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Logistics Management
Logistics and supply chain
1
logistics and Supply chain
2
Material and information flow
3
Competing through logistics
4
Logistics strategy
Key issues
1
What is supply chain, and
how is it structured?
2
What is the purpose of a
supply chain?
The Supply Chain Concept
▪ Development of the Concept
– Total systems cost – remains an important element
of logistics analysis.
– Outbound logistics – the warehousing and
distribution of finished goods.
– Inbound logistics – the receiving and warehousing
of raw materials, and their distribution to
manufacturing as they are required.
– Value chain analysis integrated logistics activities.
Business Logistics in a Firm
The Supply Chain management Concept
▪ A supply chain is a group of partners who
collectively convert a basic commodity (upstream)
into a finished product (downstream) that is
valued by end-customers, and who manage
returns at each stage.
Definition
Planning and controlling all of the processes
that link partners in a supply chain together in
order to serve needs of the end-customer.
Supply chain:
structure and tiering
The process starts with
several external suppliers
that move milk, cardboard,
and plastic to the processing
plant.
After the milk is processed
and packaged, it is delivered
to retailers, who sell it to
customers. The alternative
delivery system is delivery
from a warehouse directly to
customers’ homes.
Supply chain:
structure and tiering
Supply chain can be fairly
complex. The supply
chain for a car
manufacturer includes
hundreds of suppliers,
dozens of manufacturing
plants (for parts) and
assembly plants (for cars),
dealers, direct business
customers, wholesalers,
customers, and support
functions such as product
engineering and
purchasing.
Logistics concept
Definition
The task of coordinating material flow
and information flow across the supply
chain.
Activity 1
Wheat
Flour
Praline
Wafers
Chocolate
Confectionery
manufacturer
Printed
materials
Aluminium
Fiberboard
Multiple
retailers
Packing
Wholesalers
End
customers
Others
(hospital etc.)
Creamery
(milk)
Cocoa
beans
Sugar
Vegetable
oil
Cocoa
butter
Lecithin
Emulsifiers,
Salt, etc.
1
logistics and Supply chain
2
Material and information flow
3
Competing through logistics
4
Logistics strategy
Key issue
1
What is the relationship between
material flow and information
flow?
Integrated Logistics Management
Material and information flow
Material and information flow
Material flow
Information flow
1
logistics and Supply chain
2
Material and information flow
3
Competing through logistics
4
Logistics strategy
Key issues
1
How do products win orders in
the marketplace?
2
How does logistics contribute
to competitive advantage?
Creating logistics advantage: three
basic ways
time
quality
Logistics advantage
cost
Creating logistics advantage:
controlling variability
▪ Variability undermines the dependability with which a product or
service meets target.
Order winners and order qualifiers
Different logistics
performance
objectives
Order winners
are factors that directly and
significantly help products to
win orders in the
marketplace.
Customers regard such
factors as key reasons for
buying that product or
services.
Order qualifiers
are factors that are regarded
by the market as an ‘entry
ticket’.
Unless the product or service
meets basic performance
standards, it will not be taken
seriously.
1
logistics and Supply chain
2
Material and information flow
3
Competing through logistics
4
Logistics strategy
The value chain: Linking supply chain
and business strategy
Business Strategy
M
a
r
Supply Chain Strategy
k
New Product
Marketing
e
Strategy
Strategy
ti
New
Marketing
n
Ope
Distri
Se
g
NewProduct
product
and
Operations
ratio
butio
rvi
a
Development
Development
Sales
ns
n
ce
n
d
Finance, Accounting,
s Information Technology, Human Resources
a
l
How to Achieving Strategic Fit
▪ Understanding the Customer
– Lot size
– Response time
– Service level
– Product variety
– Price
– Innovation
How to measure?
Implied Demand
Uncertainty
Levels of Implied Demand Uncertainty
High Fashion
Detergent
Customer Need
Price
Responsiveness
Low
High
Implied Demand Uncertainty
Understanding the Supply Chain: CostResponsiveness Efficient Frontier
Responsiveness
High
Low
Cost
High
Low
Achieving Strategic Fit
Responsive
supply chain
Responsiveness
spectrum
Efficient supply
chain
Certain
demand
Implied
uncertainty
spectrum
Uncertain
demand
Strategic Scope
Suppliers Manufacturer Distributor
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Retailer
Customer
Drivers of Supply Chain Performance
Competitive strategy
Efficiency
Responsiveness
Supply chain strategy and structure
Inventory
Transportation
Drivers
Facilities
Information
Considerations for Supply Chain Drivers
Driver
Efficiency
Responsiveness
Inventory
Cost of holding
Availability
Transportation
Consolidation
Speed
Facilities
Consolidation /
Proximity /
Dedicated
Flexibility
What information is best suited for
each objective
Information
Chapter 2
Putting the endcustomer first
Content
The marketing perspective
Segmentation
Quality of service
Setting logistics priorities
The marketing perspective
• Key issue
1
What are the marketing
implications for logistics strategy?
The marketing perspective
• Marketing is a philosophy that integrates
the disparate activities and functions that
take place within the network. Satisfied
[end] customers are seen as the only source
of profit, growth and security. (Doyle,1994)
The marketing perspective
The Challenge…
Customer
The
challenge
Increased sales and
market shares
Strong brand
Increased productivity
Short lead times
The marketing perspective
The battleground is the customer’s wallet.
The victors will be those that can order their entire organization around
the challenges of getting cheaper more profitable and more loyal
customers.
It’s an age of expert buyers. Customers are becoming ever more
critical and demanding.
Customers know that they can play the market and are placing higher
and higher demands on suppliers to give them what they want – and
immediately.
The marketing perspective
• Two pairs of concepts
business customer
Vs.
B2C
end-customer
B2B
consumer
Vs.
customer
B2B
B2B
The marketing perspective
• Rising customers expectation
1
2
3
better levels
of general
education
better ability
to discern
between
alternative
products
Exposure to
more lifestyle
issue in the
media
The marketing perspective
• The information revolution
Industry structure
internet
Buyer-supplier relationship
Purchasing, SCM and NPD
Content
The marketing perspective
Segmentation
Quality of service
Setting logistics priorities
Segmentation
• Key issue
1
What is segmentation, and what
are its implications to logistics
strategy?
Segmentation
• Market can be segmented in many ways
– Demographic: such as age, gender and
education
– Geographic: such as urban vs. country, types of
house and region
– Technical: the use that customers are going to
make of a product
– Behavioral: such as spending pattern and
frequency of purchase
A powerful way to bridge
marketing and logistics
Segmentation
• Fragmentation of Markets and Product
Variety
– Are the requirements of all market segments
served identical?
– Are the characteristics of all products identical?
– Can a single supply chain structure be used
for all products / customers? No! A single
supply chain will fail different customers on
efficiency or responsiveness or both.
Segmentation
• Activity 1
– Try to compare the segmentation strategies
between Dell and Lenovo in computer
market.
– What logistics strategy should Dell make to
fit its market segmentation? So what about
Lenovo?
Segmentation
functional
efficient
responsive
innovative
Lenovo
Dell
Content
The marketing perspective
Segmentation
Quality of service
Setting logistics priorities
Quality of service
• Key issues
1
2
How do customer
expectations affect logistics
service?
How does satisfaction stack
up with customer loyalty?
Quality of service
Case: Service of a seafood restaurant
￥2
Fourth floor
￥3
Third floor
￥6
Second floor
￥10
First floor
Quality of service
Service is the combination of outcomes and experiences delivered
to and received by the end-customer (Johnston and Clark, 2001).
supplier
Service
specification
customer
Gap 1
Gap 2
Service
delivery
Expected
service
Gap 3
Gap 4
Perceived
service
Quality of service
？
• Customer loyalty＝Customer
satisfaction
• Value disciplines
– Operational excellence
– Product leadership
– Customer intimacy
• Customer relationship management
– Bow tie
– Diamond
supplier
customer
supplier
customer
Content
The marketing perspective
Segmentation
Quality of service
Setting logistics priorities
Setting logistics priorities
• Key issues
1
How can we set logistics
priorities?
2
How do such priorities relate
to customer segments?
Setting logistics priorities
Identify the order winners and
qualifiers according to customer
needs by market segment
Priority order winners for each
segment
Identify gaps in existing logistics
capabilities: reinforce strengths
and plug weaknesses
Using market segments to set
logistics priorities
Chapter 3
Value and
logistics costs
Content
Where does value come from
How can logistics costs be presented
Activity-based costing
A balanced measurement portfolio
Supply chain operations reference model
Where does value come from
• Key issues
1
2
How can shareholder value
be defined?
What is economic value
added, and how does it help
in this definition?
Where does value come from
• Business objectives
Business objective
Profit
Market share
Shareholde
r value
Social value
Where does value come from
• Concepts about shareholder value
– Comparable investment
– ROI (Return on investment)
– Sales
– Costs
– Working capital
– Cash and debtors
– Creditors
– Fixed assets
ROI＝
Sales revenue－Costs
Inventory＋Cash and Debtors－Creditors＋Fixed assets
Sales
revenue
－
Profit
Costs
Inventory
÷
＋
Working
capital
Cash and
debtors
－
Creditors
＋
Fixed
assets
Capital
employed
Return on
capital
employed
Where does value come from
ROI
Profitability = Profit / Sales
×
Asset utilization = Sales / Employed investment
ROI is underpinned by two main drivers:
✓Increased profitability
✓Increased asset utilization
Where does value come from
ROI and its key drivers
Level 1
Level 2
Level 3
Production costs / Sales
Net Profit
Sales
Level 4
Pay costs / sales
Materials / Sales
Selling costs / Sales
Pay costs / Sales
Administration costs / Sales
Pay costs / Sales
Property / Sales
ROI
Fixed assets / Sales
Plant / Sales
Vehicle / Sales
Sales
Total assets
Inventory / Sales
Current assets / Sales
Debtors / Sales
Cash / Sales
Where does value come from
Average inventory turnover
Key timerelated ratios
Average settlement period for debtors
Average settlement period for creditors
Content
Where does value come from
How can logistics costs be presented
Activity-based costing
A balanced measurement portfolio
Supply chain operations reference model
How can logistics costs be represented
• Key issues
1
2
What are the various ways of
cutting up the total cost
‘cake’?
What are the relative merits
of each?
How can logistics costs be represented
• Problems with traditional cost accounting
as related to logistics (Christopher, 1998)
– The true costs of servicing different customer
types, channels and market segments are
poorly understood.
– Costs are captured at too high at a level of
aggregation.
– Costing is functionally oriented at the expense
of output.
– The emphasis on full cost allocation to
products ignores customer costs
How can logistics costs be represented
Fixed
Variable
Engineered
Direct
Indirect
Discretionary
Three ways to cost cube
How can logistics costs be represented
Fixed / Variable costs
Fixed cost
Variable cost
Volume of activity
Volume of activity
How can logistics costs be represented
Fixed / Variable costs
Cost or revenue
Sales revenue
Break-even point
Total cost
Variable cost
Fixed cost
Volume of activity
How can logistics costs be represented
Fixed / Variable costs
Cost or revenue
Sales revenue
Cost or revenue
Sales revenue
Break-even point
Total cost
Total cost
High variable cost
Fixed cost
Break-even point
Fixed cost
Volume of activity
Low variable cost
Volume of activity
How can logistics costs be represented
Direct / Indirect costs
Direct labor
Direct costs
Direct materials
Whether the cost
can be directly
allocated to a
given product
Managing
director’s salary
Indirect costs
(overheads)
Administration
expenditure
Rent rates
How can logistics costs be represented
Direct / Indirect costs
• DPP (Direct product profitability) method
Gross sales for product group
⚫Less product-specific discounts and rebates
Net sales by product
⚫Less direct costs of product
Gross product contribution
⚫Less product-based marketing expenses
Product-specific direct sales support costs
⚫Less product-specific direct transportation costs
⚫Less product-attributable overheads
Direct product profitability
•Sourcing costs
•Operations support
•Fixed-assets financing
•Warehousing and
distribution
•Inventory financing
•Order, invoice and
collection processing
How can logistics costs be represented
Engineered / Discretionary costs
Example
Engineered
costs
Input-output
relationship
prevention
Quality cost
Discretionary
costs
appraisal
Internal and
external failure
Content
Where does value come from
How can logistics costs be presented
Activity-based costing
A balanced measurement portfolio
Supply chain operations reference model
Activity-based costing
• Key issues
1
What are the shortcomings of
traditional cost accounting from
a logistics point of view?
2
How can costs be allocated to
processes so that better
decisions can be made?
Activity-based costing
Today’s businesses are working in an
increasingly complex environment.
Use of Advanced Technology
Product Life Cycle
Product Complexity
Channels of Distribution
Quality Requirements
Product Diversity
Activity-based costing
Criticisms of Traditional Cost Allocation
• Assumes all cost is volume-related
• Departmental focus, not process focus
• Focus on costs incurred, not cause of
costs
Activity-based costing
Conventional Costing
• Total Cost = Material + Labour+ Overheads
• Overheads are allocated to the products on volume
based measures e.g. labour hours, machine hours,
units produced
Will this not distort the costing in the new
environment?
ABC provides an Alternative.
Activity-based costing
Allocation of indirect costs based
on causal activities
Results in better allocation
Does not provide “true” cost
ABC Purpose
Activity-based costing
• Traditional allocation method
Costs
Products
• Activity-based allocation method
Costs
Activities
First stage
Products
Second stage
Activity-based costing
When is ABC Most Useful?
• High Overheads
• Product Diversity or Multiple Products
• Customer Diversity
• Service Diversity
Activity-based costing
Example
Production line
A
B
C
D
Total
Machine hours
8,000
8,000
8,000
8,000
32,000
No. of changeovers
50
30
15
5
100
Equal allocation
250,000
250,000
250,000
250,000
1000,000
Allocation by activity
500,000
300,000
150,000
50,000
1000,000
Difference
250,000
50,000
-100,000
-200,000
0
Activity-based costing
• Cost time profile (CTP)
Cost-time profile
Cumulative cost (%)
120
delivery
100
loading
80
sort
60
processing
storage
40
20 transport
0
15
45
60
70
Cumulative time (hours)
75
85
Slide 4.1
Part Two: Leveraging logistics operations
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.2
Chapter 4:
Managing logistics internationally
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.3
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.4
Figure 4.1 Decision framework for international logistics
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.5
Internationalization
The designing of a product in such a way
that it will meet the needs of users in many
countries or can be easily adapted to do so.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.6
Drivers and logistics implications of
internationalization
Motivations for International Expansion
• Increase Market Share
– domestic market may lack the size to support
efficient scale manufacturing facilities
• Return on Investment
• large investment projects may require global
markets to justify the capital outlays
• weak patent protection in some countries
implies that firms should expand overseas
rapidly in order to prevent imitators
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.7
Drivers and logistics implications of
internationalization
Motivations for International Expansion
• Economies of Scale or Learning
– expanding size or scope of markets helps to
achieve economies of scale in manufacturing as
well as marketing, R & D or distribution
– can spread costs over a larger sales’ base
– increase profit per unit
• Location Advantages
– low cost markets may aid in developing
competitive advantage
– may achieve better access to:
• Raw materials
• Key customers
• Lower cost labor
• Energy
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.8
Table 4.1 The fourth-generation global shift in Europe
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.9
Table 4.2 Dimensions of different internationalism strategies
(Source: Based on Yip, 1989, and Bartlett and Ghoshal, 1989)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.10
Drivers and logistics implications of
internationalization
• Strategy and operating decisions are
Multidomestic decentralized to strategic business units (SBU)
in each country
strategy
• Products and services are tailored to local
markets
• Business units in one country are independent
of each other
• Assumes markets differ by country or regions
• Focus on competition in each market
• Prominent strategy among European firms
due to broad variety of cultures and markets
in Europe
Logistical network: Mainly national; Sourcing, storage and
shipping on a national level and duplicated by country
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.11
Drivers and logistics implications of
internationalization
Global
strategy
• Products are standardized across national
markets
• Decisions regarding business-level strategies
are centralized in the home office
• Strategic business units (SBU) are assumed to
be interdependent
• Emphasizes economies of scale
• Often lacks responsiveness to local markets
• Requires resource sharing and coordination
across borders (which also makes it difficult
to manage)
Logistical network: Limited number of production locations that
ship to markets around the globe through a highly
internationalized network with limited localized warehouse and
resources.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.12
Drivers and logistics implications of
internationalization
• Seeks to achieve both global efficiency and
Transnational local responsiveness
• Difficult to achieve because of simultaneous
strategy
requirements
− strong central control and coordination to
achieve efficiency
− decentralization to achieve local market
responsiveness
• Must pursue organizational learning to
achieve competitive advantage
Balanced local sourcing and shipping (e.g. for customized
products and local specialties) and global sourcing and
shipping (for example for commodities).
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.13
Drivers and logistics implications of
internationalization
The International Supply Chain
Suppliers
Corporation
Domestic/Import
Sourcing
Inbound
Materials
Order
Processing
Order
Processing
Throughflow
Supplier-Firm
Interface
Transportation
Transportation
Storage
Storage
Physical
Materials
Distribution
Management Management
Inventory
Management
Storage
Customers
Outbound
Materials
Domestic/Export
Distribution
Order
Processing
Order
Placement
Transportation
Transportation
Costumer-Firm
Interface
Physical
Customer
Distribution
Service
Management
Inventory
Management
Inventory
Management
Forward and Reverse Flow of Information, Products, and Funds
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.14
Drivers and logistics implications of
internationalization
Risks in
international
logistics
External risks
⚫Language and
culture
uncertainty
⚫Political risks
⚫Macroeconomi
c risks
Internal risks
⚫Supply options
⚫Inventory
policy
⚫Transportation
and distribution
arrangements
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.15
Figure 4.2 The international logistics pipeline
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.16
Figure 4.3 (a) Focused markets: full-range manufacture for local markets
(b) Focused factories: limited range manufacturing for all markets
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.17
Figure 4.4 Inventory centralisation against logistics costs and service dimensions
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.18
Figure 4.5 Delivery strategies in a global network
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.19
Table 4.4 Three different delivery strategies
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.20
Figure 4.6 Comparison of domestic and international logistics pipelines
(Source: After van Hoek, 1998)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.21
Figure 4.7 The trade-off between cost and lead time for international shipping
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.22
Figure 4.8 Location of Asian facilities
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.23
Figure 4.9 Phases in the location selection process
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.24
Table 4.5 Trade-offs between two locations
Key: Score on a five-point scale ranging from poor to excellent
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.25
Figure 4.10 Changing role of distribution centres
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.26
Table 4.6 Differences in reconfiguration processes for companies depending upon
starting point (global or local)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.27
Figure 4.11 Stages in the implementation of postponed manufacturing: local starting
point
(Source: van Hoek, 1998)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.28
Figure 4.12 Stages in the implementation of postponed manufacturing: global
starting point
(Source: van Hoek, 1998)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.29
Figure 4.13 Example of physical infrastructure set-up with LLP origin in Asia
(Source: Leeman, 2007)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.30
Figure 4.14 SCM tools and trade-offs in the supply chain
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.31
Table 4.7 Comparing forward and reverse logistics
(Source: Reverse Logistics Executive Council,
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.32
Figure 4.15 CSR practices in the supply chain
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.33
Table 4.8 NEC CSR supplier requests
(Source: NEC Group CSR Guideline for Suppliers,
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 4.34
Table 4.8 NEC CSR supplier requests (Continued)
(Source: NEC Group CSR Guideline for Suppliers,
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.1
Chapter 5:
Managing the lead-time frontier
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.2
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.3
Managing the lead-time frontier
• This chapter takes a strategic and
managerial view of time and of the impact
of time on logistics performance.
• How time can provide competitive
advantage in logistics.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.4
The role of time in competitive
advantage
• Key issues
1
What is time-based
competition?
2
How does time-based
competition link to other
initiatives?
3
What is the purpose of
time-based competition?
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.5
The role of time in competitive
advantage
• Definition and concepts
quality
cost
business advantage
Time-based competing time
The timely response to customer
needs
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.6
The role of time in competitive
advantage
– Traditional opinion
Fast delivery
High quality
Low cost
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.7
The role of time in competitive
advantage
– good quality actually reduces costs by
measures as:
• designing the process so that defects cannot
occur;
• designing the products so that they are easy
to make and distribute;
• Training personnel so that they understand
the process and its limitations.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.8
The role of time in competitive
advantage
Improving quality
Cost increasing
Reducing lead time
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.9
The role of time in competitive
advantage
Time-based initiatives
• When a company attacks time directly the benefits
are shorter cycle times and inventory turns
Finding sources and causes of breakdowns
Time reduction
Cost reduction
Quality improving
Finding sources and causes of delays
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.10
The role of time in competitive advantage
Time-based opportunities to customer
needs and add value
– Increased responsiveness to customer needs
deliver a product
or service on time
deal with customer
queries and
complaints on time
Increased
responsiveness to
customer
Customer
loyalty
– Managing increased variety
Reducing overall lead-time
Reducing product complexity
Reducing process set-up time
Production with
more frequency and
smaller batches
Increased
variety of
products
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.11
The role of time in competitive
advantage
• Time-based opportunities to add value
– Increased product innovation
• Reducing new product development lead time
Innovation through product design faster than
competitors Competitive advantage
– Improved return on new products
• Putting new product earlier to market can
– Extend the sales life of the product
– Charge a higher price
– Won new customers
– Build a high market share through building on the initial
leader
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.12
Figure 5.1 Break-even time
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.13
The role of time in competitive
advantage
• Time-based opportunities to reduce cost
– Reducing working capital
• Eliminate unnecessary steps and wasted time
• Focus: inventory (raw materials, work-in-process
goods and finished goods)
– Reducing plant and equipment capital
• Remove the equipment not employed in activities
• Focus: racking and pallets formerly used to store
inventory
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.14
The role of time in competitive
advantage
• Time-based opportunities to reduce cost
– Reducing development costs
• Elimination of rework and reduction of distracting
unnecessary projects
– Reducing quality costs
• Reducing lead time so as to accelerate feedback
and hence reduce time between error being made
and problem being detected.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.15
The role of time in competitive
advantage
• Limitations to time-based approaches
– Limitation to the need for speed
• Not all operating environments require speed.
• Not all customers value speed.
– Limitation to degree of speed required
• Time-based approaches are not about managing
exceptions but managing for speed reliably.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.16
Figure 5.2 Distribution of shipment cycle times in days
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.17
P:D ratios and differences
• Key issues
1
2
What are P- and D-times?
Why are P- and D-times
important to logistics
strategy?
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.18
P:D ratios and differences
• P-time and D-time are measures of
performance of the supply pipeline.
• Using time to measure supply chain
performance
– P-time (Production time)
• The time it takes to pass a product or service
through supply chain
• including the time needed to procure the longest
lead time parts and the total manufacturing time
P-time = customer raises order
deliver product to customer
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.19
P:D ratios and differences
• Using time to measure supply chain
performance
– D-time (Demand time)
• The time for which a customer is willing to wait to
have their demand fulfilled
D-time
[ expected minimum , expected maximum ]
• Manufacturers with short D-times face increased
supply chain challenges compared with those who
have long D-times.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.20
Figure 5.3 When P-time is > D-time
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.21
Time-based process mapping
• Key issue
1
How do you go about
measuring time in a supply
chain?
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.22
Time-based process mapping
❖Stage 1: create a task force
❖Stage 2: select the process to map
❖Stage 3: collect data
❖Stage 4: flow chart the process
❖Stage 5: distinguishing between value-adding
and non-value-adding time
❖Stage 6: construct the time-based process map
❖Stage 7: solution generation
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.23
Table 5.2 Example of process document
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.24
Figure 5.4 Process activity mapping and sources of waste
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.25
Figure 5.5 Walk the process (12 steps)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.26
Figure 5.6 Identify every process step
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.27
Table 5.3 Time-based analysis data
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.28
Figure 5.7 Time-based process map: current
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.29
Figure 5.8 Cause-and-effect diagram
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.30
Figure 5.9 Time-based process map: re-engineered
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.31
Figure 5.10 A methodology for time-based process improvement
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.32
Managing timeliness in the
logistics pipeline
• Strategies to cope when P-time is
greater than D-time
Strategy when
P-time > D-time
Short term
Long term
•Make-to-order
•Make-to-stock
•Marketing
•Product development
•Process improvement
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 5.33
Managing timeliness in the
logistics pipeline
• Ways to reduce P-time
•Control
▪ Optimizing throughput and improving process capability
•Simplify
▪ Untangling process flows and reducing product complexity
•Compress
▪ straightening process flows and reducing batch sizes
•Integrate
▪ Improving communications and implementing teams
•Coordinate
▪ Adding customer-specific parts as late as possible
•Automate
▪ Using robots and IT systems
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.1
Chapter 6:
Supply chain planning and control
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.2
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.3
• The focal firm ‘game plan’ comprises a set
of inter-linked modules ranging from ‘front
end’ (demand management, resource
planning, sales and operations planning
and master production scheduling) to
‘engine’ (materials and capacity planning)
to ‘back end’ (detailed planning and control
of source– make–deliver processes). All
are linked to the enterprise resource
planning (ERP) database.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.4
Figure 6.1 The focal firm ‘game plan’
(Source: From Manufacturing Planning and Control for Supply Chain Management, 5th Ed., McGraw-Hill (Vollman, T.E., Berry, W.L., Whybark, D.C. and Jacobs, F.R. 2005), reproduced with
permission of the McGraw-Hill Companies.)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.5
Managing inventory in the
supply chain
• Planning and controlling factory output is but part of the
challenge of managing material flow in the supply chain.
• Upstream processes such as distribution and retail for
both finished products and spare parts are subject to
independent, random demand. Such demand is
independent in that it is not affected by the actions of the
focal firm .
• Dependent demand, on the other hand, is fixed by the
actions of the firm – such as order acceptance and
determining forecasts.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.6
• ‘Economic’ batch sizes and order sizes
• The question of how many parts to make at a time has
traditionally been answered by reference to a
longstanding concept called the ‘economic’ batch
quantity (EBQ) formula.
• Similar principles are used to determine how many parts
at a time to order from suppliers in ‘economic’ order
quantities (EOQs).
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.7
• Both EBQ and EOQ assume that parts are
used at a uniform rate (i.e. that demand is
stable), and that another batch of parts
should be made or ordered when stock
falls below the re-order point.
• (Figure 6.3)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.8
Periodic order quantity and
target stock levels
• Various methods have been adopted to overcome some
of the deficiencies of EOQ models, which mean that a
set order size is placed on a supplier whenever the
inventory level falls below the re-order level. The effect
upon suppliers is that although a regular amount is
ordered
• An EOQ system finds it very difficult to cope if demand
goes up or down rapidly.
•
If demand goes up rapidly, then an EOQ system would
tend to make replenishments that lag the demand trend.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.9
Planning and control in
retailing
• Retailing is faced with planning and control
challenges which are quite distinct from
manufacturing:
. A retailer cannot generate sales without stock, and stock
that is bought for sales that do not happen ‘constitutes a
retailer’s nightmare’ (Varley, 2006).
• Several stages of the internal supply chain must be
coordinated – depots, back of store and front of store.
• Retail profit margins in grocery are tighter (2–4 per cent)
than for large, branded manufacturers (8–10 per cent).
•
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.10
continued
• Demand can be affected by changes that are difficult to
forecast,
• ‘Best before’ and ‘use by’ dates for fresh produce
increase obsolescence pressuresand inventory turns.
• Reverse logistics is more complicated because product
is being reversed from one point (the store) to a
multitude of supply chains
• (suppliers).
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.11
Implications of poor
coordination
• One consequence of poor coordination
within a supply network is amplification of
changes in demand upstream.
Amplification of demand changes has
been called the bullwhip effect.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.12
four major causes of the bullwhip effect:
● updating of demand forecasts: resulting in changes to
safety stock and stock in the pipeline;
● order batching: while retail customers may buy mostly on
Saturdays, MPC (Manufacturing planning control) systems
may batch orders according to different timing rules;
● price fluctuations: promotions most often result in
lumping of demand into peaks and troughs, when the
ongoing pattern is stable;
● rationing and shortage gaming: when the latest games
console is in short supply, retailers are rationed by
manufacturers.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.13
Overcoming poor
coordination in retail supply
chains
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.14
• Efficient consumer response (ECR)
• ECR is designed to integrate and rationalize product
assortment, promotion, new product development and
replenishment across the supply chain.
• It aims to fulfil the changing demands and requirements
of the end-customer through effective collaboration
across all supply chain members, in order to enhance
the effectiveness of merchandising efforts, inventory flow
and supply chain administration (PE International, 1997).
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.15
• The main areas addressed under ECR
initiatives are category management,
product replenishment and enabling
technologies. These can be broken down
into 14 areas where individual as well as
well-integrated improvements can be
made in order to enhance efficiency (see
Figure 6.8).
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.16
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.17
Category management
• With an objective of preventing stockout situations and
improving
supplier
retailer
relations,
category
management aims to balance retailers’ product volume
and variety objectives.
• Among activities included in the category management
process are the capture and utilization of knowledge of
the drivers behind consumer attitudes and choices.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.18
Collaborative planning, forecasting and
replenishment (CPFR)
•
Collaborative planning, forecasting and replenishment (CPFR) is
aimed at improving collaboration between buyer and supplier so that
customer service is improved while inventory management is made
more efficient.
The trade-off between customer service and
inventory is thereby altered (Oliveira and Barratt, 2001).
•
•
CPFR focuses on the process of forecasting supply and demand by
bringing various plans and projections from both the supplier and the
customer into synchronization.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.19
Vendor-managed inventory
(VMI)
• Vendor-managed inventory (VMI), is an
approach to inventory and order fulfilment
whereby the supplier, not the customer, is
responsible for managing and replenishing
inventory.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.20
Quick response (QR)
• Quick response (QR) is an approach to
meeting customer demand by supplying
the right quantity, variety and quality at the
right time to the right place at the right
price.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 6.21
Questions to be discussed in
tools
• How is material flow planned and
controlled in the supply chain?
• How is it possible to improve
coordination between retail and
manufacturing processes?
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.1
Chapter 7:
Just-in-time and the agile supply chain
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.2
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.3
Just In Time
• Just In Time – JIT’ An inventory strategy
companies employ to increase efficiency
and decrease waste by receiving goods
only as they are needed in the production
process, thereby reducing inventory costs.
• Used by Japanese automotive
manufacturers
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.4
Lean Thinking
• Is a way to recognize and eliminate
wasteful activities from the supply chain in
order to increase product flow and speed.
• Organizations that incorporate lean
thinking into their supply chain can benefit
from improved customer service, reduced
environmental impact by reducing waste
and even overall corporate citizenship.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.5
Lean thinking invites to analyze
business processes systematically to
establish the base line of value adding
process and identify the incidence of
these seven wastes
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.6
Figure 7.3 Basic tasks in a car assembly plant
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.7
Types of waste
1. Waste of overproduction
2. Waste of waiting
3. Waste of transporting
4. Waste of Inappropriate processing
5. Waste of unnecessary inventory
6. Waste of unnecessary motions
7. Waste of defects
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.8
Figure 7.4 Lean thinking principles
(Source: After Womack and Jones, 2003)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.9
Principles of lean thinking
Lean thinking is a cyclical route to seeking perfection by
eliminating waste and thereby enriching value from
customer perspective. The customer should not pay for the
cost, time and quality penalties of the wasteful process in
the supply chain
▪ Specify value- Value from customer
perspective
▪ Identify the value stream- Identify the whole
sequence of process along the supply
network
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.10
Principles of lean thinking
▪ Make value flow- means eliminating the
seven wastes and can be implemented by
applying the key factors such as minimizing
delays, inventories, defects
▪ Pull scheduling-Implies that demand
information is made available across the
supply chain.
▪ Seek perfection-Is achieved by getting better
gradually and squeezing waste out at every
step.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.11
Agility in Supply chain
• Is a practical approach to organizing logistics
capabilities around changing end- customer
demands
• where development, sourcing, logistics and
sales are designed to adapt quickly to
changes in demand or customer preference
• Agile strategy is concerned with assigning
capacity so that products can be made
rapidly to meet demand
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.12
Table 7.1 Comparison of lean supply with agile supply: the distinguishing attributes
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.13
Table 7.2 Further characteristics of lean and agile supply
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.14
Application of Lean thinking
▪ Order to replenishment
▪ Order to production
▪ Product development
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.15
Model of Agile Capabilities
• Market sensitive
– Supply chain is capable
of reading and
responding to real
demand
• Virtual
– Information-based
supply chain, rather
than inventory-based.
Agile supply chain
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.16
Model of Agile Capabilities
• Network based
– EDI and internet enable
partners in the supply
chain to act upon the real
demand
• Process integration
– Collaborative working
between buyers and
suppliers, joint product
development, common
systems and shared
information
Agile supply chain
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.17
Sales and Operations Planning
for Agility
Factors for Successful S&OP
1. Ongoing routine S&OP meeting
2. Structural meeting agenda
3. Pre work to support meeting inputs
4. Cross functional participation
5. Participants empowered to make decisions
6. Responsible organization to run process
7. Unbiased base line forecast to start process
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.18
Sales and Operations Planning
for Agility
8. Joint supply and demand planning
9. Measurement of the process
10. Integrated demand –supply planning
technology
11. External inputs to the process
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.19
Product Design for agility
➢Design for manufacture and assembly
➢Concurrent engineering
➢Design for supply chain
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.20
Manufacturing for agility
▪ Agility-responding to changes-requires
responsive and flexible manufacturing
▪ Can be adapted quickly to new products
▪ Can accommodate changes in mix range
of variants
▪ Involvement of minimum cost or time
penalties
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.21
Supply chain partnerships for
agility
• Relationship could be described as
success factor of many agile supply chains
• Dependent on a network of supply chain
partners that collaborate to meet the end
customer needs by availing resources
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.22
Combining Lean and Agile
Three main approaches to combining lean
and Agile
Hybrid Strategies
Appropriate market condition
Pareto Analysis across a product range-80:20
Use lean methods for the volume lines and agile
methods for the slow movers
High levels of variety
Demand is heavy skewed toward a small
proportion of the product range
De-coupling Point
The aim is to lean up to the decoupling point and
agile beyond it, as in form postponement
Product design allows for this so the product
remain generic in the early stage of manufacturing
Separate volatile and base demand for a given
SKU
Meet the forecastable element of demand using
lean principles and use agile principles for the less
predictable demand
When base level of demand can be confidently
predicted from past experience
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 7.23
• Application of leagility: the de-coupling point
approach
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Chapter 8
Integrating the
supply chain
Integration in the supply chain
• Key issue
1
How can we integrate
internally, externally and
electronically?
Integration in the supply chain
• What is Supply Chain Integration
• the degree to which the firm can strategically
collaborate with their supply chain partners
and collaboratively manage the intra- and
inter-organization processes to achieve the
effective and efficient flows of
• Product and services
• Information
• Money
• Decisions
• With the objective of providing the maximum
value to the customer at low cost and high
speed
Integration in the supply chain
Measures of integration
• Access to planning system
• Sharing production plans
• Joint Electronic Data Interchange access /
networks
• Knowledge of inventory mix / levels
• Packaging customization
• Delivery frequencies
• Common logistical equipment / containers
• Common use of third-party logistics
Integration in the supply chain
Arc of Integration
Integration in the supply chain
Direction of Integration
Upstream with suppliers and/or downstream with
customers
Degree of Integration
The extent to which the integration practices are
evident across either the supplier or customer base.
Integration in the supply chain
Internal integration: function to function
Purchasing
Production
Distribution
Low price
High productivity of
machine and labor
Keep warehousing
operation smooth
Unreliable delivery
and low quality
High batch size
Post-manufacturing
operation being resisted
Poor available
distribution
Additional complexity of
customizing products
Integration in the supply chain
Inter-company collaboration: a manual approach
Strategic Collaboration
Decision Flow
Products & Services Flow
Enterprise
Information & Knowledge Flow
Enterprise
A
B
Financial Flow
Information & Knowledge Flow
Financial Flow
Decision Flow
END CUSTOMERS
RAW MATERIALS
Products & Services Flow
Integration in the supply chain
Electronic Integration
Transactional
The electronic execution of
transaction
In B2B: Purchase order, Invoices, load tendering
Information sharing
The electronic sharing or
exchange of information
Product description and pricing, promotional calenders,
Collaboration planning
Strategic, tactical and operational
exchange
Electronic
collaboration
Electronic Integration
Integration in the supply chain
Information
flow in apparel
supply chain
Choosing the right supplier
relationship
• Key issue
1
What type of supplier relationships
can be adopted and how each type
of relationship be tailored to
different types of product?
Figure 8.4
Relationship styles continuum
Source: After Cooper and Gardiner, 1993
Figure 8.5
Evolving inbound supply relationships
Strategic partnerships in the
supply chain
• Key issue
1
What are Partnerships, and what are
advantages and disadvantages?
Strategic partnerships in the
supply chain
• Sharing of information
• Trust and openness
• Coordination and planning
• Mutual benefits and sharing of risks
• Recognition of mutual interdependence
• Shared goals
• Compatibility of corporate philosophies
Strategic partnerships in the
supply chain
Advantages
▪ Savings come in the form of reduced negotiations and drawing
up of separate contracts
▪ Reduced monitoring of supplier soundness, supply quality and
increased productivity
▪ Shortened lead times and product cycle
▪ Conditions amenable to long term investment
Disadvantages
▪ Inability to price accurately qualitative matters e.g. design work
▪ For decisions information to be gathered of partners
▪ Risk of divulging sensitive informations to competitors
▪ Potential opportunism by suppliers
Managing supply chain relationships
• Key issue
1
How can broader-based
relationships be formed between
trading partners in the supply chain?
Managing supply chain relationships
• Creating closer relationships
Partnership
Arm’s length transaction
R&D
Marketing
R&D
Logistics
Operations
Logistics Operations
Information
system
Information
system
InformationInformation
system
system
supplier
customer
Bow tie
Marketing
supplier
customer
Diamond
Managing supply chain relationships
• Factors in forming supply chain relationships
• The order winner
• The method making sourcing decisions
• The nature of electronic collaboration
• The attitude to capacity planning
• Call-off requirements
• Price negotiations
• Managing product quality
• Managing research and development
• The level of pressure
Supplier Networks
• Key issue
1
What are supplier associations
and the Japanese Keiretsu?
Supplier Networks
Supplier networks can be formal or informal groups
of companies whose common interest is that they all
supply a particular customer or support an entire
industry.
Four are the important networks considered
▪ Supplier associations
▪ Japanese Keiretsu
▪ Italian district
▪ Chinese industrial areas
Primary objectives for establishing and developing supplier associations
Figure 8.8
Japanese keiretsu structure
(Source: Aitken, 1998)
Slide 9.1
Chapter 9:
Sourcing and supply management
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.2
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.3
Figure 9.1 Changing perspectives of procurement
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.4
Meaning of Procurement
The act of obtaining or buying goods and
services and includes preparation and
processing of a demand as well as the end
receipt and approval of payment. It often
involves
• purchase planning, standards determination,
• specifications development, supplier research and
selection,
• value analysis, financing,
• price negotiation, making the purchase,
• supply contract administration, inventory control and
stores, and
• disposals and other related functions.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.5
Meaning of Procurement
The process of procurement is often part of
a company’s strategy because the ability to
purchase certain materials will determine if
operations will continue.
A business will not be able to survive if it’s
price of procurement is more than the profit
it makes on selling the actual product.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.6
Figure 9.2 Procurement strategic sourcing, tactical contract management and
operational ordering cycle
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.7
Figure 9.3 Indication of time allocation for procurement value generation
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.8
Figure 9.4 ‘Waterfall’ of revenue, purchasing spend and profit
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.9
Figure 9.5 KPIs used in 2010 by 200+ respondents to Procurement Intelligence Unit
survey
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.10
Procurement principles
• Business Alignment
• Developing strategies for procurement
categories
• Total cost of ownership, not just price
• Supplier Relationship Management (SRM)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.11
Figure 9.6 Weight of factors associated with 1-point increase in purchasing
performance score
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.12
Business Alignment
Alignment requires of professionals
•
•
•
•
•
•
•
•
Ability to identify potential levers for alignment
service focus to center the effort on peer needs
Studying business plan and business training materials
Using metrics of the business to evaluate performance
A strong business partner focus among staff
Willingness to see functional expertise as a price of entry
Stationing key procurement staff
Getting invited to business meetings to know priorities
and issues.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.13
Developing strategies for
procurement categories
• Involvement of procurement early and fully,
right across the product lifecycle.
• To adopt a long term strategic role to seek
innovative opportunities.
• Foal firm can encourage innovation by
reducing three kinds of problems
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.14
Developing strategies for
procurement categories
1. Conflicting objectives among the
customers functional areas through
alignment
2. Excess and often late specification
charges
3. Price reduction pressure on suppliers
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.15
Total cost of ownership not just
price
➢It is the purchase price of an asset plus the
costs of operation.
▪ When choosing among alternatives in a
purchasing decision, buyers should look not just
at an item’s short-term price, which is its
purchase price, but also at its long-term price,
which is its total cost of ownership.
▪ The item with the lower total cost of ownership
will be the better value in the long run.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.16
Figure 9.7 Total cost of ownership – initial purchase price might only be a fraction
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.17
Total cost of ownership not just
price
• Objective of TCO is to get below the price of
a purchase and to identify how much it costs
a focal firm over the product lifecycle.
• This includes purchase cost such as supplier
evaluation and quality assurance.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.18
Table 9.1 TCO summary report
(Source: After Ellram and Siferd, 1998)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.19
Figure 9.9 Cost of ownership over time for product C and product D
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.20
Supplier Relationship Management
(SRM)
➢Is the discipline of strategically planning for,
and managing, all interactions with third party
organizations that supply goods and/or services
to an organization in order to maximize the
value of those interactions.
➢Lot of contracts closed, never been
implemented fully due to lack of business
support, leadership, alignment with business
needs.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.21
Supplier Relationship Management
(SRM)
Basic steps to SRM are
• Reduce the supply base
• Segment the supply base
• Establish policies per supply market segment
• Implement vendor rating and improvement planning
• Assign executive ownership to important suppliers
• Manage towards customer of choice status
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.22
Figure 9.10 A proposed integrative SRM framework
(Source: Park et al, 2010)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.23
Segmenting the supply base
➢Supplier segmentation is a process of
dividing suppliers into distinct groups with
different needs and characteristics or
behavior.
Basic Segment criteria’s are
• The amount of spend with the supplier
• Criticality of supplies for the smooth operation of
the supply chain and for delivery to customer.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.24
Purchase Portfolio Matrix
• This Model was created by Peter Kraljic
• Its purpose is to help purchasers maximize
supply security and reduce costs, by
making the most of their purchasing power
The matrix involves four items
• Strategic Items
• Bottleneck items
• Non critical items
• Leverage Items
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.25
Figure 9.11 Purchase portfolio matrix
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 9.26
Vendor Rating
Process of assessment of existing or new
suppliers on the basis of their delivery,
prices, production capacity, quality of
management, technical capabilities, and
services.
Steps involved in vendor rating system
1. Select the team
2. Establish the rating criteria
3. Determine the effective weighting
4. Score each supplier’s performance
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.1
Part Four: Changing the future
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.2
Chapter 10: Logistics future
challenges and opportunities
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.3
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.4
Wrapping the chain around the
heart of Focal firm
• The ability to align the organization internally,
vertically and horizontally, around supply chain
opportunities, priorities and efforts in order to
avoid partial, ineffective or failed supply chain
improvement efforts.
• Integrated logistics and supply chain
management is the fundamental belief that
When functions, regions and companies are
closely aligned and work collaboratively the
customer will be served better
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.5
Internal alignment triad
Internal alignment between peer functions and
supply chain discipline as a pre requisite for
success in logistics and supply chain.
In the future, internal alignment needs to be
achieved in a triad integration between supply
chain, the business and the board.
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.6
Internal alignment triad
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.7
Figure 10.2 Alfa Laval’s alignment compass
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.8
Humanitarian logistics
• The process and systems involved in
mobilizing people, resources, skills and
knowledge to help vulnerable people
affected by disaster.
• Like Haiti earth quake
• Appropriate logistics strategies are required
to go for relief efforts
• Agile logistics strategy is an appropriate
respnse
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.9
Figure 10.3 The P&G ‘connect + develop’ philosophy
(Source: Procter & Gamble Connect + Develop programme)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.10
Figure 10.4 Examples of ‘Connect + Develop’
(Source: Procter & Gamble Connect + Develop programme)
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
Slide 10.11
Figure 10.5 The dynamics of customer profitability
Harrison and van Hoek, Logistics Management and Strategy: Competing Through the Supply Chain, 4th Edition, © Pearson Education Limited 2011
المملكة العربية السعودية
وزارة التعليم
الجامعة السعودية اإللكترونية
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 2
Logistics Management (MGT 322)
Due Date: 01/11/2025 @ 23:59
Course Name: Logistics Management
Course Code: MGT322
Student’s Name:
Semester: 1st
CRN:
Student’s ID Number:
Academic Year: 1446-47 H (2025-2026) 1st Term
For Instructor’s Use only
Instructor’s Name: Njoud AlJohani
Students’ Grade: /10
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
•
This assignment is an individual assignment.
• The Assignment must be submitted only in WORD format via the allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well-presented; marks may be reduced
for poor presentation. This includes filling in your information on the cover page.
• Students must mention the question number clearly in their answer.
• Late submissions will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
• Submissions without this cover page will NOT be accepted.
المملكة العربية السعودية
وزارة التعليم
الجامعة السعودية اإللكترونية
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Logistics Management
ASSIGNMENT -2
Submission Date by students: Before the end of Week- 9th
Place of Submission: Students Grade Centre
Weight: 10 Marks
Learning Outcome:
1. Demonstrate an understanding of how global competitive environments are changing supply chain
management and logistics practice.
2. Apply essential elements of core logistic and supply chain management principles.
3. Analyse and identify challenges and issues pertaining to logistical processes.
Assignment Workload:
This assignment is an individual assignment.
Critical Thinking
An organization can improve the resilience and profitability of its business model by implementing
outsourcing and offshore efforts. However, there are drawbacks to these attempts.
Today’s economy is dynamic, highly unpredictable, and competitive, and many businesses are looking
for answers. As supply chain management advances and the gap between what businesses would like to
accomplish and what they can accomplish internally widens, businesses start to see that doing the right
thing is more exciting than doing everything. As a result, they are outsourcing and offshore tasks that are
distant from their core businesses, which helps them become more specialized and focused. Businesses
frequently choose to contract out this function entirely or in part to agents or outside logistics
companies.
Answer the following questions using the offshoring and outsourcing concepts by using any Saudi local
business or multinational corporation.
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
المملكة العربية السعودية
وزارة التعليم
الجامعة السعودية اإللكترونية
College of Administrative and Financial Sciences
Questions: Each Question Carrying 2.5 Marks.
1. Describe the different driving factors for doing business Globally. (300-400 Words)
2. Describe how third-party logistics companies operate. (300-400 Words)
3. What factors influence businesses to choose developing nations for offshore operations? Provide
examples. (Mention the country and decisive factors). (300-400 Words)
4. Why do businesses outsource? Provide an example of a Saudi business, including its goals and
outsourcing scope. (300-400 Words)
The Answer must follow the Keyword/ outline points below:
•
Outsourcing, offshoring, Third Party Logistics
•
Their Main functions
•
Motivational Factors /Drivers
•
Any local example
•
Reasons with suitable Examples
•
Reference
Note: You can support your answer by reading chapter 4 of your book.
You can use secondary sources available on the internet. Please use APA-style referencing.
Answer 1.
Answer 2.
Answer 3.
Answer 4.
Purchase answer to see full
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