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  3. Principles of Supply Chain Management (Second edition): Part 1

Principles of Supply Chain Management (Second edition): Part 1

Principles of Supply Chain Management (Second edition): Part 1 has contents: Overview of Supply Chain Management; Demand Perspective; Supply Perspective—Distribution, Production, Procurement, and Logistics. Series on Resource Management Principles of Supply Chain Management SECOND EDITION Richard E. Crandall William R. Crandall Charlie C. Chen Principles of Supply Chain Management SECOND EDITION Series on Resource Management RECENT TITLES Principles of Supply Chain Management, Second Edition by

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  1. Series on Resource Management Principles of Supply Chain Management SECOND EDITION Richard E. Crandall William R. Crandall Charlie C. Chen
  2. Principles of Supply Chain Management SECOND EDITION
  3. Series on Resource Management RECENT TITLES Principles of Supply Chain Management, Second Edition by Richard E. Crandall, William R. Crandall, and Charlie C. Chen ISBN: 978-1-4822-1202-0 Supply Chain Risk Management: An Emerging Discipline by Gregory L. Schlegel and Robert J. Trent ISBN: 978-1-4822-0597-8 Supply Chain Optimization through Segmentation and Analytics by Gerhard J. Plenert ISBN: 978-1-4665-8476-1 Vanishing Boundaries: How Integrating Manufacturing and Services Creates Customer Value, Second Edition by Richard E. Crandall and William R. Crandall ISBN: 978-1-4665-0590-2 Food Safety Regulatory Compliance: Catalyst for a Lean and Sustainable Food Supply Chain by Preston W. Blevins ISBN: 978-1-4398-4956-9 Driving Strategy to Execution Using Lean Six Sigma: A Framework for Creating High Performance Organizations by Gerhard Plenert and Tom Cluley ISBN: 978-1-4398-6713-6 Building Network Capabilities in Turbulent Competitive Environments: Practices of Global Firms from Korea and Japan by Young Won Park and Paul Hong ISBN: 978-1-4398-5068-8 Integral Logistics Management: Operations and Supply Chain Management Within and Across Companies, Fourth Edition by Paul Schönsleben ISBN: 978-1-4398-7823-1 Lean Management Principles for Information Technology by Gerhard J. Plenert ISBN: 978-1-4200-7860-2 Supply Chain Project Management: A Structured Collaborative and Measurable Approach, Second Edition by James B. Ayers ISBN: 978-1-4200-8392-7 Modeling and Benchmarking Supply Chain Leadership: Setting the Conditions for Excellence by Joseph L. Walden ISBN: 978-1-4200-8397-2
  4. Principles of Supply Chain Management SECOND EDITION Richard E. Crandall William R. Crandall Charlie C. Chen
  5. CRC Press Taylor & Francis Group 6000 Broken Sound Parkway NW, Suite 300 Boca Raton, FL 33487-2742 © 2015 by Taylor & Francis Group, LLC CRC Press is an imprint of Taylor & Francis Group, an Informa business No claim to original U.S. Government works Version Date: 20140721 International Standard Book Number-13: 978-1-4822-1205-1 (eBook - PDF) This book contains information obtained from authentic and highly regarded sources. Reasonable efforts have been made to publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials or the consequences of their use. The authors and publishers have attempted to trace the copyright holders of all material repro- duced in this publication and apologize to copyright holders if permission to publish in this form has not been obtained. If any copyright material has not been acknowledged please write and let us know so we may rectify in any future reprint. Except as permitted under U.S. Copyright Law, no part of this book may be reprinted, reproduced, transmitted, or utilized in any form by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying, microfilming, and recording, or in any information storage or retrieval system, without written permission from the publishers. For permission to photocopy or use material electronically from this work, please access www.copyright.com (http://www.copy- right.com/) or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400. CCC is a not-for-profit organization that provides licenses and registration for a variety of users. For organizations that have been granted a photocopy license by the CCC, a separate system of payment has been arranged. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identifica- tion and explanation without intent to infringe. Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the CRC Press Web site at http://www.crcpress.com
  6. To Jean—yesterday, today, and tomorrow To Sue, my wife and friend forever To Fu-Mei, my mother and mentor forever
  7. Contents Preface to the Second Edition................................................................................................... xxix Preface to the First Edition........................................................................................................ xxxi Acknowledgments...................................................................................................................xxxiii Authors.....................................................................................................................................xxxvii Introduction.............................................................................................................................. xxxix Section I  Overview of Supply Chain Management 1. Evolution of Supply Chains.................................................................................................. 3 Learning Outcomes..................................................................................................................3 What Is a Supply Chain?..........................................................................................................6 Importance of SCM................................................................................................................... 7 Evolution of Supply Chains.....................................................................................................9 Early Supply Chains............................................................................................................ 9 Local Supply Chains............................................................................................................ 9 Global Supply Chains........................................................................................................ 10 Changing Government Orientation..................................................................................... 13 State-Controlled Governments........................................................................................ 13 Market-Driven Governments........................................................................................... 13 Current Trends That Link Supply Chain Participants More Closely.............................. 14 Relationship Building........................................................................................................ 14 Customer Relationship Management......................................................................... 14 Supplier Relationship Management........................................................................... 15 Product Life Cycle Management................................................................................. 15 Electronic Business............................................................................................................ 15 Developing Economies...................................................................................................... 16 Outsourcing........................................................................................................................ 16 Need for Quality Improvement....................................................................................... 17 Changing Customer Demands........................................................................................ 18 Decreasing Response Time.......................................................................................... 18 Lean Supply Chains to Reduce Waste........................................................................ 18 Current Developments in SCM............................................................................................. 19 Power Has Shifted from Manufacturers to Retailers................................................... 19 Consolidation of Small, Local, or Regional Retailers into National Chains............. 20 Emergence of “Killer Category” Retailers...................................................................... 20 From a Make-and-Sell Mentality to a Sense-and-Respond Orientation.................... 20 Obstacles to Supply Chain Integration................................................................................ 21 Need for Globalization......................................................................................................22 Complexity of Arranging Entities with Common Interests........................................22 Lack of Effective Interorganizational Systems.............................................................. 23 vii
  8. viii Contents Need for Multiple Supply Chains within Companies.................................................. 23 Lack of Trust between Participants................................................................................. 23 Examples of Companies with Successful Supply Chains................................................. 25 Summary.................................................................................................................................. 25 Discussion Questions............................................................................................................. 28 References................................................................................................................................ 28 2. Supply Chains as a System.................................................................................................. 31 Learning Outcomes................................................................................................................ 31 Company Profile: Zara’s......................................................................................................... 31 Introduction............................................................................................................................. 35 Supply Chain Systems............................................................................................................ 37 Inputs................................................................................................................................... 37 Transformation................................................................................................................... 38 Outputs................................................................................................................................ 38 Manufacturing versus Services....................................................................................... 39 Characteristics of Supply Chains......................................................................................... 39 Physical Flow...................................................................................................................... 40 Information Flow............................................................................................................... 41 Funds Flow..........................................................................................................................42 Relational Flow...................................................................................................................42 Examples of Supply Chains in Different Industries..........................................................43 Internal and External Customers......................................................................................... 45 Open Systems versus Closed Systems................................................................................. 46 Effect of External Influences on Supply Chains................................................................. 48 Obstacles and Enablers of Supply Chain Integration........................................................ 48 Obstacles.............................................................................................................................. 49 Enablers............................................................................................................................... 50 Performance Measurement................................................................................................... 50 Allocation of Costs, Resources, and Benefits along the Supply Chain........................... 53 Value Creation as the Ultimate Objective...........................................................................54 Summary.................................................................................................................................. 56 Hot Topic.................................................................................................................................. 56 Discussion Questions............................................................................................................. 59 References................................................................................................................................ 59 Section II  Demand Perspective 3. Determining Customer Needs............................................................................................63 Learning Outcomes................................................................................................................63 Company Profile: McDonald’s..............................................................................................63 Introduction............................................................................................................................. 67 Group Customers into Homogeneous Segments............................................................... 68 Determine Needs of the Ultimate Consumer..................................................................... 69 Product Needs.................................................................................................................... 70 Service Needs..................................................................................................................... 70 Marketing Mix.................................................................................................................... 70 Manufacturing and Service Supply Chains................................................................... 71
  9. Contents ix Accurately Determine Customer Needs.............................................................................. 72 Approaches......................................................................................................................... 72 Market Research................................................................................................................. 73 Open System Scanning..................................................................................................... 74 Competition................................................................................................................... 74 Technology..................................................................................................................... 74 Economy......................................................................................................................... 75 Government................................................................................................................... 76 Social Trends.................................................................................................................. 76 Business Environment..................................................................................................77 Develop Reliable Demand Forecasts.................................................................................... 78 Quantitative Forecasting Methods.................................................................................. 78 Simple Moving Average............................................................................................... 79 Weighted Moving Average..........................................................................................80 Exponential Smoothing................................................................................................ 81 Exponential Smoothing with Trend Adjustment..................................................... 81 Seasonal Factor Forecasting......................................................................................... 81 Regression Analysis...................................................................................................... 82 Qualitative Forecasting Methods....................................................................................83 Survey Method..............................................................................................................83 Delphi Method...............................................................................................................83 Collaborative Forecasting.................................................................................................84 Determine the Attributes of a Well-Designed Product.....................................................84 Functionality (Product Works to Satisfy Customers’ Needs)......................................84 Validity (Product Has Value and Functions at a Reasonable Cost)............................84 Manufacturability (Product Can Be Efficiently Produced).......................................... 85 Reliability (Product Has a Variety of Quality Attributes)............................................ 85 Serviceability (Product Can Be Serviced during Its Effective Life)............................ 85 Recyclability (Product Can Be Recycled along the Reverse Logistics Supply Chain).... 86 Consider Alternative Product Design Approaches........................................................... 86 Quality Function Deployment......................................................................................... 87 Concurrent Engineering................................................................................................... 87 Design for Manufacturability.......................................................................................... 88 Design for Sustainability.................................................................................................. 88 Determine the Number of Supply Chains Needed by a Company................................ 89 Align with Customer Segment........................................................................................ 89 Align with Product/Service Bundle................................................................................90 Align with Supplier Category.......................................................................................... 91 Align with Common Incentives....................................................................................... 91 Respond to Needs of Internal Customers........................................................................... 92 Conclusion............................................................................................................................... 92 Hot Topic: Human Trafficking.............................................................................................. 93 Discussion Questions............................................................................................................. 94 References................................................................................................................................ 95 4. A System to Meet Customer Needs.................................................................................... 97 Learning Outcomes................................................................................................................ 97 Company Profile: GE Aviation.............................................................................................. 97 Supply Chain Models........................................................................................................... 101 Global Supply Chain Forum Model................................................................................... 102
  10. x Contents Customer Relationship Management................................................................................ 104 Origins of CRM................................................................................................................ 104 What Can CRM Do?........................................................................................................ 105 Benefits............................................................................................................................... 105 CRM Processes................................................................................................................. 106 Problems............................................................................................................................ 107 CRM’s Future.................................................................................................................... 108 Product Life Cycle Management........................................................................................ 109 What Is PLM?................................................................................................................... 109 How Did PLM Evolve?.................................................................................................... 110 What Does PLM Include?............................................................................................... 110 What Does PLM Not Include?........................................................................................ 111 What Are the Benefits of PLM?...................................................................................... 111 What Are the Obstacles?................................................................................................. 112 What Is the Present Status of PLM?.............................................................................. 113 What Does the Future Hold?.......................................................................................... 114 Supply Chain Configuration............................................................................................... 115 Basic (Generic) Supply Chain......................................................................................... 115 Variations for Different Industries................................................................................ 116 Supply Chain Mapping................................................................................................... 116 Determining Resource Requirements............................................................................... 116 Facilities............................................................................................................................. 116 Equipment......................................................................................................................... 119 Employees......................................................................................................................... 120 Inventory........................................................................................................................... 120 Information Systems........................................................................................................ 120 Designing Processes to Match with Products.................................................................. 121 Make to Stock................................................................................................................... 122 Assemble to Order........................................................................................................... 122 Make to Order.................................................................................................................. 122 Engineer to Order............................................................................................................ 122 Determining the Mix of Make and Buy............................................................................ 123 Core Competency Concept............................................................................................. 123 Total Cost of Ownership................................................................................................. 123 Cost Reduction versus Revenue Increase Considerations......................................... 124 Effect of Outsourcing Movement.................................................................................. 124 Aligning Entities along the Supply Chain........................................................................ 125 Entities to Be Involved..................................................................................................... 126 Allocation of Authority and Responsibility among Entities..................................... 126 Collaboration Process...................................................................................................... 126 Implementation Plan....................................................................................................... 127 Evaluating the System Design............................................................................................ 127 Will It Accomplish Its Objectives?................................................................................. 128 Is It Sustainable?............................................................................................................... 128 Is It Flexible?...................................................................................................................... 129 Summary................................................................................................................................ 129 Hot Topic: Sweatshops......................................................................................................... 130 Discussion Questions........................................................................................................... 132 References.............................................................................................................................. 133
  11. Contents xi 5. Demand Management........................................................................................................ 137 Learning Outcomes.............................................................................................................. 137 Company Profile: NextEra................................................................................................... 137 Introduction........................................................................................................................... 143 Definition of Demand Management.................................................................................. 144 Importance of Demand Management................................................................................ 146 Managing Demand............................................................................................................... 146 Accept All Demand......................................................................................................... 147 Select the Types of Demand to Accept.......................................................................... 147 Solicit External Input in Forming Demand Patterns.................................................. 147 Design the Form in Which Demand Will Be Accepted.............................................. 147 Impose Constraints on Demand Submission.............................................................. 148 Managing Supply.................................................................................................................. 148 Select a Demand Management Strategy....................................................................... 148 Develop a Demand-Forecasting System....................................................................... 148 Determine the Resource Requirements to Meet the Demand.................................. 149 Merging Supply and Demand into a Demand Management Process.......................... 149 Sales and Operations Planning to Match Short-Term Supply and Demand........... 149 Collaboration among Supply Chain Participants........................................................ 150 Demand Management in Manufacturing......................................................................... 151 Demand Management in Services..................................................................................... 152 Proposed Demand Management Strategies..................................................................... 154 Factors That Affect Selection of a Demand Management Strategy............................... 155 Resources’ Value............................................................................................................... 155 Type of Demand............................................................................................................... 157 Top Management Strategies........................................................................................... 157 Relationship between Factors and Strategies................................................................... 158 Model for Integrating Demand and Supply Management............................................. 160 Programs Used to Implement Demand Management Strategies.................................. 164 Provide Strategy Programs............................................................................................. 164 Match Strategy Programs............................................................................................... 165 Influence Strategy Programs.......................................................................................... 165 Control Strategy Programs............................................................................................. 166 Demand Management along the Supply Chain............................................................... 166 Retail.................................................................................................................................. 167 Wholesale.......................................................................................................................... 167 Manufacturer.................................................................................................................... 167 Mining and Agriculture................................................................................................. 167 Summary................................................................................................................................ 167 Discussion Questions........................................................................................................... 170 References.............................................................................................................................. 170 Section III Supply Perspective—Distribution, Production, Procurement, and Logistics 6. Distribution and Retailing................................................................................................ 175 Learning Outcomes.............................................................................................................. 175 Company Profile: Lowe’s..................................................................................................... 175
  12. xii Contents Introduction........................................................................................................................... 179 Retail Function...................................................................................................................... 180 History of Retailing.............................................................................................................. 180 Characteristics of the Industry........................................................................................... 184 Customers and Markets.................................................................................................. 184 Outputs.............................................................................................................................. 186 Inputs................................................................................................................................. 186 Transformation Process................................................................................................... 187 Impact on Operations Management.............................................................................. 188 Designing the Retail Process............................................................................................... 188 Strategic Orientation........................................................................................................ 189 Critical Design Points: Keys to Success......................................................................... 190 Additional Factors to Consider in Retail Store Design............................................... 193 Multidiscipline Project............................................................................................... 193 Continuing Need to Readjust or Redesign.............................................................. 193 E-Commerce Considerations (Direct vs. Indirect Selling).................................... 193 Strategic or Long-Term Considerations.................................................................... 194 Managing a Retail Business................................................................................................ 194 Determine the Expected Demand................................................................................. 194 Plan Capacity to Meet Demand..................................................................................... 195 Implement the Operating Plan...................................................................................... 195 Measure Performance...................................................................................................... 196 Replan for the Next Period............................................................................................. 196 Retail and Inventory Management.................................................................................... 196 Value................................................................................................................................... 196 Availability........................................................................................................................ 197 Variety................................................................................................................................ 197 Presentation...................................................................................................................... 197 Service................................................................................................................................ 197 Response Time.................................................................................................................. 197 Present Situation in Retailing............................................................................................. 197 Future in Retailing................................................................................................................ 198 Role of Wholesalers and Distribution Centers................................................................. 199 Ordering............................................................................................................................ 199 Receiving........................................................................................................................... 199 Stocking............................................................................................................................. 199 Picking............................................................................................................................... 200 Loading the Trucks.......................................................................................................... 200 Transporting to Stores..................................................................................................... 200 Unloading and Display at Stores................................................................................... 200 Critical Success Factors for Distribution........................................................................... 201 Inventory within Distribution Functions.......................................................................... 201 Inventory Management between Retailer and Distributor............................................ 202 Technology in Distribution Functions............................................................................... 202 At the Retail Store............................................................................................................ 202 Movement of Goods........................................................................................................ 203 At the Distribution Center.............................................................................................. 203 Distribution Center Design................................................................................................. 203 Positioning Services within the Distribution Functions................................................. 204
  13. Contents xiii Presale Services................................................................................................................ 204 Postsale Services............................................................................................................... 204 Role of Third-Party Service Providers.......................................................................... 205 Distribution Performance Measurement........................................................................... 205 Financial Performance Measures.................................................................................. 205 Operating Performance Measures................................................................................. 205 Collaboration Performance Measures........................................................................... 205 Retailer–Distributor Relationship...................................................................................... 206 Summary................................................................................................................................ 206 Hot Topic: Contaminated Milk........................................................................................... 207 Discussion Questions........................................................................................................... 209 References.............................................................................................................................. 210 7. Production and Service Processes.................................................................................... 211 Learning Outcomes.............................................................................................................. 211 Company Profile: Caterpillar.............................................................................................. 211 Introduction........................................................................................................................... 216 Evolution of the Production Function................................................................................ 218 From Craft to Mass Production..................................................................................... 219 From Mass Production to Mass Customization.......................................................... 219 Critical Success Factors for Manufacturers....................................................................... 220 Cost and Efficiency.......................................................................................................... 220 Quality............................................................................................................................... 220 Responsiveness: Timing of Delivery............................................................................. 220 Responsiveness: Product/Service Mix.......................................................................... 221 Flexibility...................................................................................................................... 221 Agility................................................................................................................................ 221 Information Technology................................................................................................. 221 Manufacturing Strategies.................................................................................................... 221 Make to Stock...................................................................................................................222 Locate to Order.................................................................................................................222 Assemble to Order...........................................................................................................223 Make to Order..................................................................................................................223 Engineer to Order............................................................................................................223 Batch to Lean Operations....................................................................................................223 Present Batch Flow........................................................................................................... 224 Machine Breakdowns.................................................................................................225 Supplier Failures..........................................................................................................225 Worker Flexibility........................................................................................................225 Customer Lead Times.................................................................................................225 Customer Order Size................................................................................................... 226 Proposed Lean Production Flow................................................................................... 226 Customer Lead Time................................................................................................... 226 Extra Available Space.................................................................................................. 227 Faster Detection of Quality Problems...................................................................... 227 Ease of Transferring Operators................................................................................. 227 Reduced Scheduling Requirements......................................................................... 227 Smaller Lot Sizes......................................................................................................... 227
  14. xiv Contents No Buildup of WIP Inventory................................................................................... 228 Empowered Employees.............................................................................................. 228 Reduced Equipment Breakdowns............................................................................ 228 Reduced Late Material Deliveries............................................................................. 228 Reduced Write-Off of Inventory............................................................................... 228 Obstacles to Implementing Lean................................................................................... 228 Make or Buy Strategies........................................................................................................ 229 Vertical Integration.......................................................................................................... 229 Outsourcing...................................................................................................................... 230 Capacity Planning................................................................................................................ 232 How Much Capacity? When? What Kind?................................................................... 232 Location and Ownership................................................................................................ 233 Service Production Strategies............................................................................................. 233 Relationships with Downstream Customers....................................................................234 From Transactions to Processes.......................................................................................... 236 Transactions versus Processes....................................................................................... 236 Basic Processes of a Business......................................................................................... 237 Benefits of a Process Orientation................................................................................... 238 Effect of Process Orientation............................................................................................... 238 Organizational Structure................................................................................................ 238 Strategies........................................................................................................................... 239 Knowledge Management................................................................................................ 239 Change Management...................................................................................................... 240 Trends in Production............................................................................................................ 240 From Manual to Automated........................................................................................... 240 From Domestic to Global................................................................................................ 241 From Standard Products to Customized...................................................................... 241 Postponement................................................................................................................... 241 Sales and Operations Planning...................................................................................... 242 Additive Manufacturing................................................................................................. 242 Performance Measurement................................................................................................. 242 As Measured by Accounting.......................................................................................... 242 As Measured by Production........................................................................................... 243 Measures along the Supply Chain................................................................................. 243 Summary................................................................................................................................ 243 Hot Topic: Clothing Manufacturing.................................................................................. 244 Discussion Questions........................................................................................................... 246 References.............................................................................................................................. 247 8. Procurement/Purchasing................................................................................................... 249 Learning Outcomes.............................................................................................................. 249 Company Profile: Nestlé...................................................................................................... 249 Introduction...........................................................................................................................254 Role of Procurement in the Supply Chain........................................................................ 255 Traditional Purchasing......................................................................................................... 256 Contemporary Purchasing.................................................................................................. 258 Changing Role of Purchasing............................................................................................. 259 Critical Success Factors for Purchasing............................................................................. 261 Functionality..................................................................................................................... 261
  15. Contents xv Availability........................................................................................................................ 261 Cost..................................................................................................................................... 261 Quality............................................................................................................................... 262 Match Inflow with Outflow............................................................................................ 262 Reduce Variances in Delivery........................................................................................ 262 Increase Supplier Dependability................................................................................... 263 Reduce the Bullwhip Effect............................................................................................ 263 Become an Intercompany Facilitator............................................................................. 263 Find Sustainable Suppliers............................................................................................. 263 Purchasing Functions: Participating.................................................................................. 264 Product Design................................................................................................................. 264 Product Specifications..................................................................................................... 264 New Product Introduction.............................................................................................. 264 Target Costing.................................................................................................................. 266 Strategic Sourcing............................................................................................................ 267 Supplier Location............................................................................................................. 268 Inventory Management................................................................................................... 268 Supplier Risk Management............................................................................................ 269 Purchasing Functions: Directing........................................................................................ 269 Purchasing Process.......................................................................................................... 269 Supplier Evaluation.......................................................................................................... 270 Supplier Relationship Management.............................................................................. 271 Supply Chain Coordination/Collaboration................................................................. 271 Purchasing along the Supply Chain.................................................................................. 271 Consumer.......................................................................................................................... 271 Retail.................................................................................................................................. 272 Wholesale.......................................................................................................................... 272 Manufacturer.................................................................................................................... 273 Mining and Agriculture................................................................................................. 273 Services.............................................................................................................................. 273 Offshore Outsourcing.......................................................................................................... 274 As a Strategic Concept..................................................................................................... 274 TCO Considerations......................................................................................................... 275 As a Project, with Project Management Needs........................................................... 277 Other Considerations: Intangible Costs and Public Acceptance............................... 277 Supplier Location as a Strategy for Entering an Offshore Market............................ 278 Performance Measurement................................................................................................. 278 Traditional: Positive Purchase Price Variance............................................................. 278 Contemporary: Enhanced Value for the Consumer.................................................... 278 Future of Purchasing............................................................................................................ 279 Summary................................................................................................................................ 280 Hot Topic: Apple Juice.......................................................................................................... 281 Discussion Questions........................................................................................................... 283 References.............................................................................................................................. 283 9. Logistics: The Glue That Holds the Supply Chain Together..................................... 287 Learning Outcomes.............................................................................................................. 287 Company Profile: Transportation Insight.......................................................................... 287
  16. xvi Contents Scope of Logistics.................................................................................................................. 293 Evolution of Integrated Logistics........................................................................................ 295 Transportation....................................................................................................................... 297 Truck: Privately Owned or Third-Party Carriers........................................................ 298 Rail: For Selected Goods................................................................................................. 298 Waterways......................................................................................................................... 299 Air....................................................................................................................................... 299 Pipeline.............................................................................................................................. 299 Parcel.................................................................................................................................. 299 Transmission Lines.......................................................................................................... 299 Fiber-Optic Cable Networks...........................................................................................300 Materials Management........................................................................................................300 Interim Storage......................................................................................................................300 Exchange Points.................................................................................................................... 301 Traceability............................................................................................................................. 301 Integration.............................................................................................................................. 301 Outsourcing........................................................................................................................... 302 Drivers of the Outsourcing Movement......................................................................... 303 Sustainability...............................................................................................................304 Social Responsibility...................................................................................................304 Ethical Responsibility.................................................................................................304 Future Company Well-Being.....................................................................................304 Steps in the Outsourcing Decision................................................................................304 Step 1. Determine Project Feasibility........................................................................304 Step 2. Prepare a Project Plan....................................................................................305 Step 3. Estimate Annual Savings..............................................................................306 Step 4. Identify Risks or Disruption Costs.............................................................. 306 Step 5. Estimate the Return on Invested Capital.................................................... 307 Step 6. Implement the Offshore Outsourcing Program......................................... 307 Step 7. Measure Progress............................................................................................ 307 Step 8. Review and Revise.........................................................................................308 Summary......................................................................................................................308 Reshoring Initiative..............................................................................................................308 Rise of 3PLs............................................................................................................................309 Benefits of 3PL Services................................................................................................... 312 Reduces Total Cost...................................................................................................... 312 Decreases Total Time from Origin to Destination................................................. 312 Results in More Consistent Processing: Less Variability in Elapsed Time......... 312 Allows Individual Participants to Concentrate on Core Functions..................... 313 Increases Flexibility of the Supply Chain................................................................ 313 Leads to Market Development through 3PL Contacts........................................... 313 Taps into Specialized Knowledge Not Normally Internal to Company............. 313 Obstacles to Successful Implementation...................................................................... 313 Lack of Qualified Personnel within the Company to Manage the 3PLs............. 313 Lack of Full-Service Providers.................................................................................. 314 Perceived Loss of Control by Outsourcing Company........................................... 314 Difficulty in Coordinating Disparate Participants................................................. 314 Lack of a Comprehensive Financial Analysis before Implementing................... 314 Difficulty in Selecting and Using Appropriate Performance Measures............. 314
  17. Contents xvii Trend toward Outsourcing the Distribution Function............................................... 315 Major Companies............................................................................................................. 315 Role of 4PL in Building Supply Chain Relationships................................................. 315 High-Tech Industry Issues................................................................................................... 316 Risk Management................................................................................................................. 317 Status Report......................................................................................................................... 317 Hot Topic................................................................................................................................ 319 Discussion Questions........................................................................................................... 321 References.............................................................................................................................. 321 10. Reverse Supply Chains...................................................................................................... 325 Learning Outcomes.............................................................................................................. 325 Company Profile: GENCO................................................................................................... 325 Introduction........................................................................................................................... 329 Description of Reverse Supply Chain Networks............................................................. 329 Benefits of Reverse Logistics.......................................................................................... 330 Barriers to Reverse Logistics.......................................................................................... 331 Continuation of Forward Supply Chains..................................................................... 331 History of Reverse Logistics................................................................................................ 333 Principal Drivers of the Movement.................................................................................... 333 Individual Consumers..................................................................................................... 333 Individual Businesses...................................................................................................... 335 Society as a Group........................................................................................................... 335 Environmental Concerns........................................................................................... 335 Resource Scarcity Concerns....................................................................................... 336 Business Sector................................................................................................................. 336 Economic Benefits Possible........................................................................................ 336 New Businesses, Even New Industries, Possible.................................................... 337 Educational Institutions.................................................................................................. 337 Governments: At All Levels........................................................................................... 337 Activities in Reverse Logistics............................................................................................ 338 Service: Assure Proper Use of Product......................................................................... 338 Returns: Repackaging or Relocation............................................................................. 338 Restoration: Minor Modification or Repair.................................................................. 338 Remanufacturing: Overhaul and Major Rebuilding.................................................. 339 Recycling: Reconstitution as Part of Another Product............................................... 339 Disposal: Return to Natural State.................................................................................. 339 Hazardous Waste Disposal............................................................................................340 Role of Private Industry.......................................................................................................340 New Paradigms in Product Design (Design for Sustainability)............................... 341 Design and Operate Green Supply Chains.................................................................. 341 Develop Systems to Manage Reverse Logistics........................................................... 341 Participate in Joint Ventures to Seek Social Objectives..............................................342 Role of Government..............................................................................................................342 Research: To Identify Threats and Opportunities......................................................342 Legislation: To Standardize Business Requirements..................................................344 Regulation: To Monitor Performance............................................................................345 Participation: To Encourage and Support Ongoing Programs..................................345 Role of Consumer.................................................................................................................345
  18. xviii Contents Participant in Reverse Supply Chain Programs..........................................................346 Educated Consumer........................................................................................................346 Supporter of Green Supply Chain Efforts....................................................................346 Reverse Logistics Network.................................................................................................. 347 Continuation of the Forward Supply Chain................................................................ 347 Open System Environment.............................................................................................348 Heavily Outsourced by Major Businesses....................................................................348 Need for a Life Cycle Systems Approach.......................................................................... 349 Need for IT............................................................................................................................. 351 Other Considerations in Designing Reverse Supply Chains......................................... 352 Future..................................................................................................................................... 352 Growth in Amount of Materials Recycled................................................................... 352 Increase in Number of Companies Performing Reverse Logistics Activities.........353 Joint Ventures between Private Business and Government...................................... 353 Increased Emphasis on Prevention, Not Just Reusing............................................... 353 More Companies Will Design Integrated Reverse Logistics Systems...................... 353 Summary................................................................................................................................ 353 Discussion Questions........................................................................................................... 356 References.............................................................................................................................. 357 Section IV  Need for Integration 11. The Need to Integrate......................................................................................................... 361 Expected Outcomes.............................................................................................................. 361 Company Profile: Cisco........................................................................................................ 361 Introduction........................................................................................................................... 367 Setting the Stage.................................................................................................................... 368 Reasons to Integrate......................................................................................................... 369 Research in Support of Integration Efforts.................................................................. 370 From Mass Production to Mass Customization............................................................... 372 From Craft to Mass Production..................................................................................... 372 Prelude to Mass Customization..................................................................................... 373 From Vertical Integration to Virtual Integration.............................................................. 375 From Homogeneous Cultures to Diverse Cultures......................................................... 377 From Bottom Line to Triple Bottom Line.......................................................................... 377 Drivers of Change................................................................................................................. 379 Global Competition.......................................................................................................... 379 Global Markets................................................................................................................. 380 Economic Advantage....................................................................................................... 380 Lower Costs.................................................................................................................. 380 Higher Revenues......................................................................................................... 381 Relationships and Trust among Supply Chain Participants.......................................... 381 Trust between Individuals.............................................................................................. 381 Formal Contracts or Agreements.................................................................................. 381 Common Interests or Projects (Enforced Trust).......................................................... 381 Involves Change Management........................................................................................... 382 Change Is Difficult within a Company......................................................................... 382 Embedded Culture...................................................................................................... 382
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