Lecture 1
Are you able to describe “Integrative Management” (functionality vs. process)?
The simultaneous achievement of economic value, market value, and relevancy value requires total
integration of the overall business process and is known as the integrative management value
proposition.
Economic value – procurement/manufacturing strategy
o Lowest total cost
o Economy-of-scale efficiency
o Product/service creation
Market value – market/distribution strategy
o Attractive assortment
o Economy-of-scope effectiveness
o Product/service presentation
Relevancy value – supply chain strategy
o Customization
o Segmental diversity
o Product/service positioning
The fundamental challenge of integrated management is to redirect traditional emphasis on
functionality in an effort to focus on process achievement. Integrative management seeks to identify
and achieve lowest total process cost by capturing trade-offs that exist between functions. Three
important facets of supply chain logic resulted from increased managerial attention to (1) enterprise
extension, (2) integrated service providers, and (3) collaboration.
Eight supply chain integrative processes:
1. Demand planning responsiveness
2. Customer relationship collaboration
3. Order fulfillment/service delivery
4. Product/service development launch
5. Manufacturing customization
6. Supplier relationship collaboration
7. Life cycle support
8. Reverse logistics
Compare/contrast anticipatory and responsive practices.
The fundamental difference between anticipatory and responsive supply chain arrangements is timing.
Anticipatory business model:
Forecast buy components and materials manufacture warehouse sell deliver
The key point is that almost all essential work has been traditionally performed in anticipation of
future requirements. However, since the forecast results were typically wrong, considerable
differences existed between what firms planned to do and what they in fact ended up doing.
Responsive business model:
Sell buy components and materials manufacture deliver
Compared with the anticipatory business model, there is a difference in the sequence of events that
drive business practice. Besides, fewer steps are required to complete the responsive process, resulting
in fewer cost and fewer elapsed time from order commitment to delivery.
,Discuss ‘Industry Disruptors’.
While there are many types of disruptors that can influence supply chain and logistics strategic and
operations decisions, the most common represent changes in customer requirements and technology
capabilities.
Customer requirements:
“Want it now” mentality quick access to the desired products at their desired location.
Personalization customized products.
Millennial preferences the need for more variation in package sizes (smaller &
sustainable).
Omni-channel shopping desire to purchase from multiple different distribution channels.
Aging customer needs more customization and responsiveness from firms desiring their
business, requiring today’s supply chain become more responsible, flexible and customized.
Technology adoption:
Autonomous vehicles and the Internet of Things (IoT) opportunity for driverless vehicles
for long-haul trucking and delivery (e.g. by drones) and monitor production equipment,
transportation equipment, demand, and inventory level without requiring labor time and
expertise.
Artificial intelligence facilitates the capture and extension of subject matter expertise.
“Uberization” Uber-type taxi system for freight.
3D printing applied to make customized products and components and can reduce
inventory.
Big data identify and understand relationships among the activities, the drivers of those
activities, and the resulting cost.
Alternative fuels reduce operating cost and increase sustainable operations.
While new technologies open up opportunities to meet increasing demands, there will still be
significant disruption as the technical opportunities must be traded off with the capital investments
involved in the existing infrastructure.
Are you able to define physical distribution?
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 are of logistics management,
which, in turn, is concerned with the flow of goods, information and money among companies
pursuing supply chain management.
Which trade-offs can occur between the functional areas of logistics?
The functional areas of logistics include:
1. Order processing: The more responsive the supply chain design, the greater the importance is
of accurate and timely information regarding customer purchase behavior.
2. Inventory: Additional or excessive inventory may compensate for deficiencies in the design of
the logistics system but will ultimately result in a higher than necessary total system cost.
Logistics systems would be designed to achieve customer service goals while maintaining the
lowest possible financial investment in inventory. A sound inventory strategy considers five
aspects of selective deployment:
a. Core customer segmentation
b. Product profitability
c. Transportation integration (trade-off!)
d. Time-based performance (trade-off!)
, e. Competitor performance
3. Transportation: three factors are fundamental to transportation performance:
a. Cost
b. Speed
c. Consistency
4. Warehousing, materials handling and packaging: unique is that these are not independent
actors, but are an integral part of the other logistics areas.
a. Inventory is warehoused
b. Transportation vehicles require materials handling equipment to be (un)loaded
c. Individual products are more efficiently handled when supported with various
packaging and conveyance materials.
5. Facility network design: classical economics neglected the importance of facility location and
overall network design as it relates to efficient business operations. Facility network design is
concerned with determining the number, location and ownership arrangement of all types of
facilities required to perform the logistics work supporting a given firm’s strategy. Product
assortment, customers, suppliers, and manufacturing requirements are constantly changing in
a dynamic competitive environment. The selection of superior network can provide a
significant step toward achieving CA.
How has the meaning of the logistical value proposition changed throughout the past decades, in
the context of changing customer preferences?
The elements of the traditional logistical value proposition are service and cost minimization.
Service benefits:
The key strategic issue is how to outperform competitors in a cost-effective manner. The more
significant the service failure impact upon a customer’s business, the greater the priority placed on
error-free logistical performance. Logistical performance is measured in terms of inventory
availability, operational performance, and service reliability. For logistics performance to continuously
meet customer expectations, it is essential that management be committed to continuous improvement.
Cost minimization:
Managers traditionally focused on minimizing functional cost, such as transportation, believing that
such effort would achieve the lowest combined costs. Understanding total costs through the Total Cost
Logistics Model opened the door to examining how functional costs interrelate and impact each other.
Such impacts are classified as cost-to-cost trade-offs.
Logistics value generation:
Matching operating competency and commitment to key customer expectations and requirements is
the logistics value proposition. As a general rule, firms that obtain a strategic advantage based on
logistical competency establish the standard of performance for their industry.
However, the value proposition has become more complex. The EERS model:
1. Effectiveness – refers to the supply chain’s ability to deliver products in a timely manner to
the consumer’s desired location
Change: the expected delivery point today could be another supply chain partner or even the
consumer instead of just the customer of the manufacturer.
2. Efficiency - refers to the supply chain’s ability to deliver products at the minimum total cost
minimize the cost and waste related to product movement while also minimizing the assets
required.
, 3. Relevancy – refers to the supply chain’s ability to be able to react to changes in the
environment, market place, or consumer requirements. E.g. consumer delivery requirements
may change based on seasonality, competitive environment, and customization requirements
desired by the customers.
4. Sustainability – refers to the firm’s ability to reconfigure the supply chain to enhance both the
environment and the firm. It includes the desire to make supply chains more environmentally
friendly and it includes supply chain designs that reduce risk, provide access to key talent, and
provide a supportive political and regulatory environment.
Define performance cycle for PD.
A performance cycle represents the elements of the logistics work to be done (“building blocks”).
They are the primary unit of analysis for investigating physical distribution as well as manufacturing
and procurement.
Customer order order transmission order processing order selection order transportation
customer delivery. This cycle keeps repeating itself if the customer is satisfied.
Moreover, there can be a logistics performance cycle, which is the basic unit of supply chain design
and operational control. Each cycle must be individually designed and operationally managed. At the
same time supply chain partners must jointly plan and implement operations.
Why is PD operations more erratic than manufacturing and procurement?
The primary logistical responsibility in manufacturing is to participate in formulating master
production schedule and to arrange for its implementation by timely availability of materials,
components parts, and WIP inventory. Thus, the overall concern of manufacturing support is not how
production occurs but rather what, when, and where products will be manufactured.
Procurement is concerned with purchasing and arranging inbound movement of materials, parts,
and/or finished inventory from suppliers into manufacturing or assembly plants, warehouses or retail
stores. The primary objective is to support manufacturing or resale organization by timely purchasing
at the lowest total cost.
Customer accommodation (PD) are activities related to supporting customer accommodation. Requires
performing order and receipt processing, deploying inventories, storage and handling, and outbound
transportation within a supply chain. Includes the responsibility to coordinate with market planning in
such areas as pricing, promotion support, customer service levels, credit delivery standards, reverse
logistics, and life cycle support. The primary market distribution objective is to assist in revenue
generation by providing strategically desired customer service delivery levels at the lowest total cost.
It is through the customer accommodation that the timing and geographical placement of inventory
become an integral part of marketing. To support the wide variety of marketing systems that exist in a
highly commercialized nation, many different customer relationship strategies are available.
What are echeloned PD structures?
The flow of products typically proceeds through an established arrangement of firms as it moves from
origin to final destination. Echelon systems utilize warehouses to create inventory assortments and
achieve consolidation economies associated with large-volume transportation shipments. They utilize
either break-bulk or consolidation warehouses. Major consumer product manufacturers are prime
examples of enterprises using echeloned systems for full-line consolidation. Echelon-structured
logistics:
Supplier industrial distribution or consolidation warehouse manufacturer wholesaler or
distribution center retailer customer.
