Distribution Planning and Control_ Managing in the Era of Supply Chain Management ( PDFDrive )

Main topics include exploring the role ofdistribution channels, mapping distribution channel transaction and inventory flows, andexploring new trends in reverse logistics and environmenta

David Frederick Ross

Distribution

Planning and Control

Managing in the Era of Supply Chain Management

Third Edition

Distribution Planning and Control

Distribution Planning and Control

Managing in the Era of Supply

Chain Management

Third Edition

David Frederick Ross

Chicago, IL, USA

ISBN 978-1-4899-7577-5 ISBN 978-1-4899-7578-2 (eBook)

DOI 10.1007/978-1-4899-7578-2

Library of Congress Control Number: 2015934905

Springer New York Heidelberg Dordrecht London

# Springer Science+Business Media New York 2015

This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software,

or by similar or dissimilar methodology now known or hereafter developed.

The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made.

Printed on acid-free paper

Springer Science+Business Media LLC New York is part of Springer Science+Business Media (www.springer.com)

PREFACE / XIX

PART 1 THE SCM AND THE DISTRIBUTION

1 Introduction to Supply Chain Management / 3

1.1 Defining Logistics and Supply Chain

Management / 41.1.1 Defining Logistics / 51.1.2 Detailed Logistics Activities / 71.1.3 Detailed Logistics Performance

Measurements / 81.1.4 Defining Supply Chain Management / 91.2 The Evolution of Supply Chain Management / 15

1.2.1 Stage 1: Basic Logistics / 151.2.2 Stage 2: Total Cost Management / 171.2.3 Stage 3: Integrated Logistics Management / 171.2.4 Stage 4: Supply Chain Management / 181.2.5 Summary / 19

1.3 Supply Chain Structures / 19

1.3.1 Basic Supply Chain Structures / 201.3.2 Basic Supply Chain Strategies / 211.3.3 The SCOR®Supply Chain Framework / 221.3.4 Lean Supply Chain Model / 26

1.3.5 Adaptive, Demand-Driven Supply Chain

Model / 291.3.6 Components of Adaptive Supply Chain Management / 291.3.7 Demand-Driven Supply Network (DDSN) / 31

1.4 Supply Chain Maturity Model / 34

1.5 Trends in Supply Chain Management / 36

1.6 Goals of Today’s Supply Chains / 38

Discussion Questions / 42

References / 43

2 The Distribution Management Environment / 45

2.1 Defining the Disribution Function / 46

2.2 Revisiting the Supply Chain / 47

2.2.1 Basic Supply Chain Distribution Formats / 492.2.2 Alternative Distribution Channel Formats / 502.3 Role of Distribution Channels / 58

2.3.1 Channel Service Outputs / 602.3.2 Other Functions of Distribution Channels / 612.4 Distribution Channel Transaction Flows / 64

2.5 Distribution Channel Inventory Flows / 68

2.5.1 Substituting Information for Inventory / 722.5.2 Reverse Logistics / 73

2.5.3 Sustainability / 75

Discussion Questions / 79

References / 80

PART 2 SCM STRATEGIES, CHANNEL STRUCTURES,

3 Crafting Business and Supply Chain Strategies / 83

3.1 Defining Business Strategy / 84

3.1.1 Scanning the External and Internal Business Environments / 843.1.2 Defining the Enterprise Vision, Mission, and Goals / 913.2 Crafting the Supply Chain Strategy / 99

3.2.1 Defining Supply Chain Strategy / 993.2.2 Stages of Supply Chain Strategy / 1023.2.3 Supply Chain Strategy Performance Attributes / 1043.2.4 Process Drivers of Supply Chain Performance / 1053.2.5 Applying the Supply Chain Strategy Matrix / 1133.3 Achieving Strategic Supply Chain “Fit” / 114

3.3.1 Concept of Supply Chain Strategic Fit / 1143.3.2 Supply Chain Strategy Performance Metrics / 1163.3.3 Balanced Scorecard Approach / 119

3.4 Supply Chain Strategy and Risk Management / 121

3.4.1 Defining Supply Chain Risk Management / 1223.4.2 Managing Supply Chain Risk Resiliency / 1283.4.3 SCRM Maturity Model / 132

3.4.4 Effect of Supply Chain Management on Resiliency / 134

Discussion Questions / 138

References / 139

4 Designing Channel Networks / 141

4.1 Defining Channel Networks / 142

4.1.1 Exploring Channel Systems / 1434.1.2 Basic Channel Networking Structures / 144

4.2 Network Configuration: Definitions / 146

4.2.1 Reasons for Channel Networks / 147

4.2.2 Network Channel Design Considerations / 148

4.3 Channel Network Design Process / 149

4.3.1 Map Channel Strategy / 149

4.3.2 Segment Marketplace / 155

4.3.3 Channel Positioning / 157

4.4 Channel Selection / 165

4.4.1 Facility Selection Issues / 167

4.4.2 Methods for Locating Channel Network Facilities / 1684.5 Channel Implementation / 176

4.5.1 Selection of Channel Partners / 176

4.5.2 Role of Channel Power / 177

4.5.3 Managing Channel Conflict / 179

4.5.4 Achieving Strategic Channel Collaboration / 182

5.2.2 Quantitative Intrinsic Techniques / 204

5.2.3 Basic Quantitative Forecasting Techniques / 204

5.3 Time-Series Analysis / 209

5.3.1 Basics of Time-Series Analysis / 209

5.3.2 Decomposition of a Time Series / 211

5.4 Associative (Correaltion) Forecasting / 222

5.4.1 Simple Associative Model / 223

5.4.2 Correlation Coefficient for Regression / 224

5.4.3 Multiple Variable Associative Forecast / 225

5.5 Alternative Forecasting Methods / 226

5.6 Managing Forecast Performance / 230

5.6.1 Measures of Forecast Error / 231

5.6.2 Why Forecasts Fail / 236

6 Demand Management / 245

6.1 Defining Demand Management / 246

6.1.1 Demand Management Definitions / 2476.1.2 Components of Demand Management / 2476.1.3 Formulating Demand Strategies / 2486.2 Creating the Demand Plan / 250

6.2.1 Demand Planning / 2506.2.2 Planning Demand / 2516.2.3 Marketing Plan / 2586.2.4 Sales Plan / 2626.2.5 Developing the Demand Forecast / 2656.3 Creating the Supply Plan / 270

6.3.1 Elements of Production Planning / 2716.3.2 Resource Planning / 276

6.3.3 Inventory and Distribution Planning / 2806.4 Balancing the Demand and Supply Plans / 2836.4.1 S&OP: A Balancing Act / 284

6.4.2 S&OP Foundations / 2866.4.3 Working with S&OP Planning Grids / 2886.5 Monthly S&OP Process / 291

6.5.1 Step 1: Data Gathering / 2926.5.2 Step 2: Demand Planning / 2936.5.3 Step 3: Supply Planning / 2936.5.4 Step 4: Pre-Executive S&OP Meeting / 2956.5.5 Step 5: Executive S&OP Meeting / 2966.5.6 Benefits of the S&OP Process / 298

7 Managing Supply Chain Inventories / 309

7.1 Inventory Management Basics / 310

7.1.1 The Magnitude of Inventory / 3127.1.2 Inventory Management Objectives / 3127.1.3 How Does Inventory Provide Value? / 3137.1.4 The Purpose of Inventory / 315

7.1.5 The Role of Inventory Management / 3167.1.6 Classes of Inventory / 317

7.1.7 Function of Inventory / 3187.1.8 Types of Supply Chain Inventory / 320

7.2 Components of Inventory Decisions / 322

7.5.2 Financial Statements and Inventory / 344

7.5.3 Inventory Turns and Ratios / 346

8 Statistical Inventory Management / 357

8.1 Statistical Inventory Replenishment Concepts / 358

8.1.1 Understanding the Demand Driver / 358

8.1.2 Concept of Stock Replenishment / 360

8.1.3 Replenishment Review Interval / 362

8.1.4 Basic Terms of Statistical Inventory Replenishment / 3648.2 Inventory Replenishment Techniques / 365

8.2.1 Visual Review System / 365

8.2.2 Two-Bin System / 366

8.2.3 Periodic Review / 367

8.2.4 Reorder Point / 367

8.2.5 Time-Phased Order Point (TPOP) / 367

8.2.6 Lean Inventory Systems / 368

8.3 Reorder Point Systems / 368

8.3.1 Reorder Point Basics / 368

8.3.2 Min/Max and Periodic Review / 379

8.4 Order Quantity Techniques / 382

8.4.1 The Economic Order Quantity / 383

8.4.2 Replenishment by Item Class / 392

8.5 Lean Inventory Management / 394

8.5.1 Lean and Supply Chain Management / 395

8.5.2 The Lean Inventory Replenishment Pull System / 397

9.2.1 Introduction to the DRP Grid / 4239.2.2 DRP Order Policies and Safety Stock / 4299.3 The DRP Calculation / 432

9.3.1 Basic Data Elements / 4329.3.2 Bucketless DRP / 4339.3.3 DRP Regeneration Frequency / 4349.4 DRP in a Multi-echelon Environment / 435

9.4.1 DRP Planning Process / 4369.5 Stocking Multi-echelon Supply Channels / 438

9.5.1 Bullwhip Effect / 4399.5.2 Adjusting Channel Imbalances / 4469.6 Supply Chain Capacity Planning / 449

9.6.1 Financial Estimating / 4509.6.2 Transportation Planning / 4519.6.3 Warehouse Space Planning / 4539.6.4 Labor and Equipment Capacity / 455

10.1 The Revolution in Customer Management / 468

10.1.1 Understanding Today’s Customer / 46910.1.2 Defining the Customer / 470

10.1.3 Understanding Customer Wants and Needs / 47310.1.4 Marketing To Today’s Customer / 474

10.1.5 Creating Lifetime Customers / 47610.1.6 Dimensions of Customer Values / 47710.1.7 Creating the Customer-Centric Organization / 48410.2 Customer Relationship Management / 486

10.2.1 Defining Customer Relationship Management (CRM) / 48610.2.2 Components of CRM / 488

10.2.3 The Range of CRM Application Functions / 489

10.3 Customer Order Management / 499

10.3.1 Charting Customer Order Management Attributes / 50010.3.2 Order Management Process / 503

10.3.3 The Order Management Cycle / 505

10.3.4 The Perfect Order / 508

10.3.5 Aligning Order and Fulfillment Supply Channels / 509

10.4 Customer Service Management / 511

10.4.1 Defining Customer Service Management / 511

10.4.2 Elements of Effective Service Management / 513

Discussion Questions / 527

References / 528

11 Procurement and Supplier Management / 531

11.1 Defining the Procurement Function / 532

11.1.1 Defining Purchasing / 533

11.1.2 Categories of Purchasing / 533

11.1.3 Purchasing Responsibilities / 534

11.1.4 Objectives of Purchasing / 536

11.1.5 The Purchasing Organization / 538

11.2 Anatomy of Purchasing Strategy / 544

11.2.1 Role of Strategic Sourcing / 552

11.3 Supplier Relationship Management / 553

11.3.1 Supplier Relationship Types / 553

11.3.2 Advent of Supplier Relationship Management / 555

11.3.3 Advantages of Supplier Relationship Management / 55711.3.4 Implementing Supplier Relationship Management / 55811.4 Managing the Sourcing Process / 560

11.4.1 Sourcing Process Steps / 562

11.5 Purchase Order Management / 576

11.5.1 Purchase Processing Cycle / 577

11.6 Supplier and Procurement Performance Measurement / 584

11.6.1 Supplier Performance Measurement / 584

11.6.2 Purchasing Organization Performance Measurements / 58711.7 Impact of e-Commerce on Procurement / 590

11.7.1 The Array of B2B e-Commerce Functions / 590

11.7.2 Structure of the B2B e-Commerce Marketplace / 597

12 Warehouse Management / 605

12.1 Defining Warehouse Management / 606

12.1.1 The Magnitude of Warehousing / 60712.1.2 Warehousing Functions / 608

12.2 Types of Warehouse / 613

12.2.1 The Four Warehouse Types / 61312.2.2 Specialized Warehouse Services / 61712.3 Developing Warehouse Strategies / 619

12.3.1 Strategic Overview / 61912.3.2 Developing the Warehouse Strategic Plan / 62112.3.3 The Outsourcing Decision / 624

12.4 Warehouse Management Process / 626

12.4.1 Establishing Warehouse Standards / 62712.4.2 Receiving and Stocking / 629

12.4.3 Order Picking and Shipping / 63112.4.4 Performance Measurement / 63612.5 Warehouse Design and Layout / 639

12.5.1 Warehouse Design and Layout Objectives / 64012.5.2 Sizing the Warehouse / 641

12.5.3 Warehouse Layout / 64412.6 Warehouse Storage Equipment / 650

12.6.1 Types of Storage Systems / 65112.6.2 Stocking Inventory in Warehouse Locations / 65712.6.3 The Cross-Docking Warehouse / 661

12.7 Warehouse Materials Handling Equipment / 662

12.7.1 Dock Door Equipment / 66212.7.2 Mobile Materials Handling Equipment / 66512.7.3 Packaging and Unitization / 669

12.7.4 Warehouse Automation / 67212.8 Warehouse Management and Environmental Sustainability / 67712.9 Today’s Warehouse Challenges / 679

13.1 Defining Transportation Management / 689

13.1.1 The Magnitude of Transportation / 68913.1.2 The Principles of Transportation / 69013.1.3 Transportation Services / 692

13.1.4 Transportation Participants / 69413.1.5 Relationship of Transportation to Other Business

Functions / 69513.1.6 Transportation Performance Characteristics / 697

13.2 Types of Transportation / 698

13.2.1 Forms of Transportation / 69913.3 Modes of Transportation / 701

13.3.1 Motor Transport / 70113.3.2 Railroad Transport / 70313.3.3 Air Transport / 70513.3.4 Water Transport / 70613.3.5 Pipelines / 70813.3.6 Transportation Mode Summary / 70913.3.7 Intermodal Transportation / 70913.4 Transportation Management Functions / 711

13.4.1 The Role of Transportation Administration / 71313.5 Issues Confronting Transportation / 737

13.5.1 Transportation Infrastructure Issues / 73813.5.2 Transportation Risk Management / 74113.5.3 Transportation Management Technologies / 74313.5.4 Transportation Management Systems (TMS) / 74313.5.5 Yard Management Systems / 746

13.5.6 Routing, Scheduling, and Event Management Systems / 74713.5.7 Driver-Focused Technologies / 748

13.6 Transportation Management LSPs / 749

13.6.1 Types of Transportation LSPs / 74913.6.2 Range of Transportation LSP Services / 75113.6.3 Working with LSPs / 751

14.1 Globalization of the World Economy / 765

14.1.1 Trends Accelerating Globalization / 76614.1.2 Barriers to Globalization / 770

14.1.3 Summary / 77314.2 Globalization Strategies / 774

14.2.1 Global Strategy Development / 77514.2.2 Strategy Development Summary / 77814.3 Channel Strategies / 779

14.3.1 Exporting / 78014.3.2 Licensing / 78314.3.3 Joint Ventures / 784

14.3.4 Direct Ownership / 78514.3.5 Other Methods of Entry / 78514.4 Managing Global Trade Networks / 787

14.4.1 Establishing Global Distribution Channels / 78714.4.2 Global Marketing Issues / 792

14.4.3 Global Trade Management (GTM) Systems / 80314.5 International Purchasing / 806

14.5.1 Overview / 80614.5.2 Advantages of International Sourcing / 80714.5.3 Countertrade Purchasing / 808

14.5.4 International Purchasing Management Process / 80914.6 International Transportation and Warehousing / 814

14.6.1 International Transportation: Opening Issues / 81414.6.2 Surface Transportation / 815

14.6.3 Ocean Transport / 81714.6.4 International Air Transport / 81914.6.5 International Warehousing / 819

15.3.1 The Five Basic Functions of Information Systems / 84015.3.2 Principles of System Management / 842

15.3.3 Objectives of Information Technology

in the Supply Chain / 84315.4 Supply Chain Management Business Technologies: Foundations / 84415.4.1 Identifying Core SCM Business Technologies / 845

15.4.2 Advanced SCM Business Technologies / 84815.4.3 Networking SCM Business Technologies / 84915.4.4 SCM Business System Maturity Model / 85415.5 Standard SCM Business Systems / 856

15.5.1 Enterprise Resources Planning (ERP) / 85615.5.2 Supply Chain Management (SCM) Systems / 85915.5.3 Evaluating Information Technology Solutions / 86115.5.4 SCM Business Technology Configuration Choices / 86315.6 Advent of SCM Internet Technologies / 864

15.6.1 Defining Internet Business / 86515.6.2 Evolution of Internet Business / 866

15.6.3 Impact of Internet Business on the Supply Chain / 86915.7 SCM Technology Implementation Issues / 871

15.7.1 SCM Technology Benefits and Risks / 87115.7.2 Managing the Implementation Project / 873

Discussion Questions / 884

References / 885

The third edition is marked by several major enhancements The text follows the same basicobjectives as the first two editions It is written primarily for use by practitioners, instructors,students, and consultants involved in supply chain management (SCM), logistics anddistribution channel management courses, seminars, supply chain certification programs,and internal company development programs, as well as professionals seeking a handy up-to-date reference text Although broad enough to encompass all the management activitiesfound in today’s logistics and distribution channel organizations, the text is detailed enough

to provide the reader with a thorough understanding of essential strategic and tacticalplanning and control processes, as well as problem-solving techniques that can be applied

to everyday operations

Changes to this edition include:

• Each of the 15 chapters comprising the book was reviewed and errors occurring in thesecond edition were corrected

• Each chapter underwent significant updating to include new developments in supplychain management over the past 10 years

• A new chapter was added to the text Chapter4Designing Channel Networks discusseshow companies can effectively design supply chain strategies and configure channelnetworks that capture marketplace advantage

• In many chapters, statistical-based problems have been inserted into the text tostimulate learning and provide practical exercises Each problem is a mini-casestudy and the reader is provided with detailed information needed to solve theproblem

• Summary questions and problems found at the conclusion of each chapter have beenexpanded The goal is to challenge readers as to their knowledge of topics presented ineach chapter and to offer a tool for learning reinforcement

• For instructors, each chapter has a test databank of true/false and multiple choicequestions and analytical problems that can be used to gauge learner understanding ofthe materials In addition, most chapters have accompanying Excel spreadsheets toassist in problem solving and simulation Finally, each chapter has a full PowerPointvisual presentation deck that can serve as a basis for classroom presentation

In the decade since the publication of the second edition of this text, the concept and practice

of supply chain management (SCM) has come to dominate discussion on all levels ofbusiness Whether it is producing custom machine tools, delivering pizzas, or utilizing theInternet to browse for unique products and services, SCM is being applied by today’s topcompanies to not only provide customers with a superlative buying experience but alsoenable enterprises to be more connected and agile in their mission to create new sources ofvalue across a global supply chain Terms such as “multi-channel,” “omni-channel,”

“demand-driven networks,” and “next-day delivery” are the current buzzwords drivingfresh approaches to delivering goods and services to an increasingly demanding customer

As these new dimensions of supply chain management have arisen, the attention of supplychain managers has migrated away from traditional concerns with cost management,logistics, operations management, and lean business models to leveraging the power ofbig data, analytics, social networking, and collaborative supply chains in their search for newavenues of competitive advantage

This view of the innovative, networking nature of supply chain strategies has driven thesuccess of high-profile businesses as diverse as Walmart and Dell Computer and is at thecore of the disruptive success of Amazon.com Unilever credits its supply chain for assisting

in doubling the size of its marketplace footprint while reducing its environmental impact.Inditex, the Spanish parent of Zara clothing retail outlets, uses supply chain strategies toaccelerate design, production, and delivery of cutting-edge apparel at low prices to a massclientele These and other top companies have succeeded by using SCM to create more agilechannel networks capable of rapid organizational change, collaborative decision making,and the reengineering of roles and responsibilities on all supply chain levels in the search forgreater flexibility, agility, and sensing of customer demand

This tremendous growth in the science and application of SCM calls for a revision of thesecond edition of Distribution: Planning and Control The purpose of the third edition istwofold: the first is to integrate today’s newest supply chain theories and business practicesinto what is basically a solid text The text has been rewritten, and in many cases expandedwith additional subject matter The second objective is to significantly expand the ancillarymaterials available to instructors and students The end result is a text that will provideprofessionals, students, and practitioners with the latest thinking in the field of SCM Forinstructors, an array of educational and testing tools have been added to the third edition thatwill significantly assist in making the text easy to use in a classroom environment

The third edition of Distribution Planning and Control follows closely the originalstructure of the first two editions Part 1 of the text,The SCM and Distribution ManagementEnvironment, sets the background necessary to understand today’s supply chain environ-ment Chapter 1 defines the principles and practices of modern logistics and SCM Maintopics include defining logistics and SCM, the evolution of SCM from its roots in the

logistics concept, and designing competitive supply chain structures Chapter2describes thenature and functions of the distribution industry Main topics include exploring the role ofdistribution channels, mapping distribution channel transaction and inventory flows, andexploring new trends in reverse logistics and environmental sustainability.

Part 2, SCM Strategies, Channel Structures, and Demand Management, reviews theactivities involved in performing strategic planning, designing channel networks,forecasting, and managing channel demand Chapter3sketches the basics of supply chainstrategy development Key topics include defining business strategy, crafting the supplychain strategy, achieving strategic supply chain “fit,” and managing supply chain risk.Chapter 4 explores the tasks associated with structuring supply and distribution channelnetworks Topics of discussion are defining channel networks, networking configuration,channel network design processes, channel selection, and implementing channel structures.Chapter 5 provides a review of forecasting in the SCM environment Forecasting topicsinclude a review of forecasting techniques, time series analysis, associative (correlation)forecasting, and managing forecast performance Chapter 6 concludes Part 2 with anexploration of how demand management plans are developed and used to drive the tacticalstrategies of the supply chain Focal points include defining supply chain demand manage-ment, creating the demand plan, creating the supply plan, and balancing demand and supplyplans through the sales and operations planning (S&OP) process

Part 3,Inventory Management in the Supply Chain Environment, centers on translating thetactical plans arising out of the demand management process into detailed supply chaininventory requirements, logistics capacity plans, and distribution channel resources deploy-ment Chapter7describes the role of inventory in the supply chain environment Main topicsinclude understanding inventory management basics, components of inventory decisions,inventory costs, inventory control, and performance measurement Chapter8continues thediscussion on inventory management by examining how inventory is replenished in anindependent demand environment Main topics include a review of statistical inventoryreplenishment concepts and techniques, order point systems, order quantity techniques, andlean inventory management Chapter9discusses inventory replenishment in a multi-echelonchannel environment Main topics include working with inventory “push” and “pull”concepts, using statistical replenishment techniques, understanding the basics of DRP,the DRP calculation, stocking multi-echelon supply channels, and supply chain capacityplanning

Part 4,Supply Chain Execution, traces the translation of the strategic supply chain plansinto detailed customer and supplier management, warehousing, and transportationoperations activities Chapter10examines how pursuing superior customer service requiresorder processing and customer service functions that provide for the speedy and accuratetransference of goods, value-added services, order information, and financial settlement.Chapter 11 focuses on today’s supply chain procurement and supplier managementfunctions Chapter12explores the role of warehousing as a facilitator of the smooth flow

of inventory through the supply chain system Chapter13details the principles and scope oftransportation Discussion focuses on the interaction of transportation with other enterprisefunctions and with supply channel strategies The various legal forms, performancecharacteristics, modes, and types of transportation are examined in depth

Part 5,International Distribution and Supply Chain Technologies, concludes the text byexploring the role of two integral elements of SCM: international distribution management

and the deployment of information technologies in the supply chain environment.Chapter14 explores the role of global trade and distribution Major topics include under-standing the impact of the globalization of the world economy, development of supply chainglobal strategies, managing global trade networks, international purchasing, and interna-tional transportation and warehousing Chapter15provides an overview of the impact of theinformation technology revolution on SCM Key topics include outlining the foundations ofinformation technology, technology architecture basics, information system foundations, thearray of available SCM business technologies, standard SCM business systems, advent ofSCM internet technologies, and SCM technology implementation issues.

The author is greatly indebted to the many individuals and companies that have providedover the decades the insight and understanding of logistics and supply chain managementfundamental to the writing of this text Of particular importance are the comments of themany students gleaned from countless hours spent in the classroom in a variety of settings.

I am particularly grateful to APICS for their support and understanding during the writing ofthis text The magnificent library of texts, monographs, courseware, articles, white papers,and other sources owned by APICS was always at my disposal Also I would like to thankAPICS for the use of the SCOR® framework materials The author would also like toespecially thank Mr Daniel Martin, CPIM, CIRM, and CSCP for his very thorough andmeticulous reviews and suggestions for the text His efforts have significantly contributed to

a first rate and very readable text I would also like to thank the staff at Springer Science +Business Media for their keen support in drafting the third edition and finishing it through tocompletion The author would especially like to thank Matthew Amboy, who was with theproject from the beginning, and Christine Crigler, who shepherded the manuscript through tocompletion Finally, I would like to express my loving thanks to my wife Colleen who had tobear yet again another period of lost afternoons and long evenings but who receives little ofthe rewards

David Frederick Ross A recognized thought leader in enterprise resources planning (ERP)and supply chain management (SCM), David Frederick Ross has spent over 35 years in thefield of operations management as a practitioner, consultant, and educator During his

13 years as a practitioner, he held line and staff positions in several manufacturing anddistribution companies Over 22 years of his career was spent in ERP and SCM softwareproject management, application software and education courseware development, andconsulting and professional development for several technology companies Currently, he

is Senior Manager, Professional Development for APICS headquartered in Chicago, Illinois,USA (e-mail:dross@apics.org)

Dr Ross has also taught operations and supply chain management in several academicsettings These include Oakton Community College, Easter Illinois University, ElmhurstCollege, and the Kellogg School of Management at Northwestern University He is a long-time instructor in several of APICS’s education and certification programs and is a certifiedAPICS instructor Dr Ross holds a Ph.D degree from the University of Chicago and isrecognized as a CFPIM and CSCP by APICS

Besides articles and industry white papers, he has published six books in SCM.tion Planning and Control (1996, 2nd ed 2004) is used by many universities and is afoundation book for APICS’sCertified in Production and Inventory Management (CPIM)program Competing Through Supply Chain Management (1998) is one of the very firstcomplete texts on the science of supply chain management.Introduction to e-Supply ChainManagement (2003) merged the concepts of e-business and SCM A second edition of thisbook, entitled Introduction to Supply Chain Management Technologies, was released in

Distribu-2010 This book has been adopted by APICS as a primary resource in theCertified SupplyChain Professional (CSCP) program The Intimate Supply Chain (2008) explores theinterrelationship between SCM, customer relationship management (CRM), and customerexperience management (CEM) He also contributed a chapter entitled “Supply ChainManagement: Principles and Structures” for the Manufacturing Engineering Handbook(2015)

PART 1 THE SCM AND THE DISTRIBUTION

MANAGEMENT ENVIRONMENT

CHAPTERS

1 Introduction to Supply Chain Management

2 The Distribution Management Environment

Part 1 squarely positions the reader in today’s supply chain management (SCM) and logisticsbusiness environment As discussed in the Preface, the pace of change brought about by thepower of the customer, information technology, and globalization have forced companies tocritically re-examine the operating values and cultures of their organizations, the way theirbusinesses and processes are structured, and the strategies and tactics by which they compete

in the marketplace The ability of businesses to continuously realign their supply chains tomeet these changes constitutes the foremost challenge before their organizations Companiesthat can leverage the dramatic breakthroughs in information technologies, channelpartnerships, and global trade will be those that gain market share and thrive in thetwenty-first century

Chapter1begins the text by defining SCM, modern logistics, and the organization of thedistribution function Next, the chapter traces SCM from its origins in the logistics concept

to today’s Internet-enabled “virtual” supply chain network Following, the chapter examinesfour different models of supply chain structure: the SCOR®model; the lean supply chain; theadaptive, demand-driven supply chain; and the supply chain maturity model The chapterconcludes with a review of the trends and goals shaping today’s SCM concepts andpractices

Chapter2explores the nature and function of channeldistribution The chapter opens with

a detailed discussion of the characteristics of distribution management followed by a review

of the role of the three major entities constituting the product and service distribution cycle:producers, channel intermediaries, and end-use customers Main topics covered are under-standing the need for channels of distribution, the functions performed by channel distribu-tion intermediaries, and the inbound and outbound materials and information flows foundwithin the typical distribution organization The chapter concludes with an overview of newSCM concerns associated with reverse logistics and environmental sustainability

1.2.1 Stage 1: Basic Logistics

1.2.2 Stage 2: Total Cost

1.3 SUPPLY CHAIN STRUCTURES

1.3.1 Basic Supply Chain Structures

1.3.2 Basic Supply Chain Strategies

1.3.3 The SCOR®Supply ChainFramework

1.3.4 Lean Supply Chain Model1.3.5 Adaptive, Demand-DrivenSupply Chain Model1.3.6 Components of AdaptiveSupply Chain Management1.3.7 Demand-Driven SupplyNetwork (DDSN)1.4 SUPPLY CHAIN MATURITYMODEL

1.5 TRENDS IN SUPPLY CHAINMANAGEMENT

1.6 GOALS OF TODAY’S SUPPLYCHAINS

DISCUSSION QUESTIONSREFERENCES

Supply chain management (SCM) is perhaps the premier operations management strategyfor companies seeking to establish and maintain competitive advantage in today’s globalmarketplace SCM is important because businesses have come to recognize that theircapacity to continuously reinvent competitive advantage depends as much on their ability

to lookoutward to their channel partners as it does leveraging their internal capabilities

Electronic supplementary material The online version of this chapter (doi: 7578-2_1 ) contains supplementary material, which is available to authorized users.

10.1007/978-1-4899-D.F Ross, Distribution Planning and Control: Managing in the Era of Supply Chain Management,

DOI 10.1007/978-1-4899-7578-2_1, # Springer Science+Business Media New York 2015

Channel partners assist companies to generate the innovative ideas and resources necessary

to assemble the right blend of competencies that will resonate with their own organizationsand the wants and needs of their marketplaces Today, no corporate leader believes that theirorganization can survive and prosper acting independently of its suppliers and customers Infact, perhaps theultimate core competency an enterprise may possess is not to be found in atemporary advantage it may hold in a product or process, but rather in its ability tocontinuously assemble and implement market-winning capabilities arising from collabora-tive alliances with their supply chain partners

Companies have always known that leveraging the strengths of business partners couldcompensate for internal resource deficiencies, thereby enabling them to expand their mar-ketplace footprint without expanding their costs Still, there were limits to how robust thesealliances could be due to the resistance of companies to share market and product data,limitations in communication mechanisms, and inability to network the many independentchannel nodes that constitute supply chains In addition, companies were often reluctant toaccept partner dependences for fear of losing leverage when it came to working andnegotiating with channel players Today, the myth of the self-sufficient corporation, verti-cally organized, has been largely exploded In reality, companies have always beeninterconnected with their supply chain partners Once considered a strategic prohibition,creating chains of supporting channel partners has become one of a successful company’smost powerful competitive attributes

This chapter is focused on defining and exploring the opportunities and challenges to SCM

in the early twenty-first century The chapter begins with definitions of logistics and SCM Thegoal is to detail the principles underlying SCM as a business strategy and logistics as a set ofoperations functions Next, a short history of the evolution of SCM will be explored Follow-ing, the chapter will review the basic entities composing any supply chain structure, the threemain supply chain strategies (stable, reactive, and efficient reactive), and the two types ofchannel integration (vertical or horizontal) Once these basics have been covered, four differentviews of supply chain structure will be explored: the SCOR® supply chain model; the leansupply chain; the adaptive, demand-driven supply chain; and the supply chain maturity model.The chapter concludes with a discussion of the trends and goals of today’s supply chain

From the beginnings of industrialized economies, businesses have been faced with the twinproblems of sourcing materials and dispersing their goods and services to the marketplace.When suppliers and customers are in close proximity to the producer, demand and supplysignals are easily communicated, and materials and products can quickly make their waythrough the supply chain As the time and distance separating production and the points ofsupply and consumption widen, however, the ability of companies to easily access materials anddeliver to markets correspondingly diminishes Without the means to effectively move productrapidly from the supply source to the customer, producers find their ability to expand theirbusinesses restricted and the array of goods and services available to the marketplace limited.Bridging the distance gap between demand and supply requires companies to perform twocritical functions The first is the management of logistics The role of logistics is toefficiently and cost-effectively deploy inventory, warehousing, and transportation resourcesthat enable companies to satisfy the day-to-day product and service requirements of their

supply chains The second function issupply chain management The role of SCM is togenerate unique sources of customer value through the creation of collaborative partnershipsthat leverage the resources, capabilities, and competencies of channel members to increasethe competitive advantage of the entire channel system.

1.1.1 DEFININGLOGISTICS

Over the past 50 years, logistics has evolved from a purely operational function focused oninventory, delivery, and cost performance to a competitive weapon providing today’senterprise with the capability to link supply resources at the farthest regions of the supplychain with demand found across widely dispersed geographical marketplaces In the age ofthe global supply chain, modern logistics has become a critical competitive resource,creating value by enabling businesses to span geographical barriers, delivering product in

as quick and cost effective a manner as possible, and linking channels of trading partners.The sheer size and complexity of logistics bears witness to its central position in the globaleconomy According to the Council of Supply Chain Management Professionals (CSCMP)25th Annual State of Logistics Report [1], the cost of U.S logistics for the year 2013 exceededUS$1.39 trillion Of this total, interest, taxes, obsolescence, depreciation, insurance, andwarehousing totaled 469 billion; all forms of transportation totaled 852 billion; shipperrelated costs totaled 10 billion; and logistics administration totaled 53 billion Altogether,logistics costs were the equivalent of 8.2 % of the U.S gross domestic product (GDP)measured in nominal dollars A summary of theLogistics Report appears in Figure1.1

Transportation Costs Motor Carriers:

$ Billions

74 37 13 33 38 Subtotal 195

53

Total Logistics Costs 1,385

Carrying Costs-$2.459 Trillion All Business Inventory Interest………

Taxes, Obsolescence, Depreciation, Insurance……….

Warehousing ……….

2 320 137 Subtotal 469

Shipping Related Costs……… 10 Logistics Administration……….

FIGURE 1.1 Total logistics costs – 2013.

Simply defined, logistics management is the process whereby suppliers, manufacturers,and distributors store and move products through the supply chain to their customers TheAPICS Dictionary defines logistics as “the art and science of obtaining, producing, anddistributing material and product in the proper place and in proper quantities” [2] TheCouncil of Supply Chain Management Professionals (CSCMP) defines logistics as “thatpart of supply chain management that plans, implements, and controls the efficient, effectiveforward and reverse flow and storage of goods, services, and related information between thepoint of origin and the point of consumption in order to meet customers’ requirements” [3].These definitions imply that logistics creates competitive value by optimizing logisticsoperations costs and productivity, high capacity and resource utilization, and close integrationwith customers and suppliers Furthermore, the success of these objectives depends upon theclose collaboration and integration of logistics partners that populate the supply channelsystem Logistics creates competitive advantage by flawlessly executing customer serviceobjectives, achieving conformance to quality standards, and increasing marketplace value.Perhaps the best way to define logistics is to divide it into three closely integrated sets ofmanagement functions as illustrated in Figure1.2 The first iswarehouse management Thisfunction is responsible for the storage and handling of inventories beginning with supplierreceipt and ending with dispersion to internal or external customers Critical concerns arethe pursuit of lean philosophies, environmental sustainability, reduction of wastes, use of thirdparty logistics (3PL) partners, utilization of warehouse management systems (WMS), inte-gration with transportation, and pursuit of flow-through techniques for storage and picking.The second function of logistics istransportation management This function is defined asthe movement of product from one node in the supply chain to another, ending with delivery

LogisticsManagement

Logistics Performance Measurement

Analytical/

Track and Trace Administration

Management

Transportation Management

Warehouse Management

Lean/Green Warehousing

Flow-Through

Techniques

WMS Technologies

Transportation

Integration

Fleet and 3PL Management

Routing, Tracking, Optimization

Regulation, Security, Compliance TMS

Technologies

3PLs

Audit, Payment, and Claims

FIGURE 1.2 Logistics management components.

to the customer Critical concerns are management of private fleets and 3PL partners; audit,payment, and claims; transport routing, tracking, and optimization; government regulation,security, and compliance; and the utilization of transportation management systems (TMS).The third and final function of logistics isperformance measurement Because of the size ofthe capital invested in warehousing and transportation, managers must keep a close account-ing of the performance of these functions through the deployment of logistics administrationand analytic modeling techniques capable of providing full visibility to logistics costs andoperational performance.

1.1.2 DETAILEDLOGISTICSACTIVITIES

Logistics management centers on the daily execution of several business activities The goal

is to pursue the highest customer service at the lowest possible cost These functions areseparated into the following operations areas:

• Order management This activity is concerned with the navigation of the customerorder through the inventory allocation, picking, packing, shipping, and backordercycles The fundamental performance target is ensuring product shipment based onquoted lead times, order quantities, and quality specifications

• Production and procurement Providing information to production and purchasingconcerning the status of channel inventories is essential to high-performance logistics.Logistics is also responsible for the inbound flow of materials into production and theoutbound flow of finished goods into the distribution channel

• Freight cost and service management These activities consist of managing inbound/outbound freight, third-party carrier management, total cost control, operationsoutsourcing decisions, and execution of administrative services Superior logisticsperformance is achieved by optimizing inbound materials and outbound productmovement, warehousing, and administrative services that utilize the most cost effec-tive yet efficient transportation methods and transportation service partners

• Warehouse management The effective management of inventory in the supply chainrequires efficient and well-managed warehousing techniques Key activities are inven-tory storage, material handling, equipment and labor utilization, receiving, put away,and returns

• Transportation routing and scheduling The movement of product to its destination is

a primary function of logistics Activities performed are optimization of shippingcapacity utilization, decreasing less-than-truckload shipments, and applying postpone-ment strategies Another important function is selection of third-party transportationproviders An often overlooked area is shipment documentation and compliance.Accurate documentation is necessary to effectively manage country quotas, tariffs,import/export regulations, product classification, and letters of credit

• Fleet management It is the responsibility of logistics to ensure the utilization ofcompany-owned transportation fleets The goal is to determine the optimum use oftransportation assets, whether internal or through a third party supplier, withoutcompromising service levels

• Load planning Utilizing transportation assets to achieve maximum fulfillment mization requires detailed load planning Critical activities are packaging and

opti-labeling, load building and consolidation, and possible third party transfer point orcross-docking functions.

• Special functions Often logistics must manage a range of miscellaneous functions.Managing service parts inventories and working with return goods are examples Afunction growing in importance isreverse logistics This process involves managingcustomer returns and the reclamation of packaging materials and other wastes andbackhaul to a central collection point for recycling The object is the coordination ofboth the forward and reverse processes necessary to fully utilize products andmaterials during the different stages of their life cycles

While the effective management of each of these areas is essential to logistics success,their benefits dramatically increase when the entire logistics channel network is integrated inthe pursuit of supply chain optimization and development of robust, flexible sourcing,warehousing, transportation, and delivery capabilities that unify total logistics capabilities.1.1.3 DETAILEDLOGISTICSPERFORMANCE MEASUREMENTS

Logistics performance is composed of three important metrics The first,logistics tivity, provides information concerning productivity standards, level of logistics cost opti-mization, integration of quality management processes, and broadening of logistics servicelevels The second metric,logistics service performance, tracks customer service goals, such

produc-as product availability, order cycle time, logistics system flexibility, depth of serviceinformation, utilization of technologies, and breadth of post-sales service support Thefinal performance component, logistics performance measurement systems, details thecontent of performance metrics, how performance data are captured, and the systems used

to track and report on performance

Superior logistics performance pursues the following seven operating objectives:

• Service High performance logistics functions possess the following customer serviceattributes: high levels of service and inventory availability, self-service order entry,order delivery status management, order configuration flexibility, and short recoverytime after a performance failure

• Fast flow response Rapid response requires highly agile and flexible logisticsresources capable of quickly adding or reducing capacities based on expected demand.Besides accelerating the order-to-delivery cycle, this attribute also means migratingaway from a dependence on stagnant pools of buffer inventory driven by forecasts to ademand-pull model enabling rapid response to each customer order on a shipment-by-shipment basis

• Reduction of operating variances Since logistics productivity increases whenvariances are minimized, high performance logistics continuously pursues thearchitecting of supply channels dedicated to the continuous elimination of all forms

of supply chain variance and waste

• Minimum inventories Maintaining the necessary levels of channel inventories is anessential component of logistics’ commitment to customer service High performancelogistics channels maintain the right levels of inventory demanded by the marketplacewhile continuously searching to reduce stagnant pools of excess, obsolete, and safety

stock inventories Achieving this goal means pursuing high inventory turns velocityfor the entire supply chain and not merely one trading partner.

• Transportation reduction Transportation cost reduction is achieved by close channel inventory planning and replenishment, assembling larger shipments travers-ing longer distances to achieve movement economies of scale, the effective use ofthird party service providers, and pursuit of sustainability objectives

inter-• Quality management The pursuit of total quality management (TQM) is essential foreffective logistics It can be argued that the requirement for absolute quality is evenmore essential for logistics than anywhere else in the company Logistics transactionsoften deal with transporting large quantities of inventories and performing servicesspanning large geographical areas Once set in motion, the cost of a quality failure,ranging from incorrect inventories to damaged goods, requires lengthy and costlyprocesses to be reversed

• Product life-cycle support The movement to increase environmental sustainabilityhas mandated an increase inreverse logistics functions Activities include recalls andreturns, remanufacturing, repair, and disposition An environmental sustainabilitystrategy also provides companies with a wealth of information on product perfor-mance, ease of use, defects, and consumer expectation

1.1.4 DEFININGSUPPLYCHAINMANAGEMENT

Companies have always known that by leveraging the capabilities and resources of theirsupply chain partners they could enhance their own core competencies and expand thefootprint of their products and services SCM began to gain traction when companiescame to recognize the competitive value arising from the integration of logistics functionswith those of other channel organizations Soon it became apparent that using channelpartners for logistics collaboration was barely scratching the surface of the potential forstrategic advantage In place of the opportunistic, tactical use of channel partners toachieve short term objectives, channel planners began advocating the transformation ofthese transient relationships into integrated, mutually enriching partnerships By the early1990s a new management concept began to gather traction to fill this gap: supply chainmanagement

The concept of SCM encompasses much more than simply the transfer of products andservices through the supply pipeline SCM is about a company integrating its processcapabilities and marketplace objectives with those of its suppliers and customers on astrategic as well as tactical level Integrative supply chains consist of many trading partnersparticipating simultaneously in a collaborative network containing multiple levels ofcompetencies and various types of relationships SCM enables companies to activate thesynergy to be found when a community of firms utilizes the strengths of each other to buildsuperlative supply and delivery processes that provide total customer value

SCM can be viewed from several perspectives Definitions of SCM take into account awide spectrum of applications incorporating both strategic and tactical objectives Forexample, theAPICS Dictionary defines SCM as

The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.

The Council of Supply Chain Management Professionals (CSCMP) defines SCM asencompassing the

planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities Importantly, it also includes coordination and collabo- ration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers In essence, supply chain management integrates supply and demand management within and across companies [ 3 ]

The collaborative, network-building attributes of SCM have revolutionized the role of thesupply chain and infused channel constituents with innovative ways of providing totalcustomer value Instead of a focus on just logistics operations, SCM enables supply chains

to collectively work to activate an array of strategic competencies as illustrated inFigure1.3[4]

A detailed discussion of each of the six competencies is as follows:

• Customer management Managing the customer has taken on added significance in theera of supply chain management and is termed customer relationship management(CRM) CRM is founded on the recognition that as customers demand to be more

Supply Chain Management

Customer Management

Operations Excellence

Supplier Management

Channel Alignment

Integrative Technologies

• Real-Time Connectivity

• Demand Information Sharing

• Common Performance Metrics

Supplier Management

• Networked ERP/SCM

• S&OP and CPFR tools

• Advanced Planning Systems

• Networked Channel Planning

• Channel Event Management

• EDI and Internet

• RFID and Data Collection

Channel Unification

• Integrated Information Systems

• Asset Utilization

• Team Approaches

FIGURE 1.3 Supply chain management competencies.

involved in product/service design, pricing, and order configuration, companies mustfocus their efforts beyond brand and marketing-based strategies to establish enrichingcustomer relationships The goal of CRM is to provide complete visibility to allaspects of the customer, from facilitating the service process and collecting dataconcerning customer buying history to optimizing the buying experience CRMprovides companies with the ability to architect a mosaic of processes for the genera-tion of fast flow, flexible, and synchronized delivery systems that enable customerself-service; configuration of customized, individualized value-solutions; and fulfill-ment functions providing the highest levels of service and value.

CRM enables supply networks to respond to three critical customer requirements:

1 Superior service The goal of CRM is to provide the customer with an unbeatablebuying experience that exceeds price, product availability, delivery, and serviceexpectations Creating high service levels requires two critical value chainattributes: speed of response and attention to reliability CRM technologiesrealize speed of response by passing demand information not serially, but simul-taneously to channel partners through advanced shipping notices, bar coding andRFID, on-line delivery tracking, event-management technologies, and real-timefulfillment information Reliability means executing the perfect order each andevery time Reliability requires supply chains to be flexible enough to respond tolast minute changes while never compromising high service levels

2 Convenient solutions Today’s customers are searching for supply chains capable

of providing them not just with products and services but solutions to theirbusiness needs In addition, customers want to search, configure, create, andreview their orders in as convenient a manner as possible Visibility to customerrequirements in turn provides each channel partner with the opportunity to usecore competencies that ensure each customer can make individualized choice ofproduct and service solutions

3 Customization Today’s customers are no longer content to purchase standardizedgoods and services, but instead require the ability to configure solutions that meettheir own individual needs To realize these objectives, suppliers can deploystrategies that postpone and place actual product differentiation at the channeldelivery point that actually touch the end-customer Another strategy is to utilizeInternet-enabled ordering that permits customers to place orders and receivedelivery from multichannel sources Channel synchronization is crucial: customi-zation requires direct linkage of demand and supply at all points in the channelwith the goal of minimizing cost and accelerating total channel throughput

• Supplier management Businesses have always known that the relationship betweenbuyer and seller, and not just product price and quality, determines the real value-addcomponent of purchasing This viewpoint has spawned a new concept and set ofbusiness practices termed supplier relationship management (SRM) The mission ofSRM is to activate the real-time synchronization of the requirements of buyers withchannel supplier capabilities The goal is a customized, unique buying experiencewhile simultaneously pursuing cost reduction and superior quality SRM seeks to fuse

supplier management functions into an efficient, seamless process driven byrelationships founded on trust, shared risk, and mutual benefit The key components

of SRM include:

– Strategic sourcing Strategic sourcing not only provides for technology-enabledsourcing from a universe of suppliers, but also reveals the depth of suppliercompetencies, availability of value-added services, level of desired quality, capacityfor innovative thinking, and willingness to collaborate on new product development.– SRM technology toolsets Use of technologies that facilitate the communication ofpurchasing requirements; negotiation of quality, pricing, and delivery objectives;product sustainability; and financial settlement The Internet has enabledpurchasers to activate new forms of procurement, such as on-line catalogs, inter-active auction sites, spend analytics, and trading exchanges These integrativetechnologies provide purchasers with tools for the real-time, simultaneous syn-chronization of demand and supply from anywhere, anytime across a globalnetwork of suppliers

– Integrated procurement infrastructures A goal of SRM is the establishment oforganizational infrastructures that link channel capabilities and performanceobjectives directly with the customer A SRM-driven organization is capable ofexpanding traditional purchasing functions to include new players, such as tradingexchanges, consortiums, and other e-commerce service support partners providingpayment, logistics, credit, shipping, and other procurement-related processes

• Channel alignment The structure of a supply chain is composed of its supply anddelivery nodes and the links connecting them In the past this network wascharacterized as a series of trading dyads In this model, channel partners createdtrading relationships one partner at a time without consideration of the actual extendedchain of customers and suppliers constituting the entire supply chain ecosystem Inreality, a company like Wal-Mart deals literally with thousands of suppliers and theirsupply chain resembles more a networked grid of business partners rather than a linearpipeline-like structure (Figure1.4) Maintaining a strategy of trading partner dyads asthe supply chain expands, risks decay of cost management objectives, leveragingresource synergies, and maintaining overall marketplace competitiveness

To counter the inertia inherent in thetrading partner dyads strategy, effective SCMrequires a continuous focus on network node congruence This means that eachchannel constituent must construct an individual supply chain strategy and set ofoperational objectives that simultaneously provides for competitive advantage forboth the firm and the collective channel network This step also reveals the gaps andregions of potential conflict existing between the strategies and metrics of individualpartners Without strategic and operational alignment, the supply chain will have weaklinks that easily break as the pressure of demand variability and missing partnercapabilities appears at times of channel stress

As supply chain convergence matures, the number of nodes occupying peripheralpositions are more closely integrated into the direct channel The goal is to increase thelength of the contiguous supply chain, thereby expanding opportunities for collabora-tion, customer value, and operations excellence while at the same time minimizingconflict and increasing compromise over costs, performance metrics, service value

propositions, and delivery velocity targets Achieving supply chain congruence can becontentious as companies find themselves working with several separate channelnetworks as their business ecosystems evolve in new directions.

• Integrative technologies The convergence of integrative information technologiesand SCM constitutes a key theme in the evolution of SCM Earlier, it was pointedout that it is virtually impossible to think of SCM without the power of the enablingtechnologies that have shaped and driven its development into a powerful manage-ment science In today’s highly competitive global marketplace having the bestproduct or service is simply not enough: now, having the bestinformation has becomethe decisive differentiator between market leaders and followers Supply channeltransparency consists of a single view of the supply chain and requires informationtechnologies that facilitate the collection, processing, access, and manipulation ofrobust repositories of data necessary for determining optimal supply chain designconfigurations

Information networks also provide companies with the necessary insight so thatchannel resources and competencies can be synchronized to provide superior customerservice On the marketing side, information networks enable companies to integratecustomers directly into their fulfillment systems thereby assisting in executing aperfect order every time On the shop floor, information networks improve planners’visibility into supplier resources to smooth capacity spikes and improve throughput Inthe supply channel, information networks provide a window into inventory availability

so that companies can align their resources with the demand pull of the marketplace

Supplier Node

Wal-Mart

Supplier

Node

Supplier Node

Supplier Node

Supplier Node

Supplier Node

Supplier Node

Supply Chain Ecosystem

Customer Node

Customer Node

Customer Node

FIGURE 1.4 The supply chain as a network grid.

• Operations excellence Ideally, operations excellence compels every firm in thechannel network to optimize both their own performance and, by extension, theperformance of the entire supply chain By acting as a single integrated team, thesupply chain has access to an expanding range of processes and competencies individ-ual companies would be incapable of achieving acting on their own In addition,integrated supply chains have a better chance to increase performance bystandardizing processes and leveraging shared information technologies.

• Collaboration [5] The keystone of SCM is found in the willingness of supply channelpartners to engage in and constantly enhance collaborative relationships with eachother As displayed in Figure1.5, the intensity of collaborative content can vary Onthe lowest level, it is internally-focused on the achievement of local objectives On thenext level, SCM collaboration consists in linking inter-channel partner logisticsfunctions to optimize channel operations In level three, channel partners seek todevelop collaborative strategies to link core competencies and resources to generatejoint product and service value for the supply chain’s customers Finally, in level four,SCM leverages web-based interoperability technologies to create a completelyintegrated supply chain focused on executing a common business strategy bypresenting customers with a seamless supply engine

Level of Supply Chain Integration

Internal Optimization

External Integration

Channel Operations Collaboration

Web-Enabled Strategic Collaboration

Internal Channel Functions

Inter-Channel

Logistics Functions

Inter-Channel

Product and Service Value Generation

Adaptive

Inter-Channel Strategic Value

Generation

Supply Chain Operations Integration

Supply Chain Strategic Collaboration

e-Supply Chain Value Interoperability

Logistics Optimization Intranet

Intranet Network Extranet Web-enabled

FIGURE 1.5 Span of SCM collaboration.

While no one can disagree on the efficacy of collaboration, there are many barriersinhibiting implementation A significant impediment is overcoming existing corporatecultures Long-tradition and internal performance silos often pose an almost insurmount-able barrier to espousing an environment encouraging openness, communication, andmutual-dependence Another barrier istrust Companies fear that proprietary informationwill be used for unfair negotiating advantage or passed on to competitors Finally, today’stechnology presents real barriers The incompatibility of channel computer systems poses

a serious deterrent to shared communications Collaborative relationships normally takeyears of good will, investment in resources, and proof of mutual benefit

The six SCM competencies enable companies to realize the three success factorsshown at the bottom of Figure1.3 By architecting highly integrated supply networks,companies achieve continuous competitive advantage by jointly developing anddelivering winning products and services that capture the customer before the compe-tition Second, by converging the collective resources and innovative capabilitiesfound among supply network partners, SCM enables companies to act as if theywere a singleunified channel capable of delivering customer value seamlessly acrossintersecting supply chains And finally, by deploying connective technologies, such asthe Internet and social networking, companies can leverage information to leadmarketplace change, preserve brand integrity, effectively identify customers, andprovide total customer value and overall profitability

1.2 THE EVOLUTION OF SUPPLY CHAIN MANAGEMENT [ 6 ]

As portrayed in Table1.1, the SCM concept evolved through four distinct stages The firststage is described as the era of logistics decentralization In the second stage, logistics movedfrom functional decentralization to organizational centralization driven by increasedrequirements for cost optimization and customer service Stage three witnessed the dramaticexpansion of logistics from a passive operational function to a strategic resource centered onthe linkage of internal operations with analogous functions performed by channel tradingpartners As the concept of channel collaboration grew, the old logistics concept gave way instage four to full-blown SCM

1.2.1 STAGE 1: BASICLOGISTICS

The first stage of SCM occurred in the period extending from the early twentieth century to themid-1960s Considered essentially as an operations execution function concerned withwarehousing and transportation, it was felt that logistics was purely a cost center with minimaleffect on competitive advantage As such, logistics was considered unworthy of seriouscapital investment, accorded little management status, and assigned less professional staffs.Often companies fragmented logistics into stand-alone activities and placed control underdifferent company departments Not only were functions such as procurement, transportation,and inventory management, separated from one another, but local departmental performancemeasurements actually pitted logistics functions against each other What is more, the wholefield of logistics was woefully ill-defined as a management science The result was adisjointed, relatively uncoordinated, and costly management of logistics activities