Strategic Supply Chain Management (eBook)

Preface 7
Acknowledgements 11
Contents 12
About the Authors 23
Abbreviations 24
List of Figures 31
List of Tables 33
Chapter 1: Introduction to Supply Chain Management 35
1.1 What Is Supply Chain? 35
1.2 Value Chain and Supply Chain 37
1.3 A Generic View of Supply Chain 38
1.3.1 A Simple Example of Supply Chain 39
1.4 The Umbrella of Supply Chain 40
1.5 Management Activities 40
1.5.1 Purchasing 40
1.5.2 Inbound Transportation 41
1.5.3 Quality Control 41
1.5.4 Planning of Demand and Supply 41
1.5.5 Receiving, Storage and Material Handling 41
1.5.6 Material Control or Inventory Control 42
1.5.7 Order Processing 42
1.5.8 Production Scheduling, Planning and Control 42
1.5.9 Warehousing or Distribution 42
1.5.10 Shipping 42
1.5.11 Customer Service 43
1.6 Supply Chain Integrations 43
1.6.1 Example of Korean Manufacturer 43
1.7 Why Vertical Integration Failed 44
1.8 What Is the Bullwhip Effect? 44
1.8.1 The Causes of Bullwhip Effect 45
1.9 The Snowball Effect 46
1.10 The Importance of Information Sharing 47
1.11 The Beginnings of SCM in the USA 48
1.12 3PL Logistics and 4PL Logistics 50
1.13 Latest Trend in Supply Chain Management 51
1.13.1 Supply Chain Responsiveness 52
1.13.2 Reducing Total SCM Costs 52
1.13.3 Trust Building and Collaboration 53
1.13.4 Green Supply Chain Management 53
1.13.5 Expanding the Supply Chain 55
References 56
Chapter 2: Key Issues in Logistics and Supply Chain 57
2.1 Network Configuration and Competition 57
2.2 Information Sharing 60
2.3 Developing Collaborative Planning Activities 62
2.4 Supplier Management 65
2.5 Approaching the Marketplace 66
2.6 Key Issues and Challenges for Logistics 66
2.6.1 Supply 67
2.6.2 Distribution 67
2.6.3 External Environment 68
2.6.4 Retail 69
2.6.5 Consumer 69
References 70
Chapter 3: Global Sourcing 72
3.1 Difference Between International Purchasing and Global Sourcing 73
3.1.1 Overview of Global Sourcing 73
3.2 Why Global Sourcing? 74
3.3 Information of Global Supplier 78
3.3.1 International Industrial Directories 78
3.3.2 Trade Shows 78
3.3.3 Trading Firms 78
3.3.4 Third-Party Services 79
3.4 Supplier Selection Issues 79
3.4.1 Cultural Differences 80
3.4.2 Communication Differences 81
3.5 Logistical Problems 81
3.5.1 Legal Issues 83
3.5.2 Organizational Issues 84
3.6 The Selection and Evaluation Process 85
3.6.1 Recognize the Need for Supplier Selection 86
3.6.2 Classify Key Sourcing Requirements 86
3.6.3 Determine Sourcing Strategy 86
3.6.4 Identify Potential Sources of Supply 87
3.6.5 Limit Suppliers in Selection Pool 91
3.6.6 Determine Method of Supplier Selection and Evaluation 93
3.6.7 Select Supplier and Reach Contract 95
3.7 Key Supplier Evaluation Criteria 95
3.7.1 Management Capability 95
3.7.2 Capabilities of Employees 96
3.7.3 Cost Structure 97
3.7.4 TQM Philosophy 97
3.7.5 Process Capability and Technological Capability 97
3.7.6 Environmental Regulation 98
3.7.7 Financial Stability 98
3.7.8 Supplier Selection 98
3.8 Overview of Supplier QM (Quality Management) 99
3.8.1 What Is the Supplier Quality? 99
3.9 Factors Affecting Supply Management’s Role 101
3.9.1 Costs Associated with International Purchasing 102
3.9.2 Common Costs 102
3.9.3 International Costs of Transportation 104
3.9.3.1 Currency Risk 104
3.9.3.2 Sharing Risk of Currency Fluctuation 104
3.9.4 Currency Hedging 104
3.9.5 Treasury Department Expertise 105
3.9.6 Currency Adjustment Contract Clauses 105
3.9.7 Tracking Currency Movements 105
3.10 Developing from International Purchasing to Global Sourcing 106
3.11 Elements Separating Successful from Less-Successful Worldwide Sourcing Struggles 107
3.12 Defined Process to Support Worldwide Sourcing 107
3.12.1 Centrally Coordinated and Centrally Led Decision-Making 108
3.12.2 Decentralized Control of Operational Activities 108
3.12.3 Communication Tools 108
3.12.4 Information Sharing with Suppliers 109
3.12.5 Availability of Resources 110
3.12.6 Contracting and Sourcing Systems 110
3.12.7 IPO Support 110
3.13 Advantages of Global Sourcing 111
3.14 Future Trend of Global Sourcing 111
References 112
Chapter 4: Warehousing and Storage Equipment 114
4.1 Strategic Issues 115
4.1.1 Costs 116
4.2 The Role of Warehouses 117
4.3 Types of Distribution Centre and Warehouse 118
4.4 Operations of Warehouses 119
4.5 Objectives of Good Warehouse Design and Management 121
4.5.1 Use of Building Space 121
4.5.2 Choice of Unit Load 122
4.5.3 Utilization of Resources 122
4.5.4 Minimum Movement 122
4.5.5 Control System and Information System 123
4.5.6 Product Integrity 123
4.5.7 Working Safety and Conditions 123
4.5.8 Environmental Issues 124
4.5.9 Information and Communication 124
4.5.10 Packaging and Unit Loads 124
4.5.10.1 Packaging 124
4.5.10.2 Unit Loads 125
4.5.11 Storage Systems and Equipment 126
4.5.12 Stock Location 127
4.5.13 Random and Fixed Stock Location 127
4.6 Palletized Storage 128
4.6.1 Block Stacking 128
4.6.2 Drive Through Racking and Drive-In 129
4.6.3 Adjustable Pallet Racking 130
4.6.4 Double Deep Racking 132
4.6.5 Powered Mobile Racking 133
4.6.6 Pallet Live Storage 133
4.6.7 High Bay and Other Storage Installations 134
4.6.8 Palletized Storage 135
4.6.9 Small Product Storage Systems 136
4.6.10 Shelving: Long and Short Span 136
4.6.11 Tote Bins 136
4.6.12 Drawer Units 136
4.6.13 Dynamic Systems: Live and Mobile Storage 137
4.6.14 Mechanized Systems: Carousels 137
4.6.15 Other Types of Storage 138
References 140
Chapter 5: Inventory Management 141
5.1 Dependent and Independent Demand 141
5.1.1 Dependent Demand 142
5.1.2 Independent Demand 142
5.2 Tools of Inventory Management 143
5.3 The Basic Types of Inventories 143
5.3.1 Inventory Costs 144
5.3.2 Inventory Investment 145
5.4 ABC Inventory Control System 146
5.5 The Matrix of ABC Inventory 148
5.6 Radio Frequency Identification Device 150
5.6.1 Components of an RFID System 151
5.6.2 How RFID Automates the Supply Chain 152
5.7 Inventory Models 153
5.7.1 The EOQ Model 153
5.7.1.1 Assumptions of the EOQ Model 153
5.7.1.2 Deriving the EOQ 154
5.7.2 The Quantity Discount Model 158
5.7.3 The EMQ Model 159
5.8 The Statistical Reorder Point 162
5.8.1 The Statistical Reorder Point with Constant Lead-Time and Probabilistic Demand 163
5.8.2 The Statistical ROP with Constant Demand and Probabilistic Lead-Time 165
5.8.3 The Statistical ROP with Probabilistic Demand and Lead-Time 166
5.9 The Periodic Review and the Continuous Review Inventory Systems 166
5.9.1 The Continuous Review System 167
5.9.2 The Periodic Review System 168
References 169
Chapter 6: Warehouse Design and Management 171
6.1 Warehouse Design Procedure 171
6.2 Define Design Constraints and System Requirements 172
6.2.1 Define and Obtain Data 173
6.2.2 Analyse Data 174
6.2.3 Establish What Unit Loads Will Be Used 175
6.2.4 Postulate Basic Methods and Operations 175
6.3 Consider Possible Types of Equipment for Handling and Storage 176
6.3.1 Calculate Equipment Quantities 177
6.3.2 Calculate Staffing Levels 177
6.4 Prepare Site Layouts 178
6.4.1 Internal Layout Issues 178
6.4.2 External Layout 179
6.5 Evaluate the Design Against System Constraints and Requirements 179
6.5.1 Identify the Preferred Design 179
6.6 Warehouse Management and Information 180
6.6.1 Performance Monitoring 180
6.6.2 Service Levels 180
6.6.3 Cost-Effectiveness 181
6.6.4 Resource Utilization 181
6.6.5 Stock Integrity 181
6.6.6 Legal Regulations and Requirements 182
6.6.7 Information Technology 182
6.7 Warehouse Management 182
6.8 Data Transmission and Capture 183
6.8.1 Radio Data Communication 184
References 185
Chapter 7: Domestic and Global Logistics 187
7.1 The Fundamentals of Transportation 187
7.2 The Objective of Transportation 188
7.3 Legal Forms of Transportation 188
7.3.1 Common Carriers 188
7.3.2 Contract Carriers 189
7.3.3 Exempt Carriers 189
7.3.4 Private Carrier 189
7.4 Modes of Transportation 189
7.4.1 Motor Carriers 190
7.4.2 Rail Carriers 191
7.4.3 Air Carriers 192
7.4.4 Water Carriers 192
7.4.5 Pipeline Carriers 193
7.4.6 Intermodal Transportation 193
7.5 Transportation Pricing 194
7.5.1 Value of Service Pricing 194
7.5.2 Cost-of-Service Pricing 195
7.5.3 Negotiated Pricing 195
7.5.4 Terms of Sale 196
7.5.5 Rate Categories 196
7.6 Transportation Security 197
7.7 Transportation Regulation and Deregulation 198
7.7.1 Transportation Regulation 198
7.7.2 Transportation Deregulation 201
7.8 Warehousing and Distribution 203
7.9 The Types and Importance of Warehouses 204
7.9.1 Private Warehouses 204
7.9.2 Public Warehouses 205
7.10 Risk Pooling and Warehouse Location 206
7.10.1 Risk Pooling 206
7.11 Warehouse Location 208
7.12 Lean Warehousing 209
7.13 The Impact of Logistics on SCM 210
7.13.1 Third-Party Logistics Services 211
7.13.2 Outsourcing End-to-End SCM Activities 211
7.13.3 Third-Party Supply Base Reduction 212
7.13.4 Mode and Third-Party Logistics Selection 212
7.13.5 Building Strategic Logistics Alliances 213
7.14 Other Transportation Intermediaries 213
7.14.1 Freight Forwarders 214
7.14.2 Transportation Brokers 214
7.14.3 Shippers’ Associations 214
7.14.4 Intermodal Marketing Firms 215
7.15 Environmental Sustainability 215
7.16 Global Logistics 216
7.16.1 Global Logistics Intermediaries 217
7.16.2 Customs Brokers 217
7.16.3 International Freight Forwarders 217
7.16.4 Trading Firms 218
7.16.5 NVCO: Non-vessel Operating Common Carriers 218
7.17 Foreign-Trade Zones 218
7.18 North American Free Trade Agreement 219
7.19 Reverse Logistics 219
7.19.1 The Impact of Reverse Logistics 220
7.19.2 The Environment and Reverse Logistics 220
References 222
Chapter 8: Procurement 223
8.1 Definitions of Purchasing and Procurement 223
8.2 Importance of Procurement 224
8.3 Goal of Procurement 224
8.3.1 Procurement Organization 225
8.4 Choosing Suppliers 225
8.4.1 Qualified Suppliers 225
8.5 Monitoring Supplier Performance 229
8.6 Procurement Cycle 229
8.6.1 Steps in the Cycle 229
8.7 E-procurement 232
8.8 Types of Purchase 233
8.8.1 Terms and Conditions 235
References 238
Chapter 9: Performance Measurement and Evaluation 239
9.1 Why Measure Performance? 240
9.1.1 Support Healthier Decision-Making 240
9.1.2 Support Improved and Effective Communication 240
9.1.3 Provide Performance Feedback 240
9.1.4 Motivate Behaviour 240
9.2 Problems of Measurement and Evaluation in Supply Chain 241
9.2.1 Too Much Data 241
9.2.2 Measures That Are Not Long-Term Focused 241
9.2.3 Lack of Detail 241
9.2.4 Wrong Performance 242
9.2.5 Behaviour vs. Accomplishments 242
9.3 Procurement and SCs Performance Measurement Classifications 242
9.4 Price Performance Measures 243
9.4.1 Actual Price Compared to Standard/Plan Price 244
9.5 Actual Price vs. Market Index 244
9.5.1 Price Comparison Between Operations 244
9.5.2 Target Prices Achieved 244
9.6 Measures of Cost-Effectiveness 245
9.6.1 Cost Changes 245
9.6.2 Cost Avoidance 245
9.6.3 Revenue Measures 246
9.6.4 Revenue Measure Examples 246
9.7 Quality Measures 246
9.7.1 Parts per Million 246
9.7.2 Field Failure Rates by Purchase Product and by Supplier 247
9.8 Delivery/Time/Responsiveness Measures 247
9.8.1 New Services/Products, Time-to-Market Targets 247
9.8.2 On-Time Delivery 247
9.8.3 Achieving New Product Launching 247
9.8.4 Cycle Time Minimization: Order Entry, Operations/Manufacturing, Logistics and Distribution 248
9.8.5 Responsiveness to Schedule Changes, and Service or Design Changes, Mix Changes 248
9.9 Innovation Measures 248
9.9.1 Manufacturing Outputs of Latest Supplier Technology 248
9.9.2 Standardization 248
9.10 Safety and Physical Environment Measures 249
9.10.1 Integrated SCM Measures 249
9.11 Transportation Cost Minimization 249
9.11.1 Customer Orders 250
9.11.2 E-Transactions (Percentage and Number of Dollars/Orders and Suppliers) 250
9.11.3 Shared Schedules/Pull Systems/SMI (Supplier Managed Inventory) 250
9.11.4 Efficiency and Administration Measures 251
9.11.5 Present Budget Plus Adjustment 251
9.11.6 Control Ratio Budget 251
9.11.7 Other Approaches of Budgets 251
9.12 Social and Governmental Measures 252
9.12.1 Internal Customer Satisfaction Measures 252
9.12.2 Measures of Suppliers’ Performance 252
9.12.3 Strategic Performance Measures 252
9.13 Developing a System of Performance Measurement and Evaluation 252
9.13.1 Determine which Performance Groups to Measure 253
9.13.2 Develop Particular Performance Measures 254
9.13.3 Objectivity 254
9.13.4 Clarity 254
9.13.5 Use of Accurate Data 254
9.13.6 Creativity 254
9.13.7 Directly Associated to Organizational Goals 255
9.13.8 Joint Participation 255
9.13.9 Dynamic Over Time 255
9.13.10 Nonmanipulable 255
9.13.11 Establish Performance Objectives 255
9.13.12 Historical Data 256
9.13.13 Internal Comparisons 257
9.13.14 External Analysis 257
9.13.15 Finalize System Details 257
9.13.16 Performance-Reporting Frequency 257
9.13.17 Training and Education 258
9.13.18 Using System Output 258
9.13.19 Execute and Review System Measures and System Performance 258
9.14 Benchmarking of Performance: Comparing Against the Best 258
9.14.1 Benchmarking Overview 258
9.14.2 Benchmarking Advantages 259
9.15 The Benchmarking Process 259
9.15.1 Planning 259
9.15.2 Analysis 259
9.15.3 Integration 260
9.15.4 Action 260
9.15.5 Maturity 260
9.15.6 Balanced Scorecard for Supply and Purchasing 260
9.16 Measurement and Evaluation Characteristics: A Summary 262
9.16.1 System Characteristics 262
9.16.2 HR Characteristics 263
References 263
Chapter 10: Environmental and Ethical Issues in SCM 265
10.1 Purchasing Should Be Concerned 265
10.2 Green, Sustainable and Environmental Soundness 267
10.3 Supply Management’s Environmental Contribution 268
10.3.1 Understanding Pollution 269
10.4 Developing Policy on Environmental Soundness 269
10.4.1 Strategy for Reducing Impacts 273
10.4.2 Risks for Supply Managers 275
10.5 Implementation Issues and Problems 275
10.5.1 Measuring Environmental Effectiveness 276
10.5.2 Supplier Assessment 276
10.6 Senior Leadership Commitment 278
References 279
Chapter 11: IT in Supply Chain Management 281
11.1 Basic Communication 281
11.1.1 EDI 281
11.1.2 Barcodes 282
11.1.3 Order Processing 282
11.2 Supply Chain Planning 283
11.2.1 Company-Wide Information Systems 283
11.2.2 Supply Chain Management 284
11.2.3 Network Strategy 284
11.3 Warehousing 284
11.3.1 WMS 284
11.4 Inventory and Transport 285
11.4.1 Forecasting and Inventory Management Systems 285
11.4.2 Vehicle Fleet Management 285
11.5 Other Applications 286
11.5.1 EPOS 286
11.5.2 General Application Packages 287
11.5.3 Internet and E-Commerce 287
11.6 Integrating Supply Chain IT 287
11.6.1 Stages of Development 288
11.6.2 Phase 1: The Fundamentals: Emphasis on Quality 289
11.6.3 Phase 2: Cross-Functional Teams: Assist Customers 289
11.6.4 Phase 3: Integrated Enterprise: Drive Firm Efficiency 289
11.6.5 Phase 4: Extended SC: Create Market Value 289
11.6.6 Phase 5: Communities of Supply Chain: Be a Market Leader 290
11.7 Implementation of DSS and ERP 290
References 292
Chapter 12: Future Trends in Supply Chain 293
12.1 Emerging Mega-Trends 293
12.2 Shifting Centres of Gravity 295
12.3 The Multi-Channel Revolution 296
12.4 The Need for Adaptability 297
12.5 Structural Flexibility 298
12.6 Trends in Future SCM 299
12.7 2030 Vision 300
12.8 Rapid Manufacturing 301
References 302
Chapter 13: Case Studies 303
13.1 Case 1: The Global Sourcing Wire Harness Decision 303
13.1.1 Quote 1 303
13.1.2 Quote 2 304
13.1.3 Assignment 305
13.2 Case 2: Negotiation—Porto 305
13.2.1 Negotiation Session Requirements 306
13.3 Case 3: Purchasing Ethics 306
13.3.1 Scenario 1 306
13.3.2 Assignment 307
13.3.3 Scenario 2 307
13.3.4 Assignment 308
13.3.5 Scenario 3 308
13.3.6 Assignment 308
13.4 Case 4: Insourcing/Outsourcing: The FlexCon Piston Decision 309
13.4.1 FlexCon’s Insourcing/Outsourcing of Pistons 309
13.4.2 The Piston Insourcing/Outsourcing Decision 312
13.4.3 Insourcing Costs 314
13.4.4 Direct Work Cell Labour 314
13.4.5 Indirect Work Cell Labour 314
13.4.6 Factory Overhead and Administrative Costs 315
13.4.7 Preventive Maintenance Costs 315
13.4.8 Machine Repair Costs 316
13.4.9 Ordering Costs 316
13.4.10 Semi-finished Raw Material Inventory Carrying Costs 316
13.4.11 Inbound Transportation 316
13.4.12 Consumable Tooling Costs 316
13.4.13 Depreciation 317
13.4.14 Finished Piston Carrying Costs 317
13.4.15 Opportunity Costs 317
13.4.16 Outsourcing Costs 317
13.4.17 Unit Price 318
13.4.18 Safety Stock Requirements 318
13.4.19 Administrative Support Costs 318
13.4.20 Ordering Costs 318
13.4.21 Quality-Related Costs 319
13.4.22 Inventory Carrying Charges 319
13.4.23 Transportation Charges 319
13.4.24 Tooling Charges 320
Appendix 1: Year 1 Inventory Carrying Charges Outsourcing Option 320
Appendix 2: Year 2 Inventory Carrying Charges Outsourcing Option 320
Appendix 3: Insourcing/Outsourcing Cost Factors Worksheet 321
Supply Chain Management Dictionary 323
Glossary 324
Further Reading Materials 468
Index 502