Management Logistics and Distribution

Chapter 1
21st-Century Supply Chains

University of West Attica

Department of Industrial Design and Production Engineering
Postgraduate Program: We-Team, November 2023
Overview

• The supply chain revolution

• Why integration creates value

• Generalized supply chain model

• Functionality of Information Systems

• The Components of a Supply Chain Information

• Integrated Supply Chain Management and Processes

• Responsiveness

• Financial sophistication

• Globalization

3-2
From the 90s to today

In the 1990s
Average processing time for goods delivery procedures from warehouse to customer=15-30 days
(order creation - order transfer by phone, fax, mail - manual order processing - credit authorization - warehouse assignment - transfer to
customer)
Rapid increase if something went wrong (e.g. lack of stock, wrong address, etc.)

Accumulation of inventory BUT

again they were facing out of stock (due to product and process variations)

Today
• Consumer affluence and desire for a wide range of products is increasing
• Active customer involvement in design and delivery
• Reliable and economical transports with punctuality in deliveries
• Speed, accessibility, accuracy
• Increase in B2B transactions

Age of information or Digital age

Supply Chain Management

Exact specifications, successful and prompt deliveries at specified times, Six-Sigma performance (3.4 defective/1,000,000 products –
99.99966%), perfect orders (desired variety and quantity at the right time, no damages, with correct pricing), lower cost with less resources.
The supply chain revolution – Supply renaissance

• The supply chain revolution has reshaped contemporary strategic thinking

• Supply Chain and Logistics = 2 different aspects of management
DISTRIBUTION CHANNELS – How did the need for leadership arise?

Supply Chain Management

It consists of multiple businesses, cooperating with each other in order to
leverage their strategic positioning and improve operational efficiency
➢ For each business involved the supply chain reflects a strategic choice.
➢ It is a channel and an organizational business arrangement, based on
recognized dependence and cooperation.
➢ It connects traditional functional areas of individual businesses with suppliers,
trading partners, customers.
➢ The supply chain strategy establishes the operational framework within which
Logistics operates.
▫ Logistics
➢ The work required to move and geographically position inventory
(subset, process that creates value)
➢ They combine order management with inventory, transportation, warehouse,
material and packaging management integrated into one network.
➢ They serve the continuity of the supply chain.
➢ Best practices = work in progress
Successful supply chain strategies

A recent Andersen Consulting study revealed six different, but equally successful,
supply chain strategies.

• Market Saturation Driven: Focusing on generating high profit margins, through

strong brands and ubiquitous marketing and distribution.

• Operationally Agile: Configuring assets and operations to react nimbly to

emerging consumer trends along lines of product category or geographic region.

• Freshness Oriented: Concentrating on earning a premium by providing the

consumer with product that is fresher than competitive offerings.

• Consumer Customizer: Using mass customization to build and maintain close

relationships with end-consumers through direct sales.

• Logistics Optimizer: Emphasizing a balance of supply chain efficiency and

effectiveness.

• Trade Focused: Prioritizing "low price, best value" for the consumer (as with
the logistics optimizer strategy but focusing less on brand than on dedicated
service to trade customers).
The total integration of the overall business process creates value–
Integrated Management
Integrative Management Value Proposition
= The simultaneous achievement of all three
 The Integrated Supply Chain Framework

The integrated value-creation process must be managed across firms from end to end
Forces that drive supply chain strategies

1. Information technology

2. Comprehensive management

3. Responsiveness

4. Financial sophistication

5. Globalization
Functionality of Supply Chain Information Systems -
SCIS

A primary strength of supply chain management is information technology.

The technological systems of the supply chain:
Εγκαινιάζουν ενέργειες και ανιχνεύουν πληροφορίες σχετικά με διαδικασίες
✓ Initiate actions and detect information about processes
✓ Facilitate the exchange of information between parties (internally and with partners)
✓ Assist in administrative oversight and decision-making
Why timely information is so important in supply chain planning?
1. Customers consider information related to product availability, delivery tracking and pricing essential – Real-
time information
2. The information may lead to a reduction in inventory and human resources
3. Information increases the flexibility to use resources and achieve competitive advantage
4. The increased transfer and exchange of information via the Internet facilitates collaboration and redefining
relationships.
e.g. redirection of containers at sea based on real-time update
SCIS level of functionality

Logistics activities and decisions

at each level of functionality

Information Functionality
Transaction system

Transaction system functionality consists of formalized rules and procedures

Standardized communications focus on tracking and regulating day-to day logistical

transactions

For example,
▫ Order entry
▫ Order fulfillment
▫ Inventory adjustment
▫ Invoicing
Management control

Management control functionality focuses on performance

management and reporting

• Provides real time feedback on supply chain performance and

resource utilization

• Common performance dimensions include

▫ Cost

▫ Customer service

▫ Productivity

▫ Quality
Decision analysis

Decision analysis functionality focuses on software tools to

assist managers

• Software tools help to identify, evaluate and compare

alternatives to improve effectiveness, e.g., Excel solver

• Types of analysis include

▫ Supply chain design

▫ Inventory management

▫ Resource allocation

▫ Routing

▫ Segmental profitability
Strategic planning

Strategic planning functionality transforms transactional

data to assist in strategy evaluation

• Organizes transaction and performance data into a

relational database to assist in evaluating alternative
business strategies

• Examples include

▫ Strategic alliance decisions

▫ Development of manufacturing capabilities

▫ Customer responsiveness opportunities

 The Use of SCIS, Decision Characteristics and Justification
More opportunities exist for improvements at higher levels of functionality
The parts of a Supply Chain Information System

An analytical SCIS introduces, monitors, supports decision making, and reports the actions

required to complete supply chain operations and planning.

The main parts of the system are:

• Enterprise Resource Planning – ERP

Application
• Communication systems Oriented SCIS
Framework
• Executive systems

• Design systems
Enterprise resource management (ERP)

• The backbone of most firm’s logistical information systems

• They replaced the operating systems that the companies themselves had
developed (legacy systems)
• Maintains an integrated database of current and historical data
• Processes most (if not all) transactions across all business functions
• Unified systems and processes with a common and consistent database
• Example transactions include
▫ Order entry and management
▫ Inventory assignment
▫ Shipping
▫ Financial, accounting and human resource capabilities
Enterprise Integration and Administration

1 2 3 4 5

1. Transactions that structure the company

2. Invoices to clients and suppliers
3. Value added procedures for tax and financial reporting
4. Bills and General Revenue
5. Staff member profiles and their action levels
Enterprise operations

Enterprise operations modules support day-to-day supply chain operations

Enterprise Operations

Customer relationship Inventory

management Logistics Manufacturing Purchasing Deployment

Customer Relationship Finished Inventory Purchase Order Integrated Inventory

Manufacturing Administration Planning
Management Management Resource Planning (POA)
(CRM) (FIM) Advanced Planning and
(MRP II)
Scheduling\
Forecasting
Order Processing Materials Requirements
Capacity Management Planning (MRP)
Demand Management (OPS) Planning (CMP)
(DMS)
Warehouse Supplier Relationship
Master Production Management (SRM)
Collaborative Management (WMS) Schedule (MPS)
Planning, Forecasting
and Replenishment Accounts Payable © DonaldMain frames
J. Bowersox, Ph.D. 2005
Transportation Production Execution
(CPFR) Management (TMS) Interface Special software
and Control (Shop
Floor) SaaS
Order Management Yard Management Clouds
(OMS) (YMS) Quality Management
(QM)
Accounts Receivable © Donald J. Bowersox, Ph.D. 2005
Interface

Enterprise Operations Modules

Enterprise planning and monitoring

Enterprise planning and monitoring modules facilitate exchange of planning information

Enterprise Planning and Monitoring Modules

Communication technology

The technical equipment and operating programs that facilitate the exchange of information
between systems and the physical infrastructure within the company and among partners.

➢ Real-time information sharing facilitates the coordination of incoming materials,

production, inventory, customer orders and shipments to customers.
Consumer connectivity

▪ Retailers and producers in constant contact with end consumers.

▪ 2 dimensions: order contact and after-sales contact

▪ In addition, "reverse logistics" can be tracked: replacements-returns

Forces that drive supply chain strategies

1. Information technology

2. Comprehensive management

3. Responsiveness

4. Financial sophistication

5. Globalization
Integrative management

The challenge of integrated management, which is the goal of companies, arises as a result of the

long tradition of evaluating and measuring tasks on an operational basis.

• Conventional logic: the better the performance of the individual functions, the greater the

efficiency of the overall process. – Accounting practices for department performance (eg cost per

unit of production, cost per hectobar of transportation)

BUT
Excellent execution of individual processes does not imply achieving the lowest possible cost or
the highest possible performance
Integrative management requires simultaneous achievement of 8 processes
8 processes of integrative management

Eight Supply Chain Processes

Concepts necessary for achieving integrated management

• Lowest total process cost is the focus of integrated management

▫ Differs from lowest cost of each function in the process (eg reduction of inventory to increase level of
transportation)

▫ Development of tools such as Total Cost Analysis, Process Engineering, Activity-Based Costing

3 important aspects

• Collaboration

• Enterprise extension

• Integrated service providers (ISP)

Collaboration

Collaboration of operating information, technology and risk has been encouraged by national
legislation to keep firms competitive

Although all forms of price collusion are still illegal, cooperative legislation has facilitated the sharing
of operational information, technology and risk between organizations to increase competitiveness.

This is how the vision of business expansion came into existence

Enterprise extension

Enterprise extension includes expanded managerial influence and control beyond traditional
ownership boundaries of a single enterprise.

Based on 2 basic ideological structures

Information sharing paradigm – supply chain participants sharing operating information can
achieve a high degree of collaboration and enhanced strategic planning. (not only sales figures but also
detailed promotion plans, new product launches and day-to-day operations – more important is
information sharing for future initiatives so that chain participants can meet demand)
Process specialization paradigm – the commitment to focus collaborative arrangements on
planning joint operations with a goal of eliminating nonproductive or non-value adding redundancy
by firms in a supply chain (πχ eg repeated quality inspection). Key components are trust, leadership,
conflict resolution, risk sharing.
Integrated service providers (ISPs)

Integrated service providers (ISP) provide a range of logistics services to accommodate

customers, ranging from order entry to product delivery
Commonly known as third (or fourth) party service providers

Outsourcing
The most common:
• Transportation modes (common-shared services across multiple shippers – economies of scale)
and
• Public warehouses (2 major benefits: minimization of capital investment and transport efficiency
by combining small loads with loads of other companies, eg Kane is Able)
➢ Value-Added-Services, VAS (πχ UPS)
➢ Third- and fourth-party service providers
▪ Third-party (asset-based - they have transport equipment, storage facilities) and
▪ Fourth-party (specialize in providing detailed information services that facilitate regulation,
coordinate services)
Forces that drive supply chain strategies

1. Information technology

2. Comprehensive management

3. Responsiveness

4. Financial sophistication

5. Globalization
Responsiveness level
Anticipatory and Responsive Business Model
Anticipatory Business Model

Responsive Business Model

(demand driven)
Postponement strategies keep supply chains responsive

The ability to postpone is at the heart of the time competition

Types of Postponement
▫ Manufacturing (or Form)
▫ Geographic (or Logistics)
▫ Combined
• Manufacturing and geographic types are exact opposites in practice but
have the same goal
- Meeting customer demand quickly while minimizing inventories
Production (or format) postponement

• Manufacturing one order at a time

• Base modular construction of product
• No customization until the exact customer specs and financial commitment is received
• Objective is to maintain products in an uncommitted status as long as possible
• Balances economy of scale with responsiveness
▫ Can build a sufficient quantity of “ready to customize” basic units
• Requires a lot of forethought during product design
• Reduces inventory
• Strengthens the role of Logistics while reducing the possibility of malfunction
• Delayed personalization: personalization takes place close to the market (end-customer
area)
Example of manufacturing postponement

Keeping all the car panels a base color (white or gray) until the order is received, then
painting to the color ordered
Geographic (or logistics) postponement

• Build or stock a full-line inventory at one or a few strategic locations

• Forward deployment of inventory is postponed until customer orders are
received
• Once orders received, specific item is expedited to the local distributor
• Advantages are manufacturing economies of scale along with
responsiveness to customer
• Often used for critical, high cost parts and assemblies (e.g. engines)
Example of geographic postponement

Keeping full inventory in a central warehouse and releasing customer orders to local
distributors or direct shipping to customer
Combined postponement

• Keeping the basic products centralized and performing the customization at

the destination distributor
• Historical example - Autos
▫ Installing dealer options like sound systems, GPS, sun roofs on new cars
purchased

• Contemporary example - Computers

▫ Dell Computers, doing final assembly or packaging additional system options like
printers, digital cameras at a distribution center
 Barriers to implementing responsive systems

• Need for publicly held corporations to maintain planned quarterly

profits

▫ Expectations of continued financial results often drive

promotional and pricing strategies to “load the channel” with
inventory

▫ Only start-up companies can achieve this from the beginning

• Need to establish collaborative relationships

▫ Most business managers do not have training or experience in

development of collaborative arrangements
Forces that drive supply chain strategies

1. Information technology

2. Comprehensive management

3. Responsiveness

4. Financial sophistication

5. Globalization
 Financial sophistication

3 aspects of economic sophistication

• Cash-to-Cash Conversion: the time required to convert raw material

or inventory purchases into sales revenue

• Dwell Time Minimization: dwell time is the ratio of time that an

assets sits idle to the time required to satisfy its supply chain mission

• Cash Spin: reducing assets in the supply chain can “spin” cash for
reinvestment in other projects
Forces that drive supply chain strategies

1. Information technology

2. Comprehensive management

3. Responsiveness

4. Financial sophistication

5. Globalization
 Globalization offers firms several attractive opportunities

• Demand exceeds local supply

90% of global demand is not fully satisfied by local
supply

• Strategic sourcing
Identifying and matching the sources of raw materials
and components to manufacturers and distributors

• Offshoring
Moving manufacturing and distribution operations to
countries with favorable labor costs and tax laws
Significant differences for global logistics

• Distance of typical order-to-delivery operations is significantly longer compared to

domestic business

• Documentation requirements for business transactions is significantly more complex

• Operations must be deal with significant Diversity in work practices and local

operating environments

• How consumers Demand products and services must accommodate cultural variations

• Permanent terrorist threat

 Bibliography

• Supply Chain Logistics Management, D. J. Bowersox, D. J. Closs, M. B. Cooper, J. C. Bowersox, Michigan

State University, Broken Hill Publishers LTD, 2016
 Study Questions

1. Compare the concept of a modern supply chain with more traditional distribution channels. Be specific regarding
similarities and differences.
2. What specific role does logistics play in supply chain operations?
3. Describe and illustrate an integrated service provider. How does the concept of integrated service provider differ
from traditional service providers, such as for-hire transportation and warehousing?
4. Compare and contrast anticipatory and response-based business models. Why has responsiveness become
popular in supply chain collaborations?
5. Compare and contrast manufacturing and geographic postponement.
6. Define and illustrate cash-to-cash conversion, dwell-time minimization and cash spin. How does supply chain
strategy and structure impact each?

WE-TEAM, 2022-2023
 Challenge questions

1. What are the operating challenges related to the Toys R Us plan to establish 600 temporary or pop-up seasonal
retail outlets? Be specific concerning the supply chain challenges leading into, during, and after the Christmas
selling season
2. How do the concepts of SaaS and cloud computing differ from the services offered by traditional data processing
service centers?
3. Discuss how reverse logistics can create value?
4. What is the primary value proposition of Kane Is Able’s collaborative distribution service? Be specific concerning
how this collaborative distribution service differs from traditional services offered by 3PL’s.

WE-TEAM, 2022-2023