1. Supply Chain
Management
A LOGISTICS PERSPECTIVE
9e
JOHN J. COYLE
The Pennsylvania State University
•
C. JOHN LANGLEY, JR.
The Pennsylvania State University
•
ROBERT A. NOVACK
The Pennsylvania State University
•
BRIAN J. GIBSON
Auburn University
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain
• United Kingdom • United States
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Supply Chain Management: A Logistics
3. Perspective, Ninth Edition
John J. Coyle, C. John Langley Jr.,
Robert A. Novack, Brian J. Gibson
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A very special note of thanks and appreciation is due to our
families. John Coyle would
like to thank his wife Barbara, their children John and Susan,
and their grandchildren
Lauren, Matthew, Elizabeth Kate, Emily, Ben, Cathryn, and
Zachary. John Langley
would like to thank his wife Anne, their children Sarah and
Mercer, and their
grandchildren Bryson and Molly. Bob Novack would like to
thank his wife Judith
and their children Tom, Elizabeth, and Alex. Brian Gibson
would like to thank his
wife Marcia and son Andy.
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Brief Contents
Preface xxii
About the Authors xxvi
Part I
Chapter 1 Supply Chain Management: An Overview 3
Chapter 2 Role of Logistics in Supply Chains 33
Chapter 3 Global Dimensions of Supply Chains 75
Part II
Chapter 4 Supply Chain Relationships 107
Chapter 5 Supply Chain Performance Measurement
and Financial Analysis 137
Chapter 6 Supply Chain Technology—Managing
Information Flows 179
Part III
Chapter 7 Demand Management 215
Chapter 8 Order Management and Customer
Service 255
Chapter 9 Managing Inventory in the Supply Chain 311
Chapter 10 Transportation—Managing the Flow of the
Supply Chain 395
8. Chapter 11 Distribution—Managing Fulfillment
Operations 459
Part IV
Chapter 12 Supply Chain Network Analysis and
Design 509
Chapter 13 Sourcing Materials and Services 549
Chapter 14 Operations—Producing Goods and
Services 583
Chapter 15 Supply Chain Sustainability 619
Part V
Chapter 16 Strategic Challenges and Change for Supply
Chains 645
Subject Index 673
Name Index 687
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Contents
Preface xxii
About the Authors xxvi
Part I
Chapter 1 Supply Chain Management: An Overview 3
SUPPLY CHAIN PROFILE: SAB Distribution: Another Sequel
4
Introduction 5
What Forces Are Driving the Rate of Change 7
Globalization 7
Technology 10
Organizational Consolidation and Power Shifts 10
The Empowered Consumer 11
Government Policy and Regulation 12
ON THE LINE: Malt-O-Meal Company: Going National 14
The Supply Chain Concept 15
Development of the Concept 15
10. Major Supply Chain Issues 24
Supply Chain Networks 24
Complexity 24
Inventory Deployment 25
Information 25
Cost and Value 25
ON THE LINE: Auto Parts Distributor LKQ Discovers the Key
to Effective
Carrier Management 26
Organizational Relationships 26
Performance Measurement 27
Technology 27
Transportation Management 27
SUPPLY CHAIN TECHNOLOGY: Trends in Retail Distribution
28
Supply Chain Security 28
Summary 29
Study Questions 29
Notes 30
Case 1.1: Central Transport, Inc. 31
Chapter 2 Role of Logistics in Supply Chains 33
SUPPLY CHAIN PROFILE: Jordano Foods: The Sequel 34
Introduction 35
What Is Logistics? 37
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Value-Added Roles of Logistics 39
Form Utility 39
Place Utility 40
Time Utility 40
Quantity Utility 40
Possession Utility 40
ON THE LINE: Building India: Transforming the Nation’s
Logistics
Infrastructure 41
Logistics Activities 41
Transportation 42
Storage 42
Packaging 43
Materials Handling 43
Inventory Control 43
Order Fulfillment 44
Forecasting 44
Production Planning 44
Procurement 44
Customer Service 45
Facility Location 45
Other Activities 45
Logistics in the Economy: A Macro Perspective 45
ON THE LINE: Ce De Candy’s Sweet Transformation 46
12. Logistics in the Firm: The Micro Dimension 49
Logistics Interfaces with Manufacturing or Operations 49
Logistics Interfaces with Marketing 50
Logistics Interfaces with Other Areas 52
Logistics in the Firm: Factors Affecting the Cost and
Importance of Logistics 53
Competitive Relationships 53
Product Relationships 56
Spatial Relationships 59
Techniques of Logistics System Analysis 60
Short-Run/Static Analysis 60
Long-Run/Dynamic Analysis 61
Approaches to Analyzing Logistics Systems 63
Materials Management versus Physical Distribution 63
Cost Centers 64
Nodes Versus Links 65
Logistics Channels 65
SUPPLY CHAIN TECHNOLOGY: Mission Foods’ Wireless
Evolution 68
Logistics and Systems Analysis 68
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Summary 70
Study Questions 70
Notes 71
Case 2.1: Senco Electronics Company: A Sequel 72
Case 2.2: Pete’s 74
Chapter 3 Global Dimensions of Supply Chains 75
SUPPLY CHAIN PROFILE: Red Fish–Blue Fish, LLP: A Sequel
76
Introduction 77
Supply Chains in a Global Economy 79
ON THE LINE: More Deliveries, Same Cost 80
The Scope and Magnitude of Global Business 81
Global Markets and Strategy 83
ON THE LINE: Serving Emerging Markets: A Survival Guide
84
ON THE LINE: Asia’s Widening Middle 86
Supply Chain Security: A Balancing Act 87
SUPPLY CHAIN TECHNOLOGY: Tracing through the Supply
Chain 88
Ports 89
North American Free Trade Agreement 90
Maquiladora Operations 91
Asian Emergence 92
New Directions 93
Global Transportation Options 93
Ocean 93
14. Air 95
Motor 96
Rail 96
Global Intermediaries 96
Foreign Freight Forwarders 96
Airfreight Forwarders 97
Non-Vessel-Operating Common Carriers 97
Export Management Companies 97
Export Trading Companies 98
Customs House Brokers 98
Storage Facilities and Packaging 99
Storage Facilities 99
Packaging 99
Summary 100
Study Questions 100
Notes 101
Case 3.1: Red Fish–Blue Fish, LLP: Another Sequel 103
Contents ix
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Part II
15. Chapter 4 Supply Chain Relationships 107
SUPPLY CHAIN PROFILE: Client Intimacy: A New Mission
for Supply Chain
Managers? 108
Introduction 108
Logistics Relationships 109
Types of Relationships 109
Intensity of Involvement 109
Model for Developing and Implementing Successful
Supply Chain Relationships 111
Need for Collaborative Relationships 115
Third-Party Logistics—Industry Overview 117
ON THE LINE: Collaborative Distribution Can Show You the
Path to Lower
Supply Chain Costs and Carbon Emissions 117
Definition of Third-Party Logistics 119
Types of 3PL Providers 119
3PL Market Size and Scope 121
Third-Party Logistics Research Study—Industry Details 123
Profile of Logistics Outsourcing Activities 123
Strategic Role of Information Technology 124
SUPPLY CHAIN TECHNOLOGY: Technology a Key Driver of
3PL
Competitiveness 125
Management and Relationship Issues 127
Customer Value Framework 129
A Strategic View of Logistics and the Role of 3PLs 130
16. Summary 132
Study Questions 132
Notes 133
Case 4.1: CoLinx, LLC 134
Case 4.2: Ocean Spray Cranberries, Inc. 136
Chapter 5 Supply Chain Performance Measurement and
Financial
Analysis 137
SUPPLY CHAIN PROFILE: CLGN Book Distributors.com 138
Introduction 140
Dimensions of Supply Chain Performance Metrics 140
Developing Supply Chain Performance Metrics 145
Performance Categories 146
The Supply Chain–Finance Connection 151
ON THE LINE: Profit-Focused Supply Chain Planning 152
The Revenue–Cost Savings Connection 153
The Supply Chain Financial Impact 154
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Financial Statements 158
17. ON THE LINE: Leased Assets to Go Back on Your
Books? 159
Financial Impact of Supply Chain Decisions 160
Supply Chain Service Financial Implications 164
Summary 172
Study Questions 172
Notes 174
Case 5.1: CPDW 175
Case 5.2: Paper2Go.com 176
Appendix 5A Financial Terms 177
Chapter 6 Supply Chain Technology—Managing Information
Flows 179
SUPPLY CHAIN PROFILE: The Precision Imperative 180
Introduction 181
The Role of Information in the Supply Chain 182
Information Requirements 183
Information Technology Capabilities 184
Information Technology Challenges 185
A Framework for Managing Supply Chain Information 186
Foundation Elements 186
Key Requirements 188
Differentiating Capabilities 189
SCM Software 190
Planning 191
Execution 192
Event Management 193
Business Intelligence 193
Related Tools 194
Enterprise Resource Planning 195
18. Supply Chain Technology Implementation 195
Needs Assessment 196
Software Selection 196
ON THE LINE: SaaS Capabilities Boost Transportation
Software
Sales 199
Technical Issues 199
Asking the Right Questions 201
Supply Chain Technology Innovations 202
Radio-Frequency Identification (RFID) 202
Cloud Computing 203
Mobile Computing 204
SUPPLY CHAIN TECHNOLOGY: Smartphones and SCM 204
3PLs as Technology Providers 205
Contents xi
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Summary 207
Study Questions 207
Notes 208
19. Case 6.1: Bazinga Licensing Ltd. 210
Case 6.2: Catnap Pet Products 211
Part III
Chapter 7 Demand Management 215
SUPPLY CHAIN PROFILE: LuAnn’s Chocolates 216
Introduction 217
Demand Management 217
Balancing Supply and Demand 220
Traditional Forecasting 221
Factors Affecting Demand 221
Simple Moving Average 222
Weighted Moving Average 223
Exponential Smoothing 225
Adjusting Exponential Smoothing for Trend 225
Seasonal Influences on Forecasts 228
Forecast Errors 229
SUPPLY CHAIN TECHNOLOGY: Delivering APS Value in Six
Months 231
Sales and Operations Planning 234
ON THE LINE: BASF Credits S&OP as a Cornerstone of
Success 236
Collaborative Planning, Forecasting, and
Replenishment 237
Fulfillment Models 240
Channels of Distribution 240
Direct-to-Customer (DTC) Fulfillment 242
Summary 249
20. Study Questions 249
Notes 250
Case 7.1: Tires for You, Inc. 251
Case 7.2: ChipSupreme 253
Chapter 8 Order Management and Customer Service 255
SUPPLY CHAIN PROFILE: Tom’s Food Wholesalers 256
Introduction 256
Influencing the Order—Customer Relationship
Management 258
Step 1: Segment the Customer Base by Profitability 258
Step 2: Identify the Product/Service Package for Each
Customer Segment 259
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Step 3: Develop and Execute the Best Processes 259
Step 4: Measure Performance and Continuously
Improve 260
Activity-Based Costing and Customer Profitability 261
21. Executing the Order—Order Management and Order
Fulfillment 267
Order-to-Cash (OTC) and Replenishment Cycles 268
Length and Variability of the Order-to-Cash Cycle 272
E-Commerce Order Fulfillment Strategies 273
SUPPLY CHAIN TECHNOLOGY: Get Ready to go Mobile 274
Customer Service 275
The Logistics/Marketing Interface 275
Defining Customer Service 277
Elements of Customer Service 277
Performance Measures for Customer Service 281
Expected Cost of Stockouts 283
Back Orders 284
Lost Sales 284
Lost Customer 285
Determining the Expected Cost of Stockouts 285
Order Management Influences on Customer Service 286
Product Availability 286
ON THE LINE: Plus-Sized Customer Service 288
Financial Impact 290
Order Cycle Time 292
Logistics Operations Responsiveness 295
Logistics System Information 298
Postsale Logistics Support 300
SUPPLY CHAIN TECHNOLOGY: Connecting with Big
Customers 302
Service Recovery 303
Summary 305
22. Study Questions 305
Notes 306
Case 8.1: Telco Corporation 307
Case 8.2: The Bullpen 309
Chapter 9 Managing Inventory in the Supply Chain 311
SUPPLY CHAIN PROFILE: Micros and More 312
Introduction 313
Inventory in the U.S. Economy 314
Inventory in the Firm: Rationale for Inventory 315
Batching Economies or Cycle Stocks 317
Uncertainty and Safety Stocks 318
Time/In-Transit and Work-in-Process Stocks 318
Contents xiii
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SUPPLY CHAIN TECHNOLOGY: Logistics Provider Prescribes
Inventory
Management 319
Seasonal Stocks 321
Anticipatory Stocks 322
Summary of Inventory Accumulation 322
23. The Importance of Inventory in Other Functional
Areas 322
Inventory Costs 323
Inventory Carrying Cost 323
Ordering and Setup Cost 328
Carrying Cost Versus Ordering Cost 330
Expected Stockout Cost 331
In-Transit Inventory Carrying Cost 335
Fundamental Approaches to Managing Inventory 336
Key Differences Among Approaches to Managing
Inventory 337
Principal Approaches and Techniques for Inventory
Management 339
Fixed Order Quantity Approach (Condition of Certainty)
339
Fixed Order Quantity Approach (Condition of
Uncertainty) 348
Fixed Order Interval Approach 356
Summary and Evaluation of EOQ Approaches to Inventory
Management 357
Additional Approaches to Inventory Management 357
Just-in-Time Approach 357
ON THE LINE: Inventory Optimization: Show Me the Money
358
Materials Requirements Planning 361
Distribution Requirements Planning 366
Vendor-Managed Inventory 369
24. Classifying Inventory 370
ABC Analysis 371
Quadrant Model 373
Inventory at Multiple Locations—The Square-Root
Rule 374
Summary 377
Study Questions 378
Notes 378
Case 9.1: MAQ Corporation 380
Case 9.2: Baseball Card Emporium 381
Appendix 9A Special Applications of the EOQ Approach 382
Adjusting the Simple EOQ Model for Modal Choice
Decisions—The Cost of Inventory in Transit 382
Adjusting the Simple EOQ Model for Volume
Transportation Rates 385
xiv Contents
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Adjusting the Simple EOQ Model for Private Carriage 388
25. Adjusting the Simple EOQ Model for the Establishment and
Application of In-Excess Rates 389
Summary 393
Chapter 10 Transportation—Managing the Flow of the Supply
Chain 395
SUPPLY CHAIN PROFILE: Economic Recovery and
Transportation
Demand 396
Introduction 397
The Role of Transportation in Supply Chain Management
(SCM) 397
Challenges to Carrying out This Role 398
Modes of Transportation 401
Motor Carriers 401
Railroads 404
Air Carriers 405
Water Carriers 407
ON THE LINE: Piracy: A Modern Day Problem 409
Pipelines 409
Intermodal Transportation 411
Transportation Planning and Strategy 413
Functional Control of Transportation 414
Terms of Sale 415
Decision to Outsource Transportation 416
Modal Selection 418
Carrier Selection 423
Rate Negotiations 424
Transportation Execution and Control 424
26. Shipment Preparation 425
Freight Documentation 426
Maintain In-Transit Visibility 428
Monitor Service Quality 429
Transportation Metrics 429
Transportation Technology 432
SUPPLY CHAIN SUSTAINABILITY: Reducing Empty Miles
433
Transportation Management Systems 433
SUPPLY CHAIN TECHNOLOGY: TMS Shines Light on
Inbound Supply
Chain 435
Summary 438
Study Questions 438
Notes 439
Case 10.1: Supreme Sound Explosion 442
Case 10.2: Bob’s Custom BBQs 444
Contents xv
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Appendix 10A Federal Regulation of the Transportation
27. Industry 446
Economic Regulation 446
Safety Regulation 449
Summary 451
Notes 451
Appendix 10B Basis of Transportation Rates 452
Cost of Service 452
Value of Service 453
Distance 454
Weight of Shipment 455
Commodity Characteristics 455
Level of Service 456
Summary 457
Notes 457
Chapter 11 Distribution—Managing Fulfillment Operations 459
SUPPLY CHAIN PROFILE: Kroger: Grocery Giant Changes the
Game 460
Introduction 461
The Role of Distribution Operations in SCM 462
Distribution Facility Functionality 462
Distribution Tradeoffs 464
Distribution Challenges 467
Distribution Planning and Strategy 467
Capability Requirements 468
Network Design Issues 470
Facility Considerations 474
SUPPLY CHAIN TECHNOLOGY: Walmart’s Environmentally
Friendly
DCs 475
28. Distribution Execution 478
Product-Handling Functions 478
ON THE LINE: Goods-to-Person Puts a Different Spin on Order
Picking 480
Support Functions 483
Distribution Metrics 484
Customer-Facing Measures 484
Internal Measures 485
Distribution Technology 486
Warehouse Management Systems 487
SUPPLY CHAIN TECHNOLOGY: Moving Coca-Cola by Voice
488
Automatic Identification Tools 490
Summary 492
Study Questions 493
Notes 493
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29. Case 11.1: BathKing Industries 495
Case 11.2: Tele-Distributors Incorporated 497
Appendix Materials Handling 499
Appendix 11A Materials Handling 499
Objectives and Principles of Materials Handling 499
Materials-Handling Equipment 500
Summary 506
Notes 506
Part IV
Chapter 12 Supply Chain Network Analysis and Design 509
SUPPLY CHAIN PROFILE: Volkswagen Opens U.S. Production
Facility in
Chattanooga, Tennessee 510
Introduction 511
The Need for Long-Range Planning 512
The Strategic Importance of Logistics/Supply Chain
Network Design 512
Changing Customer Service Requirements 513
Shifting Locations of Customer and/or Supply
Markets 513
Change in Corporate Ownership 514
Cost Pressures 514
Competitive Capabilities 515
Corporate Organizational Change 515
Logistics/Supply Chain Network Design 515
Step 1: Define the Logistics/Supply Chain Network Design
Process 516
30. Step 2: Perform a Logistics/Supply Chain Audit 516
Step 3: Examine the Logistics/Supply Chain Network
Alternatives 517
Step 4: Conduct a Facility Location Analysis 518
Step 5: Make Decisions Regarding Network and Facility
Location 518
Step 6: Develop an Implementation Plan 519
Major Locational Determinants 519
Key Factors for Consideration 520
ON THE LINE: Global Sourcing and Manufacturing Compel
Companies to
Rethink U.S. Distribution Networks 522
Current Trends Governing Site Selection 524
Modeling Approaches 524
Optimization Models 525
Simulation Models 528
Heuristic Models 529
Potential Supply Chain Modeling Pitfalls to Avoid 530
Contents xvii
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31. SUPPLY CHAIN TECHNOLOGY: Supply Chain Network
Design in an Era of
Dynamic Costs 531
Example of a Heuristic Modeling Approach: The Grid
Technique 532
Transportation Pragmatics 539
Summary 543
Study Questions 543
Notes 545
Case 12.1: Johnson & Johnson 546
Case 12.2: Fireside Tire Company 547
Chapter 13 Sourcing Materials and Services 549
SUPPLY CHAIN PROFILE: Achieving Greater Cost Savings for
Global
Manufacturers Through Merger of Supply Chain Service
Providers 550
Introduction 550
Types and Importance of Items and Service Purchased 552
Strategic Sourcing Methodology 555
Step 1: Project Planning and Kickoff 556
Step 2: Profile Spend 556
Step 3: Assess Supply Market 556
Step 4: Develop Sourcing Strategy 557
Step 5: Execute Sourcing Strategy 558
Step 6: Transition and Integrate 559
Step 7: Measure and Improve Performance 560
Managing Sourcing and Procurement Processes 560
Supplier Selection 561
32. ON THE LINE: IBM Achieves Success via Improved Purchasing
and
Strategic Sourcing 563
Supplier/Vendor Evaluation and Relationships 564
Certifications and Registrations 564
The Special Case of Procurement Price 565
Total Landed Cost (TLC) 569
e-Sourcing and e-Procurement 570
Which of These
Solution
s Should Be Considered 571
Advantages 572
Disadvantages 573
SUPPLY CHAIN TECHNOLOGY: Transportation Sourcing –
Innovative
Approaches to Bid Optimization 574
e-Commerce Models 574
Summary 576
Study Questions 576
Notes 577
Case 13.1: South Face 578
33. Case 13.2: Durable Vinyl Siding Corporation 580
xviii Contents
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