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Summary Chapters Book Distribution Management
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Summary of the chapters of Supply Chain Management - Bowersox for Distribution Management.
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Distribution Management Master Supply Chain ManagementSupply Chain Logistics Management Author: Andreas S. Melisse
PART 1 – Supply Chain Logistics Management
CHAPTER 1: 21st-Century Supply Chains
Physical distribution management can be defined as that part of the supply chain process that is concerned with
the planning, control and operational activities pertaining to the flow of finished goods into the market. We see
physical distribution as part of the broader area of logistics management, which, in turn, is concerned with the
flow of goods, information and money among companies pursuing supply chain management.
Why Integration Creates Value
Customers has 3 value perspectives Integrative Management Value Proposition: economic/market/relevancy.
Economic value builds on economy of scales in operations as the source of efficiency. Economy of scale seeks to
fully utilize fixed assets to achieve the lowest, total landed cost. Economic value is all about doing things as
inexpensively as possible. The customer take-away is quality at a low price.
Market value is about presenting an attractive assortment of products at the right time and place to realize
effectiveness. It focuses on achieving economy of scope in product/service presentation. The customer’s take-
away is convenient product/service assortment and choice.
Relevancy value involves customization of value-adding services, over and above basic product characteristics
and physical location, that make a real difference to customers. It means the right products and services (market
value) at the right price (economic value) modified, sequenced, synchronized, and positioned in a manner that
creates customer-specific value. The
customer take-away is a unique
product/service bundle. The
simultaneous achievement of these
values requires total integration of
the overall business process.
Generalized Supply Chain Model and Supply Chain Applications
Integrated Supply Chain Framework. Value results from
the synergy among firms constituting a supply chain as
a result of five critical flows: information, product,
service, financial, and knowledge. The integrated supply
chain perspective shifts traditional channel
arrangements from loosely linked groups of
independent businesses that buy and sell inventory to
each other toward a managerially coordinated initiative
to increase market impact, overall efficiency,
continuous improvement, and competitiveness.
Customers are central to the supply chain. Integration
within organizations and between organizations across
the supply chain. Reverse logistics activities – reverse
product flows. (Third Party Logistics) Service Providers.
Every node in the supply chain need to be considered due to costs, risks. Efficiency and effectiveness throughout
the system is required: System level approach and Total cost orientation. Multiple levels of activities: strategic,
tactical and operational.
Supply Chain Definitions and Activities
Supply chain management is a set of processes to effectively and efficiently integrate suppliers, manufacturers,
distribution centres, distributors, and retailers so that products are produced and distributed at the right
quantities, to the right locations, and at the right time to minimize system-side costs while achieving the
consumer’s desired value proposition. Supply chain strategy applies the functions and processes to effectively
and efficiently integrate suppliers, manufacturers, distribution networks, and channels as well as final
consumers, ensuring the firm’s value proposition is achieved while minimizing total system cost.
1
Supply Chain Logistics Management – Bowersox, D.J., Closs, D.J., Cooper, M.B. & Bowersox, J.C. (5 th edition,
McGraw-Hill Education, New York, 2020)
,Distribution Management Master Supply Chain Management
Supply Chain Logistics Management Author: Andreas S. Melisse
Logistics management is the process and activities that create value focused on the design and administration
of a system to control the timing and geographical positioning of raw material, work-in-process, and finished
inventory at the lowest total cost. Logistics is the combination of a firm’s order management, inventory,
transportation, and warehousing management activities as integrated throughout a facility network. Integrated
logistics serves to link and synchronize the overall supply chain as a continuous process and is essential to achieve
the desired outcomes of the firm’s value proposition.
Integrative Management and Supply Chain Processes
The focus of integrated management is lowest total process cost, which is not necessarily the achievement of
the lowest cost for each function included in the process. The unavailability of focus on functional goals and the
cost measures capable of quantifying cross-functional trade-offs served to stimulate development of such
integrative tools as Total Cost Analysis, Process Engineering, and Activity-Based Costing (ABC). Three important
facets of supply chain logic resulted for increased managerial attention to:
1) Enterprise Extension. The central thrust is to expand managerial influence and control beyond the
ownership boundaries of a single enterprise to facilitate joint planning and operations with customers
and suppliers. The fundamental belief is that collaborative behaviour to integrate processes between
firms will improve impact, reduce overall risk, and greatly improve efficiency. This extension builds on
two basic paradigms: information sharing paradigm which is the widespread belief that achieving a high
degree of cooperative behaviour requires that supply chains participants voluntarily share operating
information and jointly plan strategies, and process specialization paradigm which is the commitment
to focusing collaborative arrangements on planning joint operations with a goal of eliminating non-
productive or non-value-adding redundancy by firms in a supply chain.
2) Integrated Service Providers (ISPs). The common name
used throughout industry to describe ISPs is third-party
and fourth-party service providers. In a general sense,
ISPs are commonly classified as being either asset or
non-asset based, the distinction being that asset based
(third-party) firms own and operate transportation
equipment and warehousing buildings. Non-asset
service (fourth party) firms specialize in providing
comprehensive info services that facilitate supply chain arrangements. Such fourth-party service
providers arrange services, often integrating third-party asset operators on behalf of their customers.
3) Collaboration.
Supply Chain Value Proposition
A value proposition refers to the combination of products and services provided to customers and consumers by
the supply chain. While the traditional supply chain value proposition focused on providing the desired service
objective at a minimum cost, today’s value proposition is substantially more complex. A high-performance supply
chain must be able to deliver to all dimensions and be flexible enough to adapt its offerings to meet the unique
situational needs of the customer. EERS Value Diamond:
o Effectiveness. Refers to the supply chain’s ability to deliver products in a timely manner to the consumer’s desired location.
o Efficiency. Refers to the supply chain’s ability to deliver products at the minimum total cost, including raw material acquisition,
manufacturing, storage, inventory, and transportation. This also includes minimizing the cost across the entire supply chain.
o Relevancy. Refers to supply chain’s ability to be able to react to changes in environment/market place/consumer requirements.
o Sustainability. Refers to the firms’ ability to reconfigure the supply chain to enhance both the environment and the firm.
Responsiveness
The typical stages of the anticipatory business model (push) are: forecast, purchase materials, manufacture,
warehouse, sell, and then deliver. In retail and wholesale enterprises, operations involved anticipatory purchase
of inventory assortments to accommodate expected sales. The key point is that almost all essential work has
been traditionally performed in anticipation of future requirements.
The typical stages of the responsive business model (pull) for manufacturers or assembles products to customer
order are: sell, buy components and materials, manufacture, and deliver. The responsive business model seeks
to reduce or eliminate forecast reliance by joint planning and rapid exchange of information between supply
chain participants. Direct connectivity of customers in a responsive process has at least three benefits. (1)
Involvement provides comprehensive search capabilities that serve to expand the range of sources and choices
2
Supply Chain Logistics Management – Bowersox, D.J., Closs, D.J., Cooper, M.B. & Bowersox, J.C. (5 th edition,
McGraw-Hill Education, New York, 2020)
, Distribution Management Master Supply Chain Management
Supply Chain Logistics Management Author: Andreas S. Melisse
a customer can consider when selecting a product or service. (2) Customers can be better informed about prices,
and in some situations, are able to drive price advantage by virtue of bids and/or auctions. (3) Information-
intense responsive systems provide innovation such as a customer choice-board wherein customers design or
customize their own product configuration.
Globalization
Involvement in global business is being driven by significant opportunities to increase operating efficiency. First,
the global marketplace offers significant opportunity to strategically source raw material and components.
Second, significant labour advantages can be gained by locating manufacturing and distribution facilities in
developing nations. Third, favourable tax laws can make the performance of value-adding operations in specific
countries highly attractive.
The decision to engage in global operations to achieve market growth and enjoy operational efficiency follows a
natural path of business expansion. Typically, firms enter the global marketplace by conducting import and
export operations. The second stage of internationalization involves a firm’s establishment of local presence in
foreign nations and trading areas. The third stage of internationalization is the full-fledged conduct of business
operations within and across international boundaries. This most advanced phase of international engagement
is typically referred to as globalization.
The logistics of internationalization involves four significant differences in comparison to national or even
regional operations. First, the distance of typical order-to-delivery operations is significantly longer in
international as contrasted to domestic business. Second, to accommodate the laws and regulations of all
governing bodies, the required documentation of business transactions is significantly more complex. Third,
international logistics operations must be designed to deal with significant diversity in work practices and local
operating environment. Fourth, accommodation of cultural variations in how consumers demand products and
services is essential for successful logistical operations.
Industry Disruptors
High-performance supply chain and logistics systems must be adaptive to changes in consumer requirements
and technology. The Gardner research identified five consumer changes that will be disrupting the supply chain.
These increasing demands require that today’s supply chain become more responsive, flexible, and customized.
This results in significant need for the traditional supply chain, which has been strongly focused on economies of
scale, to become more adaptive and complex while still retaining the ability to minimize cost.
1) Want it now mentality. Refers to the consumer’s desire to have quick access to the desired products at their desired location.
2) Personalization. Refers to the increasing trend for consumers to request that the products they demand are customized.
3) Millennial preferences. Refers to the need for more variation in package sizes.
4) Omni-channel shopping. Refers to the consumer desire to purchase product from multiple different distribution channels
such as retailers, manufacturers, wholesale clubs, or online.
5) Aging consumer needs. Refers to the require of more customization and responsiveness from firms desiring their business.
Research has identified six technology changes that will offer both opportunities and disruption to supply chain
logistics strategy and operations:
1) Autonomous vehicles and the Internet of Things. The first offer the opportunity for driverless vehicles for long-haul
trucking and delivery. The IoT offers opportunities throughout the supply chain to monitor production equipment, transportation
equipment, demand, and inventory level without requiring labour time and expertise.
2) Artificial Intelligence (AI). Is an info-based technology that facilitates the structuring of decision logic so that it can be
automated and applied without consuming the time of a subject matter expert.
3) Uberization. Refers to the application of an Uber-type taxi system for freight.
4) Three-dimensional printing. Is a technology that can be increasingly applied in supply chain to make customized products
and components.
5) Big data. Refers to the large amount of data that can be collected regarding supply chain activities.
6) Alternative fuels. Technologies are being explored today to reduce operating cost and increase sustainable operations.
Customer Order Decoupling Point
Mass-customization is the production of personalized or
customer-tailed goods in order to meet the diverse and ever
changing customer preferences at almost mass production
costs. The postponement of logistics functions such as
distribution, assembly, production until the latest possible point in the supply network.
3
Supply Chain Logistics Management – Bowersox, D.J., Closs, D.J., Cooper, M.B. & Bowersox, J.C. (5 th edition,
McGraw-Hill Education, New York, 2020)
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