sub-markets. Consumers in the relatively inelastic sub-
market pay a higher price, while those in the relatively elastic sub-market pay a
lower price.
Conditions for Price Discrimination
The company identifies different market segments, such as domestic and industrial
users, with different price elasticities. Markets must be kept separate by time,
physical distance and nature of use. For example, Microsoft Office Schools edition
is available for a lower price to educational institutions than to other users. The
markets cannot overlap so that consumers who purchase at a lower price in the
elastic sub-market could resell at a higher price in the inelastic sub-market. The
company must also have monopoly power to make price discrimination more
effective.
Types of Price Discrimination
First-degree discrimination, or perfect price discrimination, occurs when a company
charges the maximum possible price for each unit consumed. Because prices vary
among units, the firm captures all available consumer surplus for itself. Companies
rarely practice this type of discrimination.
Second-degree price discrimination occurs when a company charges a different
price for different quantities consumed, such as quantity discounts on bulk
purchases.
Third-degree price discrimination occurs when a company charges a different price
to different consumer groups. For example, a theater may divide moviegoers into
seniors, adults and children, each paying a different price when seeing the same
movie. This discrimination is the most common.
An Example of Price Discrimination in Airlines
Consumers buying airline tickets several months in advance typically pay less than
consumers purchasing at the last minute. When demand for a particular flight is
high, airlines raise ticket prices. In contrast, when tickets for a flight are not selling
well, the airline reduces the cost of available tickets. Because many passengers
prefer flying home late on Sunday, those flights tend to be more expensive than

46
flights leaving early Sunday morning. Airline passengers typically pay more for
additional legroom too.

Group of customer

Product line

Time

Location

Price Elasticity of Demand (PED)

Price elasticity of demand measures the extent to which demand for a product
changes due to a change in its price

47
The formula for calculating PED is:

or in annotation form, PED equals:

- If PED less than 1 (ignoring the minus sign)

Demand is price inelastic
- If PED is equal to 1 (ignoring the minus sign)
Demand is of unitary price inelasticity
- If PED is greater than 1 (ignoring the minus sign)
Demand is price elastic
Explain whether the price elasticity of demand for the following products is
relatively price elastic or inelastic.
Availability of Substitutes
Position in the Budget
Number of its Uses
Nature of Commodity

WHAT IS DISTRIBUTION?
Distribution is concerned with getting the product from the producer to the final
customer in the right quantity, to the right place and at the right time
Franchises
A franchise is a form of business ownership whereby a person or business by a
license to trade using another firm’s name, logos, brands and trade mark.

48
Distribution Channel

What is promotion?
Promotion is about communication with the customer or consumer. It is used to
describe any activity of a business that tells the potential client about its products,
persuades them to buy or reminds them that the product is still on the market.
The importance of promotion to an organization
- Persuade people to buy its product.
- Emphasize features of a product that market research has shown to be
important to potential customers.
- Tell people about new product.
- Build an image of the organization so that people will be more likely to buy
its product in the future.
- Answer customer problems that might arise.
- Justify changes in the policy of the organization
Inform customers where and when a product can be purchase.
Promotional activities
Advertising

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This is the paid publication of information, ideas and persuasion by a business
through the media (press, radio, television, Internet, billboard…)

Personal selling
Oral promotion from a person to a prospective or existing customers with the
purpose of making sales
Sale promotion
They are short – term incentives to encourage the purchase or sale of a product or
service

Public relations

It is a strategic communication process that builds mutually beneficial relationships

between organizations and their publics

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