9780357132302_Langley11e_ch1_LEAP.pptx

1
©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Supply Chain
Management,
11e
Chapter 1: Supply Chain Management:
An Overview

2
Discussion Outline
• Five major change drivers
• Development of supply chain management concept
• Integrated supply chain characteristics
• Supply chain flows
• Major supply chain issues

3
Leading Retailers (Sales/Year)
2000 2010 2015 2019
1. Wal-Mart 1. Wal-Mart 1. Wal-Mart 1. Wal-Mart
2. Kroger 2. Kroger 2. Costco 2. Amazon
3. The Home
Depot
3. Target 3. Kroger 3. Kroger
4. Sears, Roebuck
& Company
4. Walgreen 4. The Home Depot 4. Costco
5. Kmart 5. Home Depot 5. Target 5. Walgreens Boots Alliance
6. Albertson’s 6. Costco 6. Walgreen’s 6. The Home Depot
7. Target 7. CVS Caremark 7. CVS Caremark 7. CVS Health Corporation
8. JC Penney 8. Lowe’s 8. Amazon.com 8. Target
9. Costco 9. Best Buy 9. Lowe’s 9. Lowe’s Companies
10. Safeway 10. Sears Holdings 10. Best Buy 10. Albertsons Companies
Source
Table
1.1:
National
Retail
Federation
(NRF)
https://nrf.com/resources/annual-retailer-
lists/top-100-retailers

4
Six Major Change Drivers
Source
Figure
1.1:
Center
for
Supply
Chain
Research,
Penn
State
University.

5
Six Major Change Drivers—Globalization
Globalization creates more economic and political risk, shorter product
life cycle, and the blurring of traditional organizational boundaries.
Inventory management challenges
• Faster duplicability of products & services
• Faster reduction in demand
• Requirement of new pricing policies
• Higher risk of obsolescence
Longer and more complex supply chain challenges
• Growth and increased scope of outsourcing

6
Six Major Change Drivers—Technology
Technology is a facilitator of internal process and supply chain
transformation. It is also a major force in changing the dynamics of
the marketplace.
The Internet. “Connected” 24/7
Social networks. Impact on customer demand and the speed of information
transfers
The world’s “knowledge pool” connection. Opportunities for collaboration in
supply chains.

7
Six Major Change Drivers—Organization
Consolidation and Power Shifts
During the 1980s and especially the 1990s, economic power and the
driving force in supply chains shift from product manufacturers to
the retail end of the supply chain.
More collaboration among organizations in supply chains
• Win-win, improved services such as:
− Scheduled deliveries
− “Rainbow” pallets
− Advance shipments notices (ASNs) shrink-wrapped pallets
• Sharing of point-of-sale data to mitigate “bullwhip effect”

8
Six Major Change Drivers—Empowered
Consumers
Consumers are empowered by exponentially expanded access to
product sources and related information and increased buying
power due to high income levels.
Increased pressures on supply chain due to increased demands at the
retail level in terms of:
• Competitive prices
• High quality in products and services
• Tailored or customized products
• Convenience and responsiveness – 24/7 availability with a minimum of wait time
• Flexibility – Omnichannel distribution strategies

9
Six Major Change Drivers—Government
Policy and Regulation
More competitive environment is a result of the deregulation of
several important sectors in the United States occurred in the
1980s and 1990s.
The transportation industry. Expanded services beyond transportation, with
service providers’ role evolving to outsourcing partners
The financial sector. More flexible and responsive to customer needs, making
businesses more cognizant of supply chain management impact on efficiency and
cash flow
The communications industry. A component of the information revolution,
leading to dramatic improvements and opportunities in logistics and supply chains

10
Six Major Change Drivers—Sustainability
The pursuit of sustainability is widely recognized as a key element
of successful supply chain management. This is critical to effective
risk management and achieving competitive advantage.
Society. Focus on people is a significant concern in the area of sustainability.
Environment. The objective of being “green” is a key element of making positive
contributions to improving our environment. There are many ways in which
supply chains may help to achieve desired outcomes.
Economy. Continued economic and financial sustainability is essential to
making future positive impacts on society and the environment.

11
Evolution of Supply Chain Management
Concept
Source
Figure
1.2:
Center
for
Supply
Chain
Research,
Penn
State
University.

12
Integrated Supply Chain—Basics
SCM is the art and science of integrating the flows of products,
information and financials through the entire supply pipeline from the
supplier’s supplier to the customer’s customer.
Source
Figure
1.4:
Center
for
Supply
Chain
Research,
Penn
State
University.

13
Integrated Supply Chain—Network
Source
Figure
1.5
:
Center
for
Supply
Chain
Research,
Penn
State
University.

14
Supply Chain Flows
Center
for
Supply
Chain
Research,
Penn
State
University.

15
Major Supply Chain Issues (1 of 5)
1. Supply chain networks
2. Complexity
3. Inventory deployment
4. Information
5. Cost and value
6. Organizational relationships
7. Performance measurement
8. Technology
9. Transportation management
10. Supply chain security
11. Talent management

16
Supply Chain Network
The challenges
• Network system (facilities
and supporting
transportation services)
must be capable and
flexible to respond and
change with market
dynamics
Complexity
The challenges
• Increased requirements in
simplifying and continually
evaluating areas of
complexity in the various
aspects of supply chains
Inventory Deployment
The challenges
• Increased requirements for
coordination or integration
to reduce inventory levels
on horizontal (single-firm)
and vertical (multiple-firms)
levels in the supply chain

17
Information
The challenges
• The sharing of information
along the supply chain
• The discipline to ensure the
integrity of the vast amount
of data collected and stored
Cost and Value
The challenges
• The prevention of sub-
optimization
Organizational
Relationships
The challenges
• Internal collaboration
(marketing, sales,
operations, finance, etc.)
• External collaboration
(vendors, customers,
transportation companies,
3PLs)

18
Performance
Measurement
The challenges
• Connecting lower-level
metrics in an organization
directly to the high-level
performance measures of
the organization and the
supply chain
Technology
The challenges
• Evaluate, strategically plan,
and successfully implement
the technology to make the
improvements desired
Transportation
Management
The challenges
• Transport “perfect
storm.” Transport market
changes; driver shortages;
fuel costs; infrastructure
constraints; and regulatory
changes

19
Supply Chain Security
The challenges
• Risk of disruptions,
vulnerability, and exposure
to terroristic threats
exacerbated by distance
and complexity in global
supply chain
Talent management
The challenges
• Attract, develop, and
maintain the appropriate
pool of talent from entry
level to executive level

20
Summary
• The rate of change has been driven by a set of external forces including
globalization, technology, organizational consolidation and shifts in power in
supply chains, empowered consumers, and government policy and regulations.
• Supply chains are extended enterprises which require managing four flows—
products, information, financials (cash), and demand on a collaborative basis.
• The global supply chains of the best companies must be adaptive, resilient,
and responsive to meet the challenges of the global economy and develop
mitigating strategies for disruptive forces.

21
Supply Chain
Management,
11e
Chapter 2: Global Dimensions of
Supply Chains

22
Discussion Outline
• Rationale for global trade and commerce
• Contributing factors for global commerce and supply chain flows
• Supply chains in global economy
• Global markets and strategy
• Supply chain security and role of ports
• Free trade agreements

23
Rationale for Global Trade and Commerce
• Absolute advantage
− Lower cost and/or access to items not available locally
• Comparative advantage
− Differences in the cost of producing products in different countries

24
Contributing Factors for
Global Flows and Supply
Chain Flows

25
Contributing Factors for Global Flows
and Trade
1. Population size and distribution
2. Urbanization
3. Land and resources
4. Technology and information
5. Globalized economy

26
Population = Labor (1 of 3)
Rank Country
2000 Population
(in thousands)
2010 Population
(in thousands)
2019 Population
(in thousands)
2050 Expected
Population (in
thousands)
1 China 1,268,302 1,336,681 1,389,619 1,301,627
2 India 1,006,300 1,173,108 1,311,559 1,656,554
3 United States 282,162 309,338 331,884 398,328
4 Indonesia 214,091 243,423 264,936 300,183
5 Pakistan 152,429 195,834 210,798 290,848
6 Brazil 174,315 184,405 210,302 232,304
7 Nigeria 125,581 165,905 208,679 416,996
8 Bangladesh 128,735 146,616 161,063 193,093
9 Russia 147,054 142,527 141,945 129,908
10 Mexico 99,775 114,061 127,318 150,568
Source
Table
2.1:
U.S.
and
World
Population
Clock
and
International
Data
Base
(IDB),
U.S.
Census
Bureau
(https://www.census.gov/popclock/),
and
U.S.
Census
Bureau
(https://www.census.gov/data-
tools/demo/idb/informationGateway.php).

27
Totals
2000 Population (in
thousands)
2010 Population
(in thousands)
2019 Population
(in thousands)
2050 Expected
Population
(in thousands)
TOP TEN
Countries
3,598,744 4,011,898 4,358,102 5,070,409
Top Ten
Percentage
of World
Population
59% 58% 58% 53%
TOTAL World
Population
6,086,149 6,872,671 7,560,290 9,488,153
Source
Table
2.1:
U.S.
and
World
Population
Clock
and
International
Data
Base
(IDB),
U.S.
Census
Bureau
(https://www.census.gov/popclock/),
and
U.S.
Census
Bureau
(https://www.census.gov/data-
tools/demo/idb/informationGateway.php).

28
Source:
United
Nations,
Department
of
Economic
and
Social
Affairs,
Population
Division
(2017).
World
Population
Prospects:
The
2017
Revision,
custom
data
acquired
via
website.
(https://population.un.org/wpp/Publications/).

29
Urbanization
• The rise of “megacities”
− By 2030, 60% of the world’s
population will live in urban
areas (vs. 47% in 2000)
• Change most profound in less
and least developed countries of
the world
− Urban sustainability challenges
Urban sustainability challenges
• Waste and pollution
• Water and energy
• Traffic congestions
• Health problems
• Green spaces
• Poverty
• Social security

30
Land and Resources
Critical role of technology in mitigating resource scarcity
Crop & forest
Land
Water Food Energy

31
Technology and Information
Technology has two important dimensions.
• Technology as an “internal” change agent
− Enhanced efficiency, effectiveness, and ability of an organization to compete
in the global marketplace
• Technology as an “external” change agent
− New forms of competition or new business models (e.g. omnichannel
distribution, global outsourcing)

32
Globalized Economy
Export-Trade Flows of Merchandise (2018)
Source
Figure
2.2:
©
World
Trade
Organization
2019
“International
Trade
and
Market
Access
Data”

33
Globalized Economy
Import-Trade Flows of Merchandise (2018)
Source
Figure
2.3:
©
World
Trade
Organization
2019
“International
Trade
and
Market
Access
Data”

34
Top U.S. Trading Partners (US$ Billions)
2010 2014 2018
China $ 456.80 $ 590.70 $ 659.80
Canada $ 525.30 $ 658.10 $ 617.20
Mexico $ 393.00 $ 534.50 $ 611.50
Japan $ 180.90 $ 200.90 $ 217.60
Germany $ 130.90 $ 172.60 $ 183.60
South Korea $ 87.70 $ 114.10 $ 130.60
United Kingdom $ 98.30 $ 107.90 $ 127.00
France $ 65.60 $ 78.20 $ 88.80
India $ 48.80 $ 66.90 $ 87.50
Italy $ 42.73 $ 59.10 $ 77.90
Total Top Ten $ 2,030.03 $ 2,583.00 $ 2,801.50
Top Ten Percentage of Total, All Countries 63.63% 65.08% 66.59%
TOTAL All Countries $ 3,190.20 $ 3,969.10 $ 4,206.90
Source
Table
2.5:
Source:
U.S.
Census
Bureau
(Top
Trading
Partners
(https://www.census.gov/foreign-trade/statistics/highlights/top/index.html);
and
U.S.
Census
Bureau
(https://www.census.gov/foreign-trade/balance/index.html).

35
Supply Chains in Global
Economy

36
Supply Chain in Global Economy
Global trade growth has been fueled by free trade agreements (FTAs) that lift most
tariff, quota, and fee/tax limitations on trade.
The best supply chains compete successfully on a national, regional, and global basis.
Bilateral  FTAs  Regional
• Bi-lateral
agreements are
between two
nations
• US currently in 20
bi-lateral FTAs
• Regional trade agreements involve 3 or more nations
• US currently involved in:
− Free Trade Area of Americas
− Middle East Free Trade Initiatives
− Enterprise for ASEAN Initiatives
− North American Free Trade Agreement (NAFTA)
− USMCA (US-Mexico-Canada) Agreement (proposed)

37
Micro Perspective of
Global Supply Chains
Global Markets and Strategy

38
Success in the global market-place requires development of a cohesive set
of strategies including product development, technology, marketing,
manufacturing, and supply chains.
• Supply chain perspective
• Customer service perspective

39
Supply Chain Perspective
1. Strategically sourcing materials and components worldwide
2. Selecting global locations for key supply depots and DCs
3. Evaluating transportation alternatives and channel intermediaries
4. Understanding governmental influences on global SC flows
5. Examining opportunities for collaboration with 3PLs or 4PLs

40
Customer Service Perspective
1. Standardization to reduce complexity must maintain some customization.
2. Global competition often reduces the product life cycle.
3. Organizational structures and business models change with more outsourcing.
4. Globalization introduces more volatility and complexity.

41
Supply Chain Security and
Role of Ports

42
Supply Chain Security
A Balancing Act
Security Measures
• The Trade Act of 2002
• The U.S. Maritime Transportation
Security Act of 2002
• The Customs Trade Partnership
Against Terrorism (C-TPAT)
Global Trade Flows
• Electronic filing of cargo information
• Standards for container seals and
locks, cargo tracking, identification,
and screening systems for ocean
containers
• A “green lane”

43
Role of Ports
Global Supply Chain and Security
Ports are a critical part of global supply chains and a major
focus for global security.
• Over 90 percent of U.S. international trade passes through ports.
• Ports are bases of operation to deploy troops and equipment.

44
Free Trade Agreements

45
Supply Chain in Global Economy
NAFTA  USMCA Agreement
• NAFTA
− Established free trade among Canada, the U.S., and Mexico.
− Goals involved making structural changes to operate a borderless logistics
network in North America.
• USMCA (2020)
− Proposed multi-lateral trade agreement with U.S., Mexico, and Canada

46
Summary
• Trade flows between the United States and other countries have grown
considerably, resulting in global supply chains becoming increasingly important.
• The increased complexity and competitiveness of a global economy have
resulted in shorter product life cycles, new forms of competition, and new
business models.
• Success in the global marketplace requires ongoing development of a cohesive
set of strategies that has implications to both supply chains and customer
services.
• Companies individually, jointly, and in cooperation with the government are
actively involved in supply chain security.
• With increasing regional economic integration, NAFTA has helped to
foster trade in North America. Proposed USMCA Agreement should
exceed benefits of NAFTA

47
Supply Chain
Management,
11e
Chapter 3: Role of Logistics in Supply
Chains

48
Discussion Outline
• Value-added roles of logistics
• Key logistics activities
• Macro perspective on logistics
• Micro dimension of logistics
• Logistics and systems analysis

49
What Is Logistics?
Logistics can be viewed as part of organizational management with four
major subdivisions.
1. Business Logistics. Part of supply chain that plans, implements, and controls
the flow and storage of goods, services, and related information.
2. Military Logistics. Design and integration of all aspects of support for the
operational capability of the military forces and their equipment.
3. Event Logistics. Network of activities, facilities & personnel required to
organize, schedule & deploy the resources for an event to take place and
withdraw after the event.
4. Service Logistics. Acquisition, scheduling & management of facilities, assets,
personnel & materials to support a service operation & business.

50
Value-added Roles of Logistics
Five Principal Types of Economic Utility
Economic Utility
 Time
 Form
 Possession
 Quantity
 Place

51
Value-added Roles of Logistics
Generally, production/manufacturing activities are credited with providing form
utility; logistics activities with time, place, and quantity utilities; and marketing
activities with possession utility.

52
Key Logistics Activities
1. Transportation
2. Storage
3. Industrial packaging
4. Materials handling
5. Inventory control
6. Order fulfillment
7. Demand forecasting
8. Production planning & scheduling
9. Procurement
10.Customer service
11.Plant & warehouse site location
12.Others*
* Others include parts and service
support, return goods handling, and
salvage and scrap disposal.

53
Macro Perspective on
Logistics

54
Macro Perspective on Logistics
U.S. Business Logistics Costs
Source
Figure
3.2:
Reproduced
with
permission
from
Council
of
Supply
Chain
Management
Professionals.

55
U.S. Logistics Costs as Percent of GDP

56
Macro Perspective of Logistics
U.S. Business Logistics Costs – 2018 (1 of 2)
US business logistics costs ($ billion) 2018 YoY 18/17 5-yr. CAGR
Transportation costs
Full truckload 296.1 7.6% 3.6%
Less-than-truckload 71.8 8.3% 3.5%
Private or dedicated 300.9 13.1% 7.1%
Motor carriers 668.8 10.1% 5.1%
Parcel 104.9 8.7% 8.0%
Carload 61.4 7.2% −0.6%
Intermodal 27.0 28.7% 8.1%
Rail 88.4 12.9% 1.6%
Air freight (includes domestic, import, export, cargo, and express) 76.5 9.2% 3.8%
Water and ports (includes domestic, import, and export) 45.7 12.8% 1.5%
Pipeline 53.0 12.7% 12.7%
Subtotal 1,037.4 10.4% 5.1%
Source:
CSCMP’s
30
th
Annual
State
of
Logistics
Report,
2019

57
Macro Perspective of Logistics
U.S. Business Logistics Costs – 2018 (2 of 2)
US business logistics costs ($ billion) 2018 YoY 18/17 5-yr. CAGR
Inventory carrying costs
Storage 153.1 3.2% 3.0%
Financial cost (WACC × total business inventory) 192.5 26.0% 3.0%
Other (obsolescence, shrinkage, insurance, handling, others) 148.1 14.8% 3.0%
Subtotal 493.7 14.8% 3.0%
Other costs
Carriers’ support activities 52.3 10.3% 4.5%
Shippers’ administrative costs 52.1 2.8% 5.3%
Subtotal 104.4 6.4% 4.9%
Total US business logistics costs 1,635.46 11.4% 4.4%
Source:
CSCMP’s
30
th
Annual
State
of
Logistics
Report,
2019

58
Micro Dimensions of
Logistics
Logistics Interface with other functional areas
Factors affecting cost & importance of logistics

59
Micro Dimensions of Logistics
Logistics Interfaces with Other Functional Areas
Logistics
Manufacturing
• Length of the production run
• Available quantity of raw material and
component
• Industrial packaging
Marketing (4 Ps – Marketing Mix)
• Price (e.g. purchase quantity
discounts)
• Product (e.g. size, shape, weight,
packaging)
• Promotion
• Place (distribution channel selection)
Finance
• Inventory
• Warehouses & transportation fleet
owned and/or outsourced
• Customer service
Accounting
• Cost information for analysis of
alternative logistics options
• Supply chain tradeoffs and
performance measurement

60
Micro Dimensions of Logistics (1 of 5)
Factors Affecting Cost & Importance of Logistics
1. Competitive relationships
2. Order cycle length
3. Substitutability
4. Inventory effect
5. Transportation effect
6. Product-related factors
7. Spatial relationships

61
Competitive
Relationships
• Customer service can
be a very important
form of competition.
Order Cycle Length
• Shorter order cycles
reduce the inventory
required by the
customer.
Substitutability
• Customer service is
important for highly
substitutable products
to reduce lost sales
cost.

62
Inventory Effect
• Increasing inventory
costs can reduce the
cost of lost sales.
Transportation Effect
• Cost of lost sales can
be reduced by
spending more on
transportation service
to improve customer
service.
Spatial Relationships
• The location of fixed
points in the logistics
system with respect to
demand and supply
points are very
important to
transportation costs.

63
Product-related Factors
• Dollar value. The product’s dollar value typically affects warehousing costs, inventory
costs, transportation costs, packaging costs, and even materials-handling costs.
• Density. Weight/space ratio affects transportation and warehousing costs. As
density increases for a product, its transportation and warehousing costs tend to
decrease.
• Susceptibility to damage. The greater the risk of damage to a product, the higher
the transportation and warehousing cost.
• Special handling requirements. Need for special handling (e.g. refrigeration,
heating, or strapping) will usually increase warehousing, transportation, and
packaging costs.

64
Spatial Relationship Example
Source
Figure
3.11:
Center
for
Supply
Chain
Research,
Penn
State
University.

65
Logistics and Systems
Analysis

66
Logistics and Systems Analysis
Short-run and Long-run Analysis
Short-run or Static Analysis
• Concentrates on a specific point in time or level of production output.
Long-run or Dynamic Analysis
• Examines a logistics system over a long time period or range of output.

67
Logistics and Systems Analysis
Approaches to Analyzing Logistics Systems
The analysis of logistics systems may require different views or perspectives of logistics activities.
• Materials management vs. physical distribution
− Examine logistics as inbound vs. outbound logistics.
• Cost centers
− Examine logistics activities as cost centers, allowing tradeoffs between them to be analyzed.
• Nodes vs. links
− Examine nodes (fixed spatial points where goods stop for storage or processing) vs. links
(transportation network that connect the nodes in the logistics system).
• Logistics channels
− Examine supply chain of network organizations engaged in transfer, storage, handling,
communication, and other functions that contribute to product flow.

68
Summary
• Logistics adds place, time, and quantity utilities to products and enhances the
form and possession utilities added by manufacturing and marketing.
• Key logistics activities are transportation, inventory, warehousing, materials
handling, industrial packaging, customer service, and forecasting.
• On a macro basis, logistics-related costs have helped the U.S. economy maintain
its competitive position on a global basis.
• On a micro basis, logistics interface with other functional areas which aids in
making organizations more efficient and effective.
• The cost of logistics systems can be affected by market competition, spatial
relationship of nodes, and product characteristics.
• Four approaches to analyzing logistics systems are: materials
management vs. physical distribution, cost centers, nodes vs. links,
and distribution channels.

69
Supply Chain
Management,
11e
Chapter 4: Distribution and Omni-
Channel Network Design

70
Discussion Outline
• Drivers of supply chain network redesign
• Process of comprehensive supply chain network design
• Major locational determinants
• Modeling approaches for supply chain network design
• Omni-channel network design

71
Drivers of Supply Chain Network Redesign
1. Changes in global trade patterns
2. Changes in customer service requirements – The emergence of omni-channel
supply chains
3. Shifts in customer and/or supply market locations
4. Changes in corporate ownership/merger and acquisition activity
5. Cost pressures
6. Competitive capabilities
7. Corporate organizational change

72
U.S. Business Logistics Costs
Source
Figure
4.1:
C.
John
Langley
Jr.,
Ph.D.,
Penn
State
University.
Used
with
permission.

73
Supply Chain Network Design Process
Step 1: Define the Supply Chain Network Design Process
• Form a supply chain network transformation team.
• Establish the parameters and objectives of the network design or redesign
process.
• Evaluate the potential involvement of third-party suppliers of logistics services.

74
Step 2: Perform a Supply Chain Audit
1. Fundamental Business Information
2. Logistics/Supply Chain System
3. Key Logistics/Supply Chain Activities
4. Measurement and Evaluation
5. Strategic Logistics/Supply Chain Issues
6. Logistics/Supply Chain Strategic Plan

75
Step 3: Examine the Supply Chain Network Alternatives
• Apply suitable quantitative models to the current logistics system and to the
alternatives under consideration.
• Identify preliminary supply chain network design solutions consistent with the
key objectives identified during the audit phase.
• Conduct “what-if” analysis to test the sensitivity of recommended network
designs to changes in key variables.

76
Step 4: Conduct a Facility Location Analysis
• Form a location selection team.
• Qualitatively and quantitatively analyze the attributes of specific regions and
locales.
• Identify recommended specific sites for logistics facilities.

77
Step 5: Make Decisions Regarding Network and Facility Location
Evaluate the recommended network and specific sites for logistics facilities
(Steps 3 and 4) for consistency with the design criteria identified in Step 1.

78
Step 6: Develop an Implementation Plan
• Develop a “blueprint for change” as a road map for moving from the current
supply chain network to the desired new one.
• Commit the resources necessary to assure a smooth, timely implementation,
and the continuous improvement of the network decisions.

79
Major Locational
Determinants

80
Broad Geographic and Site-Specific
Locational Determinants
Global/National/ Regional Determinants
• Labor climate
• Transportation services and infrastructure
• Proximity to markets and customers
• Quality of life
• Taxes and industrial development incentives
• Supplier networks
• Land costs and utilities
• IT infrastructure
• Company preference
Site-Specific Determinants
• Transportation access
− Truck
− Air
− Rail
− Water
• Inside/outside metropolitan area
• Availability of workforce and needed skill sets
• Land costs and taxes
• Utilities

81
Current Trends Governing Site Selection
Site Selection
• Strategic positioning of inventories (fast-moving, profitable items vs. slower-
moving, less-profitable items)
• Greater use of “Customer-direct” delivery from manufacturing
• Growing use of and need for strategically located cross-docking facilities
• Greater emphasis on access to major airports and/or ocean ports for import and
export shipments
• Greater use of providers of third-party-logistics services

82
Modeling Approaches for
Supply Chain Network Design

83
A Network Design Model
The Challenge of Supply Chain Complexity
Source
Figure
4.4:
SAILS:
Strategic
Analysis
of
Integrated
Logistics
Systems
(Manassas,
VA:
Insight,
Inc.):
Reproduced
by
permission.

84
A Network Design Model
Objective and Need for Decision Support Tools
Answering network design questions today is virtually impossible
without the help of very powerful decision support tools.
Classic Objective
• Finished goods DCs
• Expanded scope &
complexity of network
design model
Today’s Objective
• Procurement
• Various stages of manufacturing
• DCs
• Transport flows

85
Types of Modeling Approaches
Modeling Approaches
• Optimization Models
− Designed to find the “best,” or optimum solution, while recognizing relevant
constraints.
• Simulation Models
− Designed to develop a computer representation of supply chain network &
observe changes as cost structures, constraints, and other factors are varied.
• Heuristic Models (e.g. grid technique)
− Designed to reduce a problem to a manageable size and search
automatically through various alternatives in an attempt to find a better
solution.

86
Potential Supply Chain Modeling
Pitfalls to Avoid
• Inaccurate or incomplete data
• Level of detail
• Sensitivity analysis
• Linearity of transportation costs
• Geographic concerns
• Time horizon
• Use of appropriate analytical techniques
• “Fluctuating” model inputs

87
Omni-Channel
Network Design

88
Omni-Channel Retailing Defined
“A direct to consumer (D2C) business model where all sales channels
ranging from online, mobile, telephonic, mail order, self-service, and
physical retail establishments are aligned and fulfillment processes
integrated to provide consumers with a seamless shopping experience in
alignment with the company’s brand proposition.”
Three Important Elements
• Omni-channel strategy must align with the firm’s “go to market” strategy.
• The fulfillment processes must be integrated regardless of order entry point.
• Ease of shopping” for the consumer is a priority regardless of where or how the
order is placed.

89
Omni-Channel Network Design
Marketing Channel vs. Logistics Channel
Source
Figure
4.7:
Robert
A.
Novack,
Ph.D.
Used
with
permission.

90
Omni-Channel Network Design
Cost Consideration
Fixed Cost and Variable Cost Consideration:
A Rule of Thumb in Channel Design
“Assuming that the origin and destination remain the same, the more
intermediaries used to deliver the product the higher the fixed cost and the
lower the variable cost, and vice versa.”

91
Omni-Channel Network Design (1 of 2)
Customer Order Fulfillment Models
• Integrated Fulfillment
• Store Fulfillment
• Flow-Through Fulfillment
• Direct Store Delivery (DSD)
• Pool Distribution
• Dedicated Fulfillment

92
Omni-Channel Network Design (2 of 2)
Customer Order Fulfillment Models
Source
Figure
4.9:
Robert
A.
Novack,
Ph.D.
Used
with
permission.

93
Omni-Channel Customer Fulfillment Models
Integrated Fulfillment
Source
Figure
4.10:
Robert
A.
Novack,
Ph.D.
Used
with
permission.
Integrated fulfillment means the retailer operates one distribution network to service both “bricks-and-
mortar” (retail stores) and “clicks-and-mortar” (Internet sites) channels.
• Advantages: Low start-up costs for retailers, Workforce efficiency
• Disadvantages: Order profile changes, Unavailability of products in eaches, “Fast pick” or broken case
operation requirements for unit pick (each pick)

94
Dedicated Fulfillment
Source
Figure
4.11:
Robert
A.
Novack,
Ph.D.
Used
with
permission.
Dedicated fulfillment means the retailer operates two separate distribution networks to service “bricks-and-
mortar” (retail stores) and “clicks-and-mortar” (Internet sites).
• Advantages: Elimination of most of the disadvantages of integrated fulfillment
• Disadvantages: Duplicate facilities and duplicate inventories

95
Pool Distribution
Source
Figure
4.12:
Robert
A.
Novack,
Ph.D.
Used
with
permission.
In pool distribution, small retailers use third party logistics companies, or pool distributors, for
store delivery, allowing them to achieve efficiency of a truckload shipment for the line haul and
the effectiveness of allowing stores to receive LTL orders on a regular schedule

96
Direct Store Delivery
Source
Figure
4.13:
Robert
A.
Novack,
Ph.D.
Used
with
permission.
Direct store delivery involves a manufacturer delivering its product directly to a retailer’s stores,
bypassing the retailer’s distribution network.
• Advantages: Reduction of inventory in the distribution network
• Disadvantages: Possible reduction of inventory visibility of the products to the retailers, Requirements
of close collaboration and agreement between the manufacturer and retailer

97
Store Fulfillment
Source
Figure
4.14:
Robert
A.
Novack,
Ph.D.
Used
with
permission.
In store fulfillment model, the order is placed through the Internet site. The order is sent to the nearest
retail store where it is picked and put aside for the customer to pick up or the store can arrange for delivery.
• Advantages: Short lead time to the customer, Low start-up costs for the retailer, Returns handled
through the retail store, Product available in consumer units
• Disadvantages: Reduced control and consistency over order fill, Conflicts between store and Internet
order inventories, Requirements of real-time visibility to in-store inventories, Requirements of stores’
space to store and stage products for pickups

98
Summary
• The strategic importance of supply chain network design decision is growing with
the increasing globalization of manufacturing, marketing, sourcing, and
procurement.
• A formal, structured process for network design or redesign is preferable to an
informal, unstructured one.
• Numerous factors may affect the design of a logistics network and the location of
specific facilities within the context of the network.
• Principal modeling approaches to gain insight into the topic of supply chain
network design include optimization, simulation, and heuristic models.
• In an omni-channel environment, many network models exist that can
be used to service retail stores and Internet consumers, each of which
has its advantages and disadvantages. Trade-offs must be taken
into consideration when deciding which network model to use.

99
Supply Chain
Management,
11e
Chapter 5: Sourcing Materials and
Services

100
Discussion Outline
• Strategic evolution of sourcing process (purchasing, procurement,
and strategic sourcing)
• Types of purchasing activity and quadrant technique
• Strategic sourcing process
• Total landed cost concept
• E-sourcing, e-procurement, and e-commerce

101
Strategic Evolution of
Sourcing Process
(Purchasing, Procurement,
and Strategic Sourcing)

102
Purchasing vs. Procurement vs.
Strategic Sourcing
Purchasing is an activity that follows conduct of a formal sourcing process,
while procurement and strategic sourcing are best described as processes.
Strategic Sourcing
• Managing procurement priorities such that they are well-aligned with goals and objectives of the supply
chain and of the overall organization.
Procurement
• Managing a broad range of activities within the procurement process (e.g. supplier selection, price
negotiation, contract management, supplier performance management).
Purchasing
• Managing a firm’s acquisition procedures and standards, involving largely transactional activity of the
buying of products & services.

103
Unique Aspects of Strategic Sourcing
1. Consolidation/leveraging of purchasing power
2. Emphasis on value
3. More meaningful supplier relationships
4. Attention directed to process improvement
5. Enhanced teamwork and professionalism
6. Enhanced teamwork and professionalism
Source Figure 5.1: C. John Langley Jr., Ph.D., Penn State University, Used with permission.

104
Strategic Evolution of Sourcing Process
Source
Figure
5.2:
C.
John
Langley
Jr.,
Ph.D.,
Penn
State
University,
Used
with
permission.

105
Types of Purchasing
Activity and Quadrant
Technique

106
Types and Importance of Purchases –
The Quadrant Technique
Not all items /services purchased are of equal importance, requiring varying
procurement strategies based on their value and risk.
Source
Figure
5.3:
C.
John
Langley
Jr.,
Ph.D.,
Penn
State
University,
Used
with
permission.

107
Three Types of Purchasing Activity
Source
Figure
5.4:
C.
John
Langley
Jr.,
Ph.D.,
Penn
State
University,
Used
with
permission.

108
Strategic Sourcing

109
Strategic Sourcing
Five Core Principles
1. Assess total value. Emphasis beyond acquisition cost, evaluating total cost of ownership and the value
of the supplier relationship.
2. Develop individual sourcing strategies. Individual spend categories need customized sourcing
strategies.
3. Evaluate internal requirements. Requirements and specifications thoroughly assessed and rationalized
as part of the sourcing process.
4. Focus on supplier economics. Suppliers’ economics understood before identifying buying tactics (e.g.
volume leveraging, price unbundling, price adjustment mechanisms).
5. Drive continuous improvement. Strategic sourcing initiatives as subset of continuous improvement
process for procurement and sourcing organizations.

110
Strategic Sourcing Process
Source
Figure
5.5:
C.
John
Langley
Jr.,
Ph.D.,
Penn
State
University,
Used
with
permission.

111
Step 1: Develop Strategic Plan
• Create cross-functional planning committee
• Identify key members of sourcing team
• Agree on scope of sourcing processes

112
Step 2: Understand Spend
• Refine understanding of sourcing needs of process-owners, with the nature of
the requirement being represented by some type of measurable criteria
• Perform spend analysis to:
− Understand spend by supplier, category, and internal user
− Profile current sourcing approaches and areas for improvement
• Address issues of make vs. buy

113
Strategic Sourcing (1 of 2)
Steps 3–5: Supplier Portfolio Screening
Source
Figure
5.6:
C.
John
Langley
Jr.,
Ph.D.,
Penn
State
University,
Used
with
permission.

114
Strategic Sourcing (2 of 2)
Steps 3–5: Supplier Portfolio Screening
Source
Figure
5.7:
C.
John
Langley
Jr.,
Ph.D.,
Penn
State
University,
Used
with
permission.

115
Step 6: Onboarding and Transitioning
• Finalize understandings and agreements with suppliers
• Create management processes for new suppliers
• Conduct transition and onboarding processes

116
Step 7: Collaborative Process Improvement
• Regular feedback and communications
• Analyze net savings and compare with goals and objectives
• Process improvement for both suppliers and customers

117
Total Landed Cost

118
Total Landed Cost (TLC)
Source
Figure
5.8:
C.
John
Langley
Jr.,
Ph.D.,
Penn
State
University,
Used
with
permission.

119
TLC Example: Cost Comparisons of Alternative
Sourcing Options
Destination Country – Switzerland
Country
of Origin
Price Components – all prices in Euros China Vietnam EU
Net purchasing price for a specific volume of the product from
3 different suppliers
10,000 8,000 12,000
Total transportation cost to Switzerland (Ocean freight from
China/Vietnam – Road freight within Europe)
4,000 6,000 1,200
Customs according trade agreement 1,000 1,500 n.a.
VAT (Switzerland 7.6%) based on value of goods 1,140 1,178 1,003
Total Landed Cost 16,140 16,678 14,203
Source
Figure
5.9:
Source:
C.
John
Langley
Jr.,
Ph.D.,
Penn
State
University,
Used
with
permission.

120
E-sourcing,
E-procurement, and E-
commerce

121
E-sourcing and E-procurement Functionality
1. Industry analysis and supplier
identification
2. Analytical tools
3. Management of RFI/RFP processes
4. Process automation
5. Online negotiations
6. Collaboration tools
7. Logistics procurement
8. Project management
9. Knowledge management
10.Contract management
Source Figure 5.10: Source: C. John Langley Jr., Ph.D., Penn State University, Used with permission.

122
Advantages and Concerns
of Electronic Procurement
Concerns
• Cyber-security
• Lack of face-to-face contact between the buyer and seller
• Technology-related concerns (lack of standard protocols, system reliability, time & money investment)
Advantages
• Lower operating costs (reduce paperwork & sourcing time, improve control over inventory & spending)
• Improve procurement and sourcing efficiency (find new supply sources, improve communications,
improve personnel use, lower cycle times)
• Reduce procurement prices
• Improve communications
• Easier access to more suppliers
Source Figure 5.11: Source: C. John Langley Jr., Ph.D., Penn State University, Used with permission.

123
Four Basic Types
of E-commerce Business Models
• “Sell-side” vs. “buy-side” system: Whether e-Commerce capabilities are seller-centric or buyer-centric.
• B2B and B2C: Online businesses selling to businesses or consumers, respectively. These are both “sell-
side.” Examples include Delta Air Lines (www.delta.com), Barnes & Noble (www.barnesandnoble.com),
Amazon (www.amazon.com), and Office Depot (officedepot.com).
• Online marketplace: e-Commerce site where product or service information is provided by multiple third
parties, whereas transactions are processed by the marketplace operator. Examples include Amazon
(www.amazon.com), Expedia (www.expedia.com), and Uber (www.uber.com).
• Online trading community: A system maintained by a 3rd party technology supplier that provides buyers
and sellers with a structured method for trading, bartering, or selling goods and services. Examples
include eBay (www.ebay.com), Craigslist (www.craigslist.org), and NTE (www.nteinc.com).

124
Summary
• Different procurement and sourcing strategies devised based on the risk and
value or profit potential from needed products/services that can be classified into:
generics, commodities, distinctives, and criticals.
• Strategic sourcing process includes: develop strategic plan, understand spend,
evaluate supply sources, finalize sourcing strategy, implement sourcing strategy,
transition and onboarding, and collaborative process improvement.
• The concept of total landed cost is a highly-valuable element of the overall
procurement process.
• Advantages of e-sourcing and e-procurement include lower operating
costs, improved efficiency, and reduced prices.
• Four popular e-commerce model types are: “sell-side” vs. “buy-side;”
B2B and B2C; online marketplace; and online trading community.

125
Supply Chain
Management,
11e
Chapter 6: Producing Goods and
Services

126
Discussion Outline
• The role of production operations in supply chain management
• Operations strategy and planning
• Production execution decisions
• Production metrics
• Production technology

127
Role of Production
Operations in SCM

128
Role of Production Operations in SCM
Production Process Functionality
Source
Figure
6.1:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

129
Production Tradeoffs
1. Volume vs. Variety
2. Responsiveness vs. Efficiency
3. Production costs vs. Supply chain costs
4. In-house (Make) vs. Outsource (Buy)

130
Volume vs. Variety in Production Process Decisions
Economies of Scale
• Higher-volume production with lower
cost per unit of output
• Suitable in situations where
production processes have high fixed
costs and equipment.
Economies of Scope
• Low-volume production with flexible
capabilities of producing a wide
variety of products
• Important in markets characterized
by changing customer demand.

131
Responsiveness vs. Efficiency in Production Facility Decisions
Centralized vs. Regional
• Centralized production facilities provide operating cost and inventory efficiencies.
• Regional production facilities allow companies to be closer to customers and more responsive.
Large vs. Small
• Larger facilities with excess capacity provide the flexibility to respond to demand spikes.
• Smaller facilities that are better utilized are more cost efficient.
Product-focused vs. Process-focused
• Product-focused facilities performing many processes on a single product type are more responsive.
• Process-focused facilities concentrating on a few functions across multiple product types are more efficient
at its limited scope of activities.

132
Production Costs vs. Other Supply Chain Costs
Source
Figure
6.2:
Adapted
from
Bowersox,
Closs,
and
Cooper,
Supply
Chain
Logistics
Management,
4th
ed.
(Boston,
MA:
McGraw
Hill/Irwin,
2012).
Copyright
©
2012
by
McGraw-Hill.
Reproduced
by
permission
of
McGraw-Hill
Companies,
Inc.

133
In-house (Make) vs. Outsource (Buy)
In-house (Make)
• Internal production processes are
more directly visible.
• Internal processes are easier to
control from a quality standpoint.
Outsource (Buy)
• Lower product costs
• Free-up resources for other, more
strategic needs
BUT
• More difficult to maintain visibility and
synchronize activities.
• More difficult to control over quality,
intellectual property rights, and
customer relationships.

134
Operations Strategy and
Planning

135
Operations Strategy and Planning
Evolution of Production Strategies
Source
Figure
6.3:
Adapted
from
Manufacturing
Strategy:
An
Adaptive
Perspective
(Newton
Square,
PA:
SAP
AG,
2003).

136
Operations Strategy and Planning (1 of 2)
Production Strategy Challenges
Mass Production
• Limitation on producer’s responsive-ness
• Potential for the bullwhip effect
Lean Manufacturing
• Difficult to achieve economies of scale
• Require technological capabilities to achieve the supply chain visibility and
synchronization
• Increased risk of disruption

137
Operations Strategy and Planning (2 of 2)
Production Strategy Challenges
Flexible Manufacturing
• High capital investment
• System complexity
• Require skilled technician
• Require disciplined & high level of planning
Adaptive Manufacturing
• Require seamless transfer of knowledge and real-time information
Smart Manufacturing
• Require capabilities of a network with messaging standards
• Require analytical toolkit
• Require flexible automation

138
Operations Strategy and Planning
Production Planning
Source
Figure
6.4:
Adapted
from
Wisner,
Tan,
and
Leong,
Principles
of
Supply
Chain
Management:
A
Balanced
Approach,
5th
ed.
(Boston,
MA:
Cengage
Learning,
2019).
Reproduced
by
permission.

139
Production Execution
Decisions
Assembly Processes
Production Process Layout
Packaging

140
Production Execution Decisions
Assembly Processes
Assembly Processes
• Make-to-Stock (MTS)
• Make-to-Order (MTO)
− Assemble-to-Order (ATO)
− Build-to-Order (BTO)
− Engineer-to-Order (ETO)

141
Comparison of Make-to-Order (MTO) Options
ATO BTO ETO
Level of customization Limited Moderate Total
Cost of finished goods Moderate High Very high
Order fulfillment speed Days to weeks Weeks to months Month to years
Production process
complexity
Moderate High Extreme
Example products
Personal computers
Automobiles
Computer servers
Private jets
Stadium JumboTron
Nuclear power plant
Source
Table
6.2:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

142
Production Execution Decisions (1 of 2)
Production process layout involves the arrangement of machines, storage areas, and other
resources within the four walls of a manufacturing or an assembly facility. The layout is
influenced by a number of factors.
• The production strategy and assembly process employed
• Product characteristics (weight, fragility, size)
• Demand characteristics (volume & variability)
• Service commitments
• Production mixes
• Facility costs

143
Production Execution Decisions (2 of 2)
Production process layouts generally fit into a spectrum of work flow that moves from
projects to continuous processes.
Source
Figure
6.5:
Adapted
from
Jacobs
and
Chase,
Operation
and
Supply
Chain
Management
15th
ed.
(Boston,
MA:
McGraw-
Hill
Irwin,
2018).
Reprinted
with
permission
of
McGraw-Hill
Companies,
Inc.

144
Packaging
Well-designed packaging can: (1) Facilitate efficient handling and shipping of the finished
goods; (2) Improve labor and facility efficiency (space & equipment utilization); and (3)
Provide another level of product differentiation sought by the customer.
Key Considerations:
• Ease of handling (materials handling & transportation)
• Protection of goods in the package
• Compatibility with customers’ materials-handling equipment
• Information provision to production & logistics personnel
• Sustainability

145
Production Metrics

146
Establishing Production Metrics
Pursue Goals
• Align metrics with corporate
objectives
• Limit the number of metrics used to 5
or 6 per function
• Measure performance of individual
activities
Avoid Mistakes
• Using KPIs that are too narrow.
• Encouraging wrong outcomes.
• Focusing on issues that are not key
priorities.

147
Key Groups of Production Metrics
1. Customer experience and responsiveness
2. Quality
3. Efficiency
4. Inventory
5. Compliance
6. Maintenance
7. Flexibility and innovation
8. Cost and profitability

148
Production Technology

149
Manufacturing Execution System
Technology that connects, monitors, and controls complex
manufacturing systems and data flows on the factory floor.
Core Functionality:
• Data collection & acquisition
• Scheduling
• Staff controls
• Resource management
• Production tracking & dispatch
• Product traceability & genealogy
• Quality management
• Process management
• Performance analysis
• Document management
• Maintenance management

150
Manufacturing Execution System Benefits
Initial 3-12 months
• Efficiency gains
• Cost reductions
• Quality
improvements
Next 12-36 months
• Process
improvements
• Cycle time & work
flow compression
• Inventory carrying
cost reductions
36 months +
• New product
development
acceleration
• Indirect labor cost
reduction
• Agility & asset
utilization
improvements

151
Summary
• Process functionality can create a competitive advantage such as: low cost, high quality, fast
delivery speed, high delivery reliability, ability to cope with demand change, and the flexibility to
offer variety.
• Production strategies have advanced from forecast-driven mass production to demand-driven,
lean, flexible, adaptive, and smart manufacturing approaches.
• Most manufacturers use a combination of make-to-stock and make-to-order (including assemble-
to-order, build-to-order, and engineer-to-order) production methods to satisfy demand for their
products.
• Tradeoffs made regarding production are: volume vs. variety, responsiveness vs. efficiency, in-
house vs. outsource, and production costs vs. other supply chain costs and services.
• Critical production KPIs address total cost, total cycle time, delivery performance,
quality, and safety.

152
Supply Chain
Management,
11e
Chapter 7: Demand Management

153
Discussion Outline
• Essence and importance of demand management
• Balancing supply and demand
• Demand forecasting
• Sales and Operations Planning (S&OP)
• Collaborative Planning, Forecasting, and Replenishment (CPFR)

154
Demand Management
The Essence of Demand Management
• To estimate and manage customer demand and use this information to make
operating decisions.
• To further ability of firms throughout the supply chain to collaborate on activities
related to the flow of products, services, information, and capital.
Desired end result: Greater value for the end user or consumer

155
Demand Management (1 of 4)
Importance of Demand Management
Common Problems in Demand Management
• Lack of coordination between departments
• Too much emphasis placed on forecasts of demand, with less attention on the
collaborative efforts and plans needed to be developed from the forecasts
• Non-strategic uses of demand information

156
Effective demand management unifies channel members with the common goals of
satisfying customers and solving customer problems.
1. Gather & analyze knowledge about consumers, their problems, and their unmet needs.
2. Identify partners to perform functions needed in demand chain.
3. Move functions to the channel member that can perform them most effectively and efficiently.
4. Share with other supply chain members knowledge about customers, technology, and logistics
challenges and opportunities.
5. Developing products and services that solve customers’ problems.
6. Develop & execute best methods to deliver products & services to consumers in the desired format.

157
Effective demand management supports business strategy.
STRATEGY EXAMPLES OF HOW TO USE DEMAND MANAGEMENT
Growth strategy • Perform “what if” analyses on total industry volume to gauge how specific mergers
and acquisitions might leverage market share.
• Analyze industry supply/demand to predict changes in product pricing structure
and market economics based on mergers and acquisitions.
• Build staffing models for merged company using demand data.
Portfolio strategy • Manage maturity of products in current portfolio to optimally time overlapping life
cycles.
• Create new product development/introduction plans based on life cycle.
• Balance combination of demand and risk for consistent “cash cows” with demand
for new products.
• Ensure diversification of product portfolio through demand forecasts.
Source
Table
7.1:
Jim
R.
Langabeer
II,
“Aligning
Demand
Management
with
Human
Strategy,”
Supply
Chain
Management
Review
(May/June
2000):
58.
Copyright
©
2000
Reed
Business
Information,
a
division
of
Reed
Elsevier.
Reproduced
by
permission.

158
Effective demand management supports business strategy.
STRATEGY EXAMPLES OF HOW TO USE DEMAND MANAGEMENT
Positioning
strategy
• Manage product sales through each channel based on demand and product
economics.
• Manage positioning of finished goods at appropriate distribution centers, to reduce
working capital, based on demand.
• Define capability to supply for each channel.
Investment
strategy
• Manage capital investments, marketing expenditures, and research and
development budgets based on demand forecasts of potential products and
maturity of current products.
• Determine whether to add manufacturing capacity.
Source
Table
7.1:
Jim
R.
Langabeer
II,
“Aligning
Demand
Management
with
Human
Strategy,”
Supply
Chain
Management
Review
(May/June
2000):
58.
Copyright
©
2000
Reed
Business
Information,
a
division
of
Reed
Elsevier.
Reproduced
by
permission.

159
Balancing Supply and
Demand

160
Balancing Supply and Demand
Problem of Supply-Demand Misalignment
Source
Figure
7.1:
Accenture,
Stanford
University,
and
Northwestern
University,
Customer-Driven
Demand
Networks:
Unlocking
Hidden
Value
in
the
Personal
Computer
Supply
Chain
(Accenture,
1997):
15.

161
Balancing Supply and Demand
Supply-Demand Balancing Methods
Some combinations of supply-demand balancing methods are used,
depending on the nature of the product, the cost of stocking out, and the
organization’s ability to properly forecast customer demand.
External Balancing Methods
Change the manner in which
the customer orders:
• Price
• Lead time
Internal Balancing Methods
Manage gap using internal
processes:
• Inventory
• Production flexibility

162
Demand Forecasting
Types of Forecast Error Measures
Common Forecasting Techniques

163
Demand Forecasting
Demand forecasting is a major component of demand management.
Forecasts serve as a plan for both marketing and operations to set goals
and develop execution strategies.
Two Types of Demand: Most forecasting techniques focus on independent
demand.
1. Independent Demand
− The demand for the primary item, known as base demand
2. Dependent Demand
− The demand directly influenced by demand for independent item

164
Demand Forecasting
Factors Affecting Demand
All demand is subject to certain fluctuations.
Random fluctuation
• A development that cannot be anticipated and is usually the cause to hold
safety stocks to avoid stockouts.
Trend fluctuation
• Gradual increase or decrease in demand over time for an organization.
Seasonal fluctuation
• Seasonal patterns that will normally repeat themselves during a year for most
organizations.

165
Demand Forecasting (1 of 2)
CFE
• Cumulative sum of forecast errors (CFE) calculates the total forecast error for a set of data, taking into
consideration both negative and positive errors.
CFE =
𝑛
𝑡−1
𝑒𝑡
MSE
• Mean squared error (MSE) squares each period error so the negative and positive errors do not cancel
each other out.
MSE =
𝐸𝑡
2
𝑛

166
MAD
• Mean absolute deviation (MAD) takes absolute value of each error, so the negative and positive signs are
removed.
MAD =
| 𝐸𝑡|
𝑛
MAPE
MAPE =
( |𝐸𝑡 | 𝐷𝑡)100
𝑛
TRACK Signal
• Tracking signal can be used to measure forecast error, especially good at identifying if a “bias” exists in the
forecast errors.
CFE/MAD

167
All statistical techniques used to generate forecasts require accurate data and rely on the assumption
that the future will repeat the past. The key to good forecasting is to minimize forecast error by utilizing
a forecasting technique that best fits the nature of the data. Three common forecasting techniques are:
Simple moving average
• Makes forecasts based on
recent demand history and
allows for the removal of
random effects.
• Pros: quick and easy to
use
• Cons: old demand
dropped quickly; not
accommodate seasonal,
trend, or business cycle
influences
Weighted moving average
• Assigns a weight to each
previous period with higher
weights usually given to
more recent demand.
• Pros: allows emphasis on
more recent demand as a
predictor of future demand.
• Cons: not easily
accommodate seasonal
demand patterns
Exponential smoothing
• Pros: simplicity and limited
requirements for data,
good for relatively constant
demand
• Cons: forecasts will lag
actual demand; Not
appropriate for highly
seasonal demand patterns
or patterns with trends

168
Forecast Accuracy Summary
(1)
BIAS (CFE)
(2)
MAD
(3)
MSE
(4)
MAPE
(5)
TRACKING
SIGNAL
Simple moving average + 3,087 731.08 862,696.75 7.43 4.2
Weighted moving average + 1,274 886.2 1,169,415.5 9.03 1.44
Experimental Smoothing - 5,554 520.67 403,033.5 5.52 - 10.67
Source Table 7.6: Robert A. Novack, Ph.D. Used with permission.

169
Sales and Operations
Planning (S&OP)

170
Sales and Operations Planning (S&OP)
Arriving at Internal Consensus Forecast
It is necessary for an organization to arrive at a forecast internally that all
functional areas agree upon and can execute. A process that can be used to
arrive at this consensus forecast is called sales and operations planning (S&OP).
Preliminary demand forecast
Marketing forecast
Financial forecast
Distribution forecast
Manufacturing forecast
S&OP
Internal
Consensus
Forecast

171
Sales and Operations Planning (S&OP)
A Five-Step Process
Source
Figure
7.2:
Thomas
F.
Wallace,
Sales
and
Operations
Planning:
The
How-To
Book,
(Cincinnati,
OH:
T.
F.
Wallace
and
Company,
2000):
43.
Copyright
©
2000
by
Thomas
F.
Wallace.
Reproduced
by
permission.

172
Collaborative Planning,
Forecasting, and
Replenishment (CPFR)

173
Collaborative Planning, Forecasting, and
Replenishment (CPFR)
Arriving at Inter-Organizational Consensus Forecast
Trading partners (retailers,
distributors, and
manufacturers) use
available Internet-based
technologies to collaborate
on operational planning,
allowing them to agree to a
single forecast for an item
where each partner
translates this forecast into
a single execution plan.
Source Figure 7.3: Larry Smith, “West Marine: A CPFR Success Story,” Supply Chain Management Review (March
2006): 31. Copyright © 2006 Reed Business Information, a division of Reed Elsevier. Reproduced by permission.

174
Summary
• Demand management involves “focused efforts to estimate and manage customers’
demand, with the intention of using this information to shape operating decisions.”
• Three common techniques for demand forecast are simple moving average, weighted
moving average, and exponential smoothing. Using a forecasting technique that best fits
the nature of the data is key to minimize forecast error.
• Many forecasts are made across internal functions and throughout the supply chain.
− The S&OP process involves participation from sales, operations, and finance to
arrive at an internal consensus forecast.
− CPFR is a method to allow trading partners in the supply chain to
collaboratively develop and agree upon a forecast of sales to enable
integrated operational planning and execution.

175
Supply Chain
Management,
11e
Chapter 8: Order Management and
Customer Service

176
Discussion Outline
• Order management and customer service: Concept and
relationships
• Order management
• Customer Service
• Order management influences on customer service
• Service recovery

177
Order Management Concept
Two Phases of Order Management
Phase 1: Influence and Order
• Organization attempts to change the manner by which its customers place
orders.
Phase 2: Execute the Order
• Order receipt
− Electronically vs. manually
• Order fulfillment
− Inventory policy; number & location of warehouses
• Order shipments
− Transport mode choice

178
Customer Service Concept
Customer service is anything that touches the customer, including all activities
that impact information flow, product flow, and cash flow between the organization
and its customers.
• Customer service as a philosophy
− Elevates customer service as an organization-wide commitment.
• Customer service as performance measures
− Emphasizes customer service as specific performance measures.
• Customer service as an activity
− Treats customer service as a particular task that an organization must
perform.

179
Relationship between Order Management and
Customer Service
Source
Figure
8.1:
Robert
A.
Novack,
Ph.D.
Used
with
permission.

180
Order Management
Influencing the Order: Customer Relationship Management (CRM)
Executing the Order: Order Management & Order Fulfillment

181
Order Management: Influencing Order (1 of 5)
Customer Relationship Management
The concept behind customer relationship management (CRM) is simple: Align
the supplier’s resources with its customers in a manner that increases both
customer satisfaction and supplier profits.
How? How much? What? When?
CRM
Maximize the efficiencies of the shipping organization’s logistics network

182
Four basic steps in the implementation of the CRM process
Step 1: Segment the Customer Base by Profitability
• Use techniques such as activity-based costing and cost-to-serve (CTS) model
Step 2: Identify the Product/Service Package for Each Customer Segment
• Determine what each customer segment values in its relationship with the supplier based on
feedback from customers and sales representatives
Step 3: Develop and Execute the Best Processes
• Deliver on customer expectations determined and set in Step 2
Step 4: Measure Performance and Continuously Improve
• Determining if (1) the different customer segments are satisfied and (2) the supplier’s overall
profitability has improved.

183
Product/Service Package Examples: Option 1 (most commonly used)
Offer the same product/service offering to each customer segment, while varying the product quality or
service levels. Pro: Easy for the supplier to manage. Con: Assumes that all customer segments value the
same types of supplier offerings.
PRODUCT/SERVICE
OFFERING
CUSTOMER
SEGMENT A
CUSTOMER
SEGMENT B
CUSTOMER
SEGMENT C
Product quality (%
defects)
Less than 1% 5%–10% 10%–15%
Order fill 98% 92% 88%
Lead time 3 days 7 days 14 days
Delivery time Within 1 hour of request On day requested During week requested
Payment terms 4/10 net 30 3/10 net 30 2/10 net 30
Customer service support Dedicated rep Next available rep Through Web site
Source
Table
8.1:
Robert
A.
Novack,
Ph.D.
Used
with
permission.

184
Product/Service Package Examples: Option 2
Vary the service offerings for each customer segment. Pro: Meet the needs of each segment.
Con: Difficult for the supplier to manage.
CUSTOMER SEGMENT A
Product quality (% defects) Less than 1%
Order fill 98%
Lead time 3 days
Delivery time Within 1 hour of request
Payment terms 4/10 net 30
Customer service support Dedicated rep

185
Product/Service Package Examples: Option 2
Vary the service offerings for each customer segment. Pro: Meet the needs of each segment.
Con: Difficult for the supplier to manage.
CUSTOMER SEGMENT B
Product quality (% defects) 5%–10%
Credit hold Less than 48 hours
Return policy Up to 10 days after delivery
CUSTOMER SEGMENT C
Order fill 88%
Ordering process Through Web site

9780357132302_Langley11e_ch1_LEAP.pptx

9780357132302_Langley11e_ch1_LEAP.pptx

Recommended

Recommended

More Related Content

Similar to 9780357132302_Langley11e_ch1_LEAP.pptx

Similar to 9780357132302_Langley11e_ch1_LEAP.pptx (20)

More from MattMarino13

More from MattMarino13 (20)

Recently uploaded

Recently uploaded (20)

9780357132302_Langley11e_ch1_LEAP.pptx

Editor's Notes