Emerging Trends in Management: BBA V Semester Core Course

EMERGING TRENDS
IN MANAGEMENT
BBA
V SEMESTER
CORE COURSE
(2011 Admission)
UNIVERSITY OF CALICUT
SCHOOL OF DISTANCE EDUCATION
CALICUT UNIVERSITY P.O. MALAPPURAM, KERALA, INDIA - 673 635
315
UNIVERSITY OF CALICUT
STUDY MATERIAL
BBA
(2011 Admission Onwards)
V SEMESTER
CORE COURSE
EMERGING TRENDS IN MANAGEMENT
Prepared by: Sri. Ratheesh.K.Nair,

Assistant Professor
Department of Commerce,
Govt College Madappally
Scruitnised by: Dr. K. Venugopalan,

Associate Professor
Department of Commerce,
Govt College Madappally
Layout & Settings: Computer Cell, SDE
©
Reserved
EMERGING TRENDS IN MANAGEMENT Page 2

UNIT CONTENT PAGE
I SUPPLY CHAIN MANAGEMENT 05 - 29
II LOGISTIC MANAGEMENT 30 - 55
III TOTAL QUALITY MANAGEMENT 56 - 74


UNIT I
SUPPLY CHAIN MANAGEMENT
[Supply Chain Management : Meaning and definition components/participants of

SC- concept of SCM- Objectives of SCM- SCM process : Customer relationship
management, customer service management, demand management, customer order
fulfillment, manufacturing flow management , Procurement management/supplier
relationship management, product development & Commercialization, returns management
– Factors driving the evolution of SCM – objectives of SCM – supply chain planning. ]
INTRODUCTION
The supply chain, which is also referred to as the logistics network, consists of
suppliers, manufacturing centres , warehouses, distribution centres, and retail outlets, as
well as raw materials, work-in-process inventory, and finished products that flow between
the facilities . In a typical supply chain, raw materials are procured and items are produced
at one or more factories, shipped to warehouses for intermediate storage, and then shipped
to retailers or customers. Consequently, to reduce cost and improve service levels, effective
supply chain strategies must take into account the interactions at the various levels in the
supply chain.
MEANING AND DEFINITION OF SUPPLY CHAIN MANAGEMENT:
The supply chain is the network of organizations that are involved through upstream
and downstream linkages in the different process and activities that produce value in the
form of products and services in the hands of ultimate customers. Supply chain
management is an external integration of interrelated functions of the firm with its channel
members, vendors, and all third-party logistics service providers who contribute in the flow
of goods (raw materials, semi-finished and finished products) and related information from
the point of inception to the point of consumption with efficiency.
It can be defined as:
“Supply chain management is a set of approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and
distributed at the right quantities, to the right locations, and at the right time, in order to
minimize system wide costs while satisfying service level requirements.”
This definition leads to several observations.
First, supply chain management takes into consideration every facility that has an
impact on cost and plays a role in making the product conform to customer requirements:
from supplier and manufacturing facilities through warehouses and distribution centres to
retailers and stores. Indeed, in some supply chain analysis, it is necessary to account for the

suppliers’ suppliers and the customers’ customers because they have an impact on supply
chain performance.
Second, the objective of supply chain management is to be efficient and cost-
effective across the entire system; total system wide costs, from transportation and
distribution to inventories of raw materials, work in process, and finished goods, are to be
minimized. Thus, the emphasis is not on simply minimizing transportation cost or reducing
inventories but, rather, on taking a systems approach to supply chain management.
Finally, because supply chain management revolves around efficient integration of
suppliers, manufacturers, warehouses, and stores, it encompasses the firm’s activities at
many levels, from the strategic level through the tactical to the operational level.
The definition of supply chain management developed and used by The Global
Supply Chain Forum: “Supply Chain Management is the integration of key business
processes from end user through original suppliers that provides products, services, and
information that add value for customers and other stakeholders.”
THE EVOLUTION OF SUPPLY CHAIN MANAGEMENT
In the 1980s, companies discovered new manufacturing technologies and strategies
that allowed them to reduce costs and better compete in different markets. Strategies such
as just-in-time manufacturing, lean manufacturing, total quality management etc. and vast
amounts of resources were invested in implementing these strategies. Unfortunately, this
huge investment typically includes many unnecessary cost components due to redundant
stock, inefficient transportation strategies, and other wasteful practices in the supply chain.
For instance, experts believe that the grocery industry, a notoriously low-margin
industry, can save about $30 billion, or 10 percent of its annual operating cost, by using
more effective supply chain strategies . To illustrate this issue, consider the following two
examples:
1. It takes a typical box of cereal more than three months to get from the factory to a
supermarket.
2. It takes a typical new car, on average, 15 days to travel from the factory to the
dealership. This lead time should be compared with the actual travel time, which is
no more than four to five days. Where transportation cost is by far the largest cost
component; inventory cost is slightly higher than half of the transportation costs.
Thus, in the 1990s many companies focused on strategies to reduce their costs as
well as those of their supply chain partners. For example Procter & Gamble estimates
that it saved retail customers $65 million in a recent 18-month supply chain initiative.
“According to Procter & Gamble, the essence of its approach lies in manufacturers and
suppliers working closely together . . . jointly creating business plans to eliminate the
source of wasteful practices across the entire supply chain”.
As the example suggests, an important building block in effective supply chain
strategies is strategic partnerships between suppliers and buyers, partnerships that can help
both parties reduce their costs. Indeed, manufacturers such as Procter & Gamble and
Kimberly-Clark and giant retailers like Wal-Mart have used strategic partnering as an
important element in their business strategies. Firms such as 3M, Eastman Kodak, Dow
Chemical, Time Warner, and General Motors turned over large portions of their logistics
operations to third party logistics providers (3PLS- service of external
agencies/organizations that could handle non value adding services). At the same time,
many supply chain partners engage in information sharing so that manufacturers are able to
use retailers’ up-to-date sales data to better predict demand and reduce lead times. This
information sharing also allows manufacturers to control the variability in supply chains
(known as the bullwhip effect) and by doing that reduce inventory and smooth out
production.PLE 1-5
Among the first companies to utilize real-time information was Milliken and
Company, a textile and chemicals company. Milliken worked with several clothing
suppliers and major department stores, all of which agreed to use data from the department
stores to “synchronize” their ordering and manufacturing plans. The lead time from order
receipt at Milliken’s textile plants to final clothing receipt at the department stores was
reduced from 18 weeks to 3 weeks.
The huge pressure during the 90s to reduce costs and increase profits pushed many
industrial manufacturers towards outsourcing; firm considered outsourcing everything from
the procurement function to production and manufacturing. Indeed, in the mid 90s there
was a significant increase in purchasing volume as a percentage of the typical firm’s total
sales. More recently, between 1998 and 2000, outsourcing in the electronic industry has
increased from 15 percent of all components to 40 percent.
Finally, in the late 90s (2000), the Internet and the related e-business models led to
expectations that many supply chain problems would be solved merely by using these new
technologies and business models. E-business strategies were supposed to reduce cost,
increase service level, and increase flexibility and, of course, increase profits, albeit
sometime in the future. In reality, these expectations frequently were not met, as many e-
businesses failed. In many cases, the downfall of some of the highest-profile Internet
businesses can be attributed to their logistics strategies.
The Internet introduced new channels and helped to enable the direct-to-consumer
business model. These new channels required many companies to learn new skills, and
added complexity to existing supply chains.
The landscape has changed in recent years. Industry recognized that trends,
including outsourcing, off shoring, lean manufacturing, and just-in-time that focus on
reducing manufacturing and supply chain costs significantly increase the level of risk in the
supply chain. As a result, over the past several years, progressive firm have started to focus
on strategies that find the right balance between cost reduction and risk management. A
number of approaches have been applied by industry to manage risk in their supply chains:
 Building redundancy into the supply chain so that if one portion fails, for example, a
fire at a warehouse or a closed port, the supply chain can still satisfy demand.
 Using information to better sense and respond to disruptive events.
 Incorporating flexibility into supply contracts to better match supply and demand.
 Improving supply chain processes by including risk assessment measures.

 Using service of fourth-party logistics (4PLS) - The 4PLS is a supply chain
integrator that assembles and manages the resources, capital, technology and
capabilities of its own organization and other organizations who provide
complementary service to design, build, and deliver a comprehensive supply chain
solution.(outsourcing entire supply chain process from a single organization)
The implementation of ERP systems(Enterprise Resource Planning), motivated in
many companies by year 2000 concerns, as well as new technology such as tools for
supplier performance assessments, have created opportunities to improve supply chain
resiliency and responsiveness. Similarly, advanced inventory planning systems are now
used to better position inventory in the supply chain, and to help firms better understand the
impact of product design alternatives on supply chain costs and risks, thus facilitating the
integration of the development chain and the supply chain.
The urgency of supply chain challenges has not diminished over the years with the
recent increase in supply chain costs. With complexity driven by globalization, high
transportation costs, poor infrastructure, weather-related disasters, and terrorist threats,
managing the supply chain has become even more challenging.
SUPPLY CHAIN COMPONENTS/PARTICIPANTS
Supply chain participants generally include:
1. Raw materials providers. Raw materials providers sell raw materials like steel, fuel or
other commodities to manufacturers who need these to run their operations or
incorporate into the goods that they manufacture. Raw materials providers also sell raw
materials to others in the supply chain for resale or consumption.
2. Manufacturers. Manufacturers manufacture or produce:
a) their own off-the-shelf products; or
b) Custom products based on third-party specifications.
The term manufacturer is also used to refer to a product manufacturer or producer that
outsources the actual manufacture or production of its products to a third party.
Manufacturers sell their goods to others in the supply chain for resale, but also sell
goods directly to end users for consumption.
3. Distributors. Distributors are typically middlemen that purchase goods from
manufacturers or other middlemen for their own account with the intention of reselling
them to others in the supply chain, for example:
a) Wholesalers
b) End users, for example, consumers or companies that need the goods.
Distributors also include manufacturers that distribute their own products. Distributors
typically bear inventory risk and the risk of loss regarding the goods, as well as credit
risk related to their customers.

4. Resellers. The meaning of "reseller" varies from industry to industry. A reseller may
refer to an entity that purchases goods from manufacturers or distributors with the
intention of reselling them to end users for consumption or incorporation into another
product. A reseller that resells goods to consumers is commonly referred to as a retailer.
Resellers typically bear inventory risk and the risk of loss regarding the goods, as well
as credit risk related to their customers.
5. Franchisers. Franchisers are owners of business systems and processes who grant one
or more third parties (franchisees) the right to use their business systems or processes, as
well as trademarks or trade names to produce and market goods (or services) according
to uniform specifications in exchange for a one-time franchise fee plus a percentage of
sales revenue (royalty).
6. Sales representatives. Sales representatives market, advertises, promote and solicit the
sale of the goods on behalf of the seller (such as a manufacturer or distributor) to the
seller's customers in the specified territory. Sales representatives do not take title to the
goods or bear inventory risk or risk of loss regarding the goods. They also do not bear
the credit risk of the customers.
7. Logistics providers. These entities provide a variety of services on behalf of other
participants in the supply chain to move the goods between the participants. Logistics
providers may take temporary custody of the goods, but do not take title to the goods.
Logistics providers include:
a) warehousemen, which are entities engaged in the business of storing goods for hire;
b) carriers, which are entities like trucking companies that issue bills of lading; and
c) Customs brokers, which are entities engaged in the business of clearing goods
through customs barriers for importers and exporters.
8. Financiers. In addition to sellers who provide seller-financing, such as extended or
deferred payment terms, these entities include banks, factoring companies and other
entities who provide:
a) purchase-money financing for a buyer to pay the purchase price of goods;
b) commercial letters of credit to buyers to further the payment of goods in the ordinary
course of a transaction; or
c) Factoring to sellers who sell or assign their receivables to accelerate their cash flow.
9. Credit support providers. These entities provide credit support to any party that is
insecure about the payment or other obligations of the other party, for example:
a) banks that issue standby letters of credit; and
b) Sureties like insurance companies that provide surety bonds.
10. End users. These include any participant in the supply chain who purchases goods for:
a) their own use or consumption; or
b) Incorporation as raw materials or components into their own products.
11. Lessor. Some users do not own the goods (for example, equipment) that they use in
their businesses. Rather, they lease equipment from others in the supply chain who own
the equipment. The party that owns the equipment is commonly referred to as the lessor.
The party that has the exclusive right to use the equipment is commonly referred to as
the lessee. Lessor and lessees engage in equipment leasing for a variety of reasons
including:
a) allocation of the equipment's life-cycle between the parties;
b) tax advantages; and
c) Accounting treatment.
THE CONCEPT OF SUPPLY CHAIN MANAGEMENT
Companies are increasingly emphasising on their core competencies (‘to do what
you are best at and leave all other non-value-added activities to more suited players.’) and
working on to build strong relationships with their supply chain partners who possess
essential complementary capabilities. Success will depend on how well companies collaborate to
manage important processes and activities across company boundaries to better meet
customer requirements and demand. The efforts to align goals, share resources, and
collaborate across company boundaries are the essence of supply chain management.
OBJECTIVES OF SUPPLY CHAIN MANAGEMENT
The fundamental objective is to "add value".
That brings us to the example of the fish fingers. During the Supply Chain
Management'98 conference in the United Kingdom this fall, a participant in a supply chain
management seminar said that total time from fishing dock through manufacturing,
distribution, and final sale of frozen fish fingers for his European grocery-products
company was 150 days. Manufacturing took a mere 43 minutes. That suggests an
enormous target for supply chain managers. During all that time, company capital is-almost
literally in this case--frozen. What is true for fish fingers is true of most products. Examine
any extended supply chain, and it is likely to be a long one. James Morehouse, a vice
president of consulting firm A.T. Kearney, reports that the total cycle time for corn flakes,
for example, is close to a year and that the cycle times in the pharmaceutical industry
average 465 days. In fact, Morehouse argues that if the supply chain, of what he calls an
"extended enterprise," is encompassing everything from initial supplier to final customer
fulfilment, could be cut to 30 days, that would provide not only more inventory turns, but
fresher product, an ability to customise better, and improved customer responsiveness. "All
that add value," he says. And it provides a clear competitive advantage.
Supply Chain Management becomes a tool to help accomplish corporate strategic
objectives:
a) reducing working capital,
b) taking assets off the balance sheet,
c) Accelerating cash-to-cash cycles,
d) Increasing inventory turns, and so on.
SUPPLY CHAIN PLANNING

Supply Chain Planning enables manufacturers to synchronize enterprise-wide
production and supply with enterprise-wide demand. The solution allows manufacturers to
aggregate total demand and centrally plan for the production capacity and supplies required
to satisfy that demand. Supply Chain Planning consolidates sales, production, inventory and
purchasing information to help companies become more demand-driven and actually
manufacture items based on real demand.
In today’s demand-driven market, it is critical for manufacturers to optimize and
integrate sales and logistics and incorporate such data into the production schedule in a
timely manner. Supply Chain Planning delivers substantial benefits to manufacturers
including:
1. Increased responsiveness to market changes
2. Improved visibility into aggregated demand as well as enterprise-wide production
and supply
3. Reduced inventory levels
4. Improved customer service and on-time delivery performance
5. Optimized supply to meet demand profitably
6. Lowered inventory, distribution and transportation costs
7. Increased demand forecast accuracy with compressed planning cycle times
Move Planning Closer to Demand:
Supply Chain Planning helps manufacturers increase responsiveness by shifting the
planning process closer to actual demand. Manufacturers can then more effectively
synchronize production and procurement activities with actual demand and in the process
lower costs, decrease inventory levels, and improve customer service. By synchronizing
internal and external supply chain processes, Supply Chain Planning helps manufacturers
transform themselves into demand-driven organizations that are more flexible and can
respond quickly to changes in the market.
Total Demand Visibility:
Supply Chain Planning increases manufacturers’ visibility into enterprise-wide
demand by aggregating forecasts and sales orders created by customers and local sales
offices into one, comprehensive demand stream. This demand stream can be organized in a
wide variety of ways — by corporate entity, customer, customer type, product family or
end-item — to allow corporate planners to see when, where and what kind of demand is
being generated. The enterprise planning solution provides users with complete visibility
into aggregated demand through a single, easy-to-use screen. Planners can adjust this
demand based on the historic accuracy of the various demand streams.

Enterprise-wide Planning:
Supply Chain Planning provides visibility into demand and also allows
manufacturers to determine the optimal way to fulfil that demand based on available
enterprise-wide supply and production resources. From the same screen, planners can see
the production and inventory required to meet demand in user-defined time-buckets.
Supply Chain Planning allows users to drill into demand details to see how supporting
production and supply plans were created as well as to make any changes necessary to meet
the demand or achieve business objectives more effectively. This ability to plan production
and procurement activities centrally against aggregated demand is essential for
manufacturers who wish to realize strategic business objectives such as cost reduction or
improved responsiveness.
The enterprise planning capabilities enables manufacturers to allocate demand
intelligently to the most appropriate production facility based on lowest manufacturing cost
or available resources including capacities and inventories, transport costs, and lead times
from facility to customer.
Supply Chain Planning ensures that manufacturers optimize their production and
procurement activities on an enterprise-wide basis. The module enables planners to allocate
demand to individual factories for further planning and fulfilment.
Support for Global PSI Planning:
Supply Chain Planning provides full support for Global PSI (Production, Sales, and
Inventory) planning commonly used by leading electronics and high-volume manufacturers.
The solution contains a global model of production resources and inventory that can be
used to fulfil demand. The Global PSI model is created from multiple Local PSI models
generated from the production planning or materials planning systems in use at each
factory.
Key Capabilities:
Supply Chain Planning provides advanced capabilities for manufacturers, including:
 Accurate visibility of demand across product lines, geographies and customers by
aggregating information from multiple sources
 Accurate visibility of enterprise-wide production capacity and supply requirements
 Optimization of key activities within a manufacturer including production,
procurement and distribution
 Multi-tier, multi-enterprise planning collaboration between trading partners.
SUPPLY CHAIN MANAGEMENT PROCESS
The Global Supply Chain Forum identified eight key processes that make up the core
of supply chain management:
 Customer Relationship Management
 Customer Service Management
 Demand Management

 Order Fulfillment
 Manufacturing Flow Management
 Procurement (supplier relationship management)
 Product Development and Commercialization
 Returns (returns management).
The term “procurement” is defined as “...the act of buying... all those activities
necessary to acquire goods and services consistent with user requirements” The
procurement process renamed as “supplier relationship management”. The name of the
returns process to returns management.
The eight key business processes run the length of the supply chain and cut across
firms and functional silos within each firm. Functional silos include Marketing, Research
and Development, Finance, Production, Purchasing and Logistics. Activities in these
processes reside inside a functional silo, but an entire process will not be contained within
one function.
Each process is described at strategic and operational levels.
The strategic portion consists of the establishment and strategic management of each
process, and provides a blueprint for implementation.
This is a necessary first step in integrating the firm with other members of the
Supply chain.
The operational portion is the actualization of the process once it has been
established.
CUSTOMER RELATIONSHIP MANAGEMENT
The customer relationship management process provides the structure for how the
relationship with the customer is developed and maintained. Management identifies key
customers and customer groups to be targeted as part of the firm’s business mission.
Customer teams tailor Product and Service Agreements (PSA) to meet the needs of key
accounts and segments of other customers.
Teams work with key accounts to improve processes, and eliminate demand
variability and non-value-added activities. Performance reports are designed to measure the
profitability of individual customers as well as the firm’s financial impact on those
customers.
THE STRATEGIC PROCESS
At the strategic level, the customer relationship management process provides the
framework for managing relationships with customers, and is comprised of five sub
processes
In the first, the Process team reviews the corporate and marketing strategies to
identify customer segments that are key to the organization’s success now and in the future.
Next, the team identifies the criteria for categorizing customers and provides
guidelines for determining which customers qualify for tailored PSAs and which customers
will be grouped into segments and offered a standard PSA that is developed to provide
value to the segment. Potential criteria include: profitability, growth potential, competitive
positioning issues, access to market knowledge, market share goals, margin levels, level of
technology, resources and capabilities, compatibility of strategies, and channel of
distribution. As part of this sub process, the team develops the firm’s strategy for dealing
with segments of customers who do not qualify for individually tailored PSAs.
In the third sub-process, the team develops guidelines for the degree of
differentiation in the PSA. This involves developing the differentiation alternatives and
considering the revenue and cost implications of each. The output is the degree of
customization that can be offered to customers. The goal is to offer PSAs that enhance the
profitability of the firm and the customers. To find and understand the differentiation
opportunities, this sub-process will interface with all of the other processes.
Developing the framework of metrics involves outlining the metrics of interest and
relating them to the customer’s impact on the firm’s profitability as well as the firm’s
impact on the customer’s profitability. The customer relationship management process has
the responsibility for assuring that the metrics used to measure all of the other processes are
not conflicting. Management needs to insure that all internal and external measures are
driving consistent and appropriate behaviour.
In the final sub-process, the team develops the guidelines for sharing process
improvement benefits with customers. The goal is to make these process improvements
win-win solutions for both the firm and the customer.
In summary, the objective of customer relationship management at the strategic level
is to identify customer segments, provide criteria for categorizing customers, provide
customer teams with guidelines for customizing the product and service offering, develop a
framework for metrics, and provide guidelines for the sharing of process improvement
benefits with the customers.
The Operational Process
At the operational level, the customer relationship management process deals with
writing and implementing the PSAs. It is comprised of seven sub-processes.
First, customers are differentiated based on the criteria developed at the strategic
level. Key customers are identified and other customers are grouped into customer
segments.
Next, the account or segment management teams are formed, including the
salesperson who will be the account or segment manager. The teams are cross functional
with representation from each of the functional areas.
In the case of key accounts, each team is dedicated to a specific account and meets
regularly with the customer. In the case of customer segments, a team manages a group of
customers and develops and manages the standard PSA for the segment.
Each account team reviews their account or segment of accounts to determine the
products purchased sales growth and their position in the industry. Once the team has an
understanding of the customer(s), they work with each account or segment of accounts to
develop improvement opportunities in sales, costs and service. These opportunities might
arise anywhere, so the account teams need to interface with each of the other processes.
In the fifth sub-process, each team develops the PSA for their account or segment of
accounts. This team first outlines and drafts the PSA, and then gains commitment from the
internal functions. For key accounts, they present the PSA for acceptance, and work with
the customer until agreement has been reached. It is important that the PSAs for key
accounts include a communication and continuous improvement plan. For other accounts,
the PSA is presented to the customer.
In the sixth sub-process, the team implements the PSA, including regular meetings
with key customers. At this point, input is provided to each of the other processes that are
affected by the customizations in the PSA.
In the last operational sub-process, the team captures and reports the process
performance measures. Metrics from each of the other processes also are captured in order
to generate the customer profitability reports. These profitability reports provide
information for measuring and selling the value of the relationship to each customer and
internally to upper management. The value provided should be measured in terms of costs,
impact on sales, and associated investment; otherwise the efforts incurred will go
unrewarded.
Customer Service Management
The customer service management process is the firm’s face to the customer. It
provides the single source of customer information, such as product availability, shipping
dates and order status. Real-time information is provided to the customer through interfaces
with the firm’s functions, such as manufacturing and logistics. Customer service
management is responsible for administering the PSA.
The Strategic Process
At the strategic level, the customer service management process is concerned with
designing the process for managing the PSA. Customer relationship management Develop
Customer Service Strategy provides the set of products and services the firm can offer its
customers. The strategic customer service management process is responsible for planning
how each of the possible products and services to be included in the PSA is going to be
delivered and managed. Strategic customer service management has four sub-processes.
In the first, the customer service strategy is developed for the set of PSA features
identified in the customer relationship management process. The team identifies the
deliverables of the customer service process, operationalise the triggers for initiating action,
and defines the staffing needs. The deliverables of the process are standardized responses to
standardized events that occur while administering the PSA. The output of this first sub-
process is a list of events with its corresponding triggers and deliverables.
In the second sub-process, the team develops response procedures for each of these
events. This includes developing the internal and external coordination required to respond.

Next, the process team identifies the infrastructure for implementing the response
procedures. This involves identifying the sources of the information needed to handle each
of the events and determining the appropriate communication means for internal and
external coordination. This sub process provides the information technology and
communication needs for managing the PSAs efficiently and effectively. If there are
technical constraints restricting the establishment of this infrastructure, the products and
services that are affected have to be re-evaluated and eventually modified to make them
feasible.
As in the other processes, the last sub-process of customer service management at
the strategic level is to develop the framework of metrics. The metrics should provide
management with the information necessary to identify problems and improvement
opportunities in the administration of the PSA. These measurements are used not only for
managing the process, but also for improving its efficiency. The team interfaces with the
customer relationship management team to assure that the metrics developed are consistent
with the firm’s objectives.
In short, the objective of customer service management at the strategic level is to
develop the necessary infrastructure and coordination means for implementing the PSA and
providing a key point of contact to the customer.
At the operational level, the customer service management process is responsible for
responding to both internal and external events. The first step is to recognize the event.
This might seem trivial but the goal of being proactive makes this a challenging part of
administering the PSA. The team needs to have a thorough understanding of the firm’s
operations, and try to foresee the effects of a given event on the customer and on the
internal operations of the firm. Events that require action might originate in any one of the
other processes so coordination is essential.
Once the event is recognized, the team evaluates alternatives for managing the event
with the least disruption to the customer and internal operations. The team determines a set
of alternative actions working jointly with the specialists in each of the functions affected
by the event or that can contribute to implementing the solution. This requires interfacing
with other processes that are affected by the alternative responses. The implementation of
the selected alternative is coordination intensive, as other business process owners or
function managers often need to participate in the implementation. At this point, the actual
response to the event is executed.
Finally, the customer service management process includes monitoring and reporting
the process performance. This sub-process includes recording the event in a database that
can be used for future reference, and monitoring the evolution of the event in order to know
to what extent the response has been implemented. Part of the sub-process is collecting
information and informing the customer about how the issue is being resolved.
Performance of the process is measured and conveyed to the customer relationship
management and supplier relationship management teams.

Demand Management
The demand management process needs to balance the customers’ requirements with
the firm’s supply capabilities. This includes forecasting demand and synchronizing it with
production, procurement, and distribution. “Demand Management coordinates all acts of
the business that place demand on manufacturing capacity”.
The process is also concerned with developing and executing contingency plans
when operations are interrupted.
Demand management is about forecasting and synchronizing.
The process team first determines which forecasting approaches to use. This
includes determining the levels and timeframes of the forecasts needed throughout the firm.
Different parts of the organization might need different forecasts. The team determines the
sources of the data required to generate the forecasts. These might include historical data,
sales projections, promotion plans, corporate objectives, market share data, trade inventory,
market research, and new categories of growth. If systems such as collaborative planning,
forecasting and replenishment (CPFR) or vendor managed inventory (VMI) are being
implemented, the customer is a direct source of data.
Once the team decides on the method of forecasting and the sources of data, they
plan the information flow. Several functional silos and customer relationship management
need to provide input to the forecasting process. The forecasts are then communicated to the
other process teams that are affected by them, including customer service management,
order fulfilment, manufacturing flow, and product development and commercialization.
Next, the team determines the synchronization procedures required to match the
demand forecast to the firm’s production, sourcing and distribution capabilities. To do this,
they need to understand the capacity and flexibility available at all points along the supply
chain. They also need to determine the long-term planning requirements, particularly in the
case of demand with high seasonality or long term changes, such as sustained growth. At
this point in the process, the team might recognize future capacity issues and make
recommendations to proactively address them before they cause problems.
Another important component of the strategic demand management process is
developing contingency plans in the event of either internal or external events that disrupt
the balance of supply and demand. The team develops guidelines or rules to deal with
unexpected demand or interruptions to supply. These guidelines should be developed in
accordance with the expectations of the customers outlined in the customer relationship
management process, and with input from manufacturing flow and supplier relationship
management. The team determines the guidelines and communicates them to the customer
service management team, since they address the concerns of customers when these events
occur.
Finally, as with the other processes, the team develops the framework of metrics to
be used to measure and monitor the performance of the process. Typical process measures

might include forecast error and capacity utilization. Again, the team confirms these
measures with the customer relationship management team to assure consistency.
At the operational level, the process team executes the forecasting and
synchronization as it was designed at the strategic level. This begins with collecting the
data. To do this, the team interfaces with the marketing functional silo as well as the order
fulfillment and customer service management processes. These sources are close to the
customer and provide critical information on sales projections and anticipated demand.
With all the required data in hand, the team develops the forecasts. They track and
analyze the forecast error and incorporate this feedback to fine-tune the forecasting method.
This is an important component of the learning process associated with good forecasting.
The forecast provides the input for matching demand with supply. Some firms refer
to this as aggregate planning. Sources of information for the synchronization sub process
include customer relationship management, customer service management, manufacturing
flow, and product development and commercialization. The output of the synchronization
sub-process is an aggregate production plan and an inventory-positioning plan. The team
also develops a rough-cut capacity plan for any new products soon to be launched.
These plans need to be communicated throughout the firm, and therefore there are
interfaces with customer relationship management, customer service management, order
fulfillment, manufacturing flow, supplier relationship management, and product
development and commercialization. In addition, any internal or external event that causes
a disruption to supply or large forecast errors needs to be handled with the contingency
management plans developed at the strategic level.
Another key component to demand management is an ongoing process aimed at
increasing flexibility and reducing variability (in demand, lead-times, capacity, etc). The
former helps management respond quickly to both internal and external events, and the
latter aids in consistent planning and minimizing surprises. “The supply chain which best
succeeds in reducing uncertainty and variability is likely to be most successful in improving
its competitive position”. For example, to gain flexibility, the team might work with the
manufacturing flow team to find ways to introduce postponement into the manufacturing
process. To reduce demand variability, the team might work with the customer relationship
management team to help customer’s better plan promotions. In order to find ways to
increase flexibility and reduce variability, the process team works with the sales, marketing
and manufacturing organizations, customers and suppliers. This involves process interfaces
with customer relationship management, customer service management, manufacturing
flow and supplier relationship management.
Finally, the process team is responsible for measuring the performance of the process
with the metrics developed at the strategic level. These metrics are used to improve the
process and are conveyed to the customer relationship management and supplier
relationship management teams.

Customer Order Fulfilment

A key to effective supply chain management is to meet customer requirements in
terms of order fulfillment . Effective order fulfillment requires integration of the firm’s
manufacturing, logistics and marketing plans. The firm should develop partnerships with
key members of the supply chain to meet customer requirements and reduce total delivered
cost to customers.
The strategic order fulfilment process considers manufacturing, logistics and
marketing requirements to design the distribution network. In the first sub-process, the team
reviews the role of customer service in the marketing strategy, customer service goals, and
the supply chain structure. This requires an interface with the customer relationship
management process.
Next, the requirements for order fulfillment are specified, including the order to-cash
cycle. Key inputs include manufacturing capabilities, lead-times and customer service
requirements. At this stage, the customer relationship management and manufacturing flow
processes provide input. The team evaluates the core competencies within order fulfillment
and determines which aspects of the process are potentially service differentiating.
Evaluating the logistics networks is an important step in order fulfillment. The
design and operation of the network has a significant influence on the cost and performance
of the system. It has been estimated that up to 80% of the total cost of the final product is
determined in the design of the network .It is necessary to evaluate the network including:
which plants produce which products; where warehouses, plants, and suppliers are located;
and, which transportation modes should be used. Important input to this sub-process comes
from the demand management and returns processes. The resulting network is provided to
the manufacturing flow process.
The next strategic sub-process is to define the plan for order fulfillment, determining
how orders from various customers or segments of customers will be filled. The process
team communicates with the customer relationship management process team to make sure
that all customer expectations are met.
In the final sub-process, a framework of metrics is developed and communicated to
the customer relationship management process. Typical process measures might include
order-to-cash cycle time, order fill rate, and order completeness.
The order fulfillment operational process defines the specific steps regarding how
customer orders are: generated and communicated, entered, processed, documented, picked,
delivered, and handled post delivery. There are three steps to accepting and processing an
order.
First, orders are generated and communicated. Generally, these orders come from
customer service management. Second, a member of the order fulfilment team receives,
enters, edits the orders, and transmits these data to the customer service management and
demand management processes. Third, the inventory and customers’ credit are checked and
the order is processed. Information about these orders is provided to the manufacturing flow
process.
In the next sub-process, the team handles all documentation. They acknowledge the
order and prepare the bill of lading, picking instructions, packing slips and generate the
invoice. At the order picking stage, the merchandise is picked, packed, and staged for
loading. The load confirmation is prepared and feedback is provided to customer service
management.
The order fulfillment team is responsible for preparing shipping documents,
transmitting delivery confirmation, and auditing and paying the freight bill. They also
provide delivery information to the customer service management team.
In the final sub-process, the team performs post-delivery activities, including
receiving and posting payment, recording bad debt expense, and measuring performance.
Feedback is provided to customer relationship management, supplier relationship
management and returns management.
Manufacturing Flow Management
The manufacturing flow process deals with making the products and establishing the
manufacturing flexibility needed to serve the Review Manufacturing, Sourcing, Marketing
target markets. The process includes all activities necessary for managing the product flow
through the manufacturing facilities and for obtaining, implementing and managing
flexibility.
At the strategic level, the objective of manufacturing flow is to determine the
manufacturing infrastructure needed for fulfilling the customers’ needs and wants. The
process begins with the team reviewing the functional business strategies from marketing,
logistics, manufacturing and purchasing. This sub-process requires interfaces with
customer relationship management, where the corporate and marketing strategies are
reviewed. These strategies help identify the expertise and the changes in the manufacturing
technology that are needed to operationalise manufacturing flow. Incompatibility between
the manufacturing process and market characteristics may have “unfavourable impact on
business performance”. In the same vein, environmental aspects of manufacturing set by
the business plan, corporate strategy, and the environmental laws have to be taken into
account. Manufacturing strategy is linked to the corporate strategy since environmental
management practices may strengthen the firm’s competitive advantage.
The objective of the second sub-process is to determine the degree of manufacturing
flexibility the firm and the supply chain require. This sub-process provides the
manufacturing capabilities and constraints, such as the minimum batch size and cycle time,
the labour expertise needed for manufacturing, and the quality policy and controls. Product
development and commercialization, and order fulfilment provide input to this sub-process.
The team defines the make/buy strategies, for example, what manufacturing activities are
regarded as strategic and should not be outsourced at any cost? These strategies provide
indications to supplier relationship management about supplier selection and eventually the
guidance of partnership opportunities. In the last activity of this sub-process, the team plans
capacity growth based on the marketing strategy and the business plan.
The degree of flexibility established in the previous sub-process leads to the
determination of the push-pull boundaries. The customer tolerance time (the time the
customer is willing to wait for an order) and the customer service goals constrain the extent
to which manufacturing can be postponed in the supply chain. Postponement promises to be
beneficial to the supply chain, but might lead to longer delivery times. The degree to
which the firm postpones manufacturing and logistics activities depend to a great extent on
the design of the products; therefore, the product development and commercialization
process provides input for setting the push-pull boundaries. In order to determine the push
pull boundaries for the supply chain, the team identifies the decoupling point separating the
part of the supply chain operating in a make to-order environment from the part of the
supply chain based on planning , which is the typical make-to-stock operating environment.
The push-pull boundaries help to determine the stocking points in the supply chain for
servicing manufacturing facilities, distribution canters and customers. These stocking
points, referred to as decoupling points, permit the downstream section of the supply chain
to operate independently from the upstream section. The decisions made in this sub-
process are communicated to the supplier relationship management team since the push-pull
boundaries affect the interactions with the suppliers. Similarly, coordination with order
fulfilment is necessary for establishing lead-times and stocking requirements.
The objective of the next sub-process is to identify manufacturing constraints and
requirements to help determine the capabilities of the supply chain. The role of suppliers
and the supplier development strategy is an important component of this sub-process for
defining the extent to which activities in the supply chain are synchronized. The process
team designs communication mechanisms for synchronizing the activities with minimal
management effort. They also develop acceptance criteria for establishing the quality
standards expected at each step of the manufacturing process. Performing these activities
may lead to identifying needs for the suppliers that can be included in a supplier
development program; if so, this is an input for the supplier relationship management
process.
In the next sub-process, the team determines the manufacturing capabilities and
translates them into deliverables to the customer. For example, the minimum cycle time
and the minimum economically viable lot size is a result of the design of the manufacturing
capabilities. For a strategy to be effective, it must be communicated and understood
throughout the organization. At this point, the manufacturing flow and customer
relationship management teams discuss the possible features of the PSA, and adjust
infeasible features. The capabilities are communicated to the demand management, order
fulfillment, and returns process teams. Further, the customer service management team
receives the order acceptance guidelines. The team uses these guidelines every time a
customer has a request. They help to identify which customers’ requests can be fulfilled.
Some requests require additional management time to evaluate their economic and technical
viability.
In the final sub-process, the team develops the metrics framework and communicates
it to the customer relationship management team. These metrics measure the effectiveness
of the manufacturing flow process and might include cycle time, inventory levels, and
product quality.
Manufacturing flow at the operational level looks like operations management
internal to the firm. However, certain characteristics of the process are designed to integrate
internal operations management with activities in the supply chain. In the first sub-process,
the team determines the routing and velocity through manufacturing. This step includes
developing a master production schedule by translating the output of demand management
into resource and production planning. The team integrates the capacity of the
manufacturing facilities into these decisions to assure no disruptions in the product flow.
This sub-process interacts with demand management to establish manufacturing priorities,
and with supplier relationship management to set priorities for suppliers and to gain their
commitment of resources.
In the next step, manufacturing and material planning, the process team produces a
detailed capacity plan and a time-phased requirement plan. Interfaces with the customer
relationship management and supplier relationship management processes extend the focus
of this sub-process to other supply chain members. Manufacturing planning and control
encompasses creating the overall manufacturing plan, performing the detailed planning of
materials and capacity needs, and executing these plans.
Next, capacity and demand are synchronized. This step identifies what inventory
levels are needed for synchronizing the activities of the many supply chain members.
Inventory includes raw materials, work-in-process, sub-components, and packaging at the
different tiers. This step requires input from demand management and order fulfillment,
and provides output to customer service management.
The final step in the manufacturing flow process, measuring performance, includes
more than just tracking process measures, and reporting them to the customer relationship
management and supplier relationship management teams. It includes analyzing product
quality and examining the root causes of quality problems. The manufacturing flow
process team is responsible for finding solutions to quality issues. This might involve
working with supplier relationship management, product development and
commercialization, or returns management.
Supplier Relationship Management (Procurement management)
Supplier relationship management is the process that defines how a company
interacts with its suppliers. As the name suggests, this is a mirror image of customer
relationship management. Just as a company needs to develop relationships with its
customers, it needs to foster relationships with its suppliers. As in the case of customer
relationship management, a company should forge close relationships with a small subset of
its suppliers, and maintain more traditional relationships with the others. Each supplier

agrees to a PSA that defines the terms of the relationship. Supplier relationship
management is about defining and managing these PSAs.
At the strategic level, the output of the process is an understanding of the levels of
relationships the firm will maintain, and the process for segmenting the suppliers and
working with them to develop appropriate PSAs. To do this, the process team first reviews
the corporate, manufacturing and sourcing strategies, and identifies product and service
components that are key to the organization’s success now and in the future.
With these key components driving the decisions, the team identifies criteria for
categorizing suppliers. Criteria to examine might include, but are not limited to: the
supplier’s profitability, growth and stability; the criticality or required service level of the
components purchased; the sophistication and compatibility of the supplier’s process
implementation; the supplier’s technological capabilities and compatibility; the volume
purchased from the supplier; the capacity available from the supplier; the culture of
innovation at the supplier; and, the supplier’s anticipated quality levels.
The team determines which of these criteria should be used and how a supplier will
be measured on each one. They develop a categorization scheme that will guide the
operational team on determining the firm’s key suppliers, and grouping other suppliers into
segments.
Key suppliers work with customized PSAs; other suppliers work with standard PSAs
with little to no customization. Therefore, a standard PSA is written for each supplier
segment. For key suppliers, the team provides guidelines for the degree of customization
that is acceptable. To do this, they consider the quality and cost implications of various
differentiation alternatives, and select the boundaries for the degree of customization that
might be required or desired. At this step, the team interfaces with each of the other
processes because they need to understand the degree of differentiation that is desirable as
well as be ready to design systems for supporting these alternatives. For example,
examining the demand management process might lead the team to consider implementing
CPFR with some of the suppliers, but doing so might require implementing new technology
and making changes to the existing demand management process.
With each of the other supply chain processes, an important step at the strategic level
is developing the metrics framework. This is particularly critical in the supplier relationship
management process because these metrics measure the success of the firm’s relationship
with its suppliers. With these metrics management sees the impact of the integration in the
supply chain. It is important that the team relates these metrics to the supplier’s impact on
the firm’s profitability as well as the profitability of the supplier. It is key that the team
performs profitability analyses because management can use these to sell the value of
supply chain activities. Improvements from suppliers may have impact throughout the
organization and these should be reflected in supplier cost or profitability reports.
It is important for the supplier relationships to be win-win. If both parties do not
gain from the relationship, the incentive to be in the relationship is diminished and it will

likely dissolve. The supplier relationship management process team must develop
guidelines for sharing process improvement benefits with the suppliers. For example, Wal
Mart decided to split cost savings with Procter and Gamble three ways: 1/3 to Wal-Mart,
1/3 to the supplier and 1/3 to the customer. A key to this step of the process is finding ways
to easily quantify benefits in financial terms.
Once the process team determines the criteria for categorization of suppliers and the
levels of customization at the strategic level, the operational supplier relationship
management process develops and manages the PSAs. First, the team implements the
categorization scheme in order to identify key suppliers and supplier segments. This
involves analyzing how suppliers impact the firm’s profitability and measuring each
supplier on the appropriate criteria.
Each key supplier is assigned to a supplier management team. Other suppliers are
grouped into segments and a management team is assigned to each segment. Each
supplier/segment team is comprised of a team manager and a cross functional set of team
members. Each supplier/segment team internally reviews the suppliers to assure that they
understand the role of that supplier in the supply chain. A supplier team works with each
key supplier to identify improvement opportunities within the account. The team examines
each of the other supply chain processes, both at the firm and at the supplier, looking for
opportunities to increase sales, reduce costs, and improve service.
Next, each team works with a key supplier to negotiate the PSA. Recall that
segments of other suppliers receive a standard PSA. For key suppliers, the team customizes
the agreement according to the improvement opportunities identified. An important step in
developing the PSA for key suppliers is gaining commitment of the company’s internal
functions, particularly those affected by the customized PSAs. The PSA includes a
communication plan between the firm and the supplier and a continuous improvement plan.
Once the suppliers have agreed to the PSA, the supplier teams are responsible for
implementing and managing it. This involves working with the other processes to assure
that the PSA is being adhered to, and meeting with the suppliers regularly to monitor
progress and performance.
Measuring performance is a critical part of the supplier relationship management
process because management needs to assess the success of the firm’s relationships. The
other process teams communicate supplier related performance to the account teams who tie
these metrics back to the profit of both the firm and the supplier, and report the results both
internally and to the supplier.
Product Development and Commercialization
Product development is critical to the continuing success of the firm.
Developing new products quickly and getting them to the marketplace in an efficient
manner is a major component of corporate success. Time to market is a critical objective of
this process. Supply chain management includes integrating customers and suppliers into

the product development process in order to reduce time to market. As product life cycles
shorten, the right products must be developed and successfully launched in ever-shorter
timeframes in order to remain competitive.
The first step in the strategic portion of the product development and
commercialization process is to review the sourcing, manufacturing and marketing
strategies to determine how those plans will likely impact product development. The
marketing strategy contains the needs assessment of customers.
Next, the process team develops the idea generation and screening processes. This
stage can include determining sources for ideas, considering incentives for developing new
products for the focal firm and their suppliers and customers, beginning to develop
formalized customer feedback programs, and establishing guidelines for strategic fit. At
this point, the product development and commercialization process interfaces with the
customer relationship management process to provide the framework that will be used to
determine how new products will impact customers and the level of acceptance of those
products.
The process team then establishes guidelines for the membership of the cross
functional product development team. It is critical to have the right people from the
internal functional silos along with key customers and suppliers involved in the product
development and commercialization process. This step includes determining the extent of
involvement from both key customers and suppliers. Empirical studies found that firms may
form alliances to complement their existing internal knowledge and help them learn about
new markets and technologies as well as to reduce overall risk in the product development
process. In this stage of the process, the team assesses relative strengths, weaknesses, and
roles of personnel to determine who should be involved in the product development and
commercialization process. The team examines constraints to determine which resources
the firm can utilize on specific new product projects.
The fourth step is to develop product rollout issues and constraints. The team
identifies pinch points that could hamper the product development and commercialization
process. Activities within this sub-process include market and promotion planning, sales
force training, inventory deployment planning, and transportation planning. In this stage of
the process, each of the internal functional silos has to be involved to avoid poor product
rollouts. In addition, the team obtains input from the order fulfillment team to assess how
new products will impact the network flow.
Next, the team establishes new product project guidelines. This includes
determining time-to-market and profitability expectations, and estimating the drain on
human resources resulting from new product projects. The team establishes guidelines for
examining the strategic fit of potential new products and for making the make/buy decision.
The final step to the strategic product development and commercialization process is
to develop the framework of metrics. Typical process metrics might include time to market,
time to profitability and first year sales. The metrics are communicated to the customer

relationship management team to assure they do not conflict with other metrics or the firm’s
objectives.
The first step in the operational product development and commercialization process
is to define new products and assess fit. Using the means defined at the strategic level, new
product ideas are generated and screened. In this initial screening, the team completes a
market assessment, consults with key customers and suppliers, and determines the fit with
existing channels, manufacturing, and logistics environments. This involves interfaces with
customer relationship management and supplier relationship management, as well as with
the functional silos in the firm.
Using the guidelines developed at the strategic level, a cross-functional product
development team is established for each product idea that passes the screening process.
Key suppliers and customers are included on the team as early as possible in order to
compress time to market. Therefore, this sub-process includes an interface with supplier
relationship management and customer relationship management. The focal company might
also participate in the product development process of a key customer. For example, a
supplier of salad dressings may participate in the product development process of a
restaurant chain. In such cases, the customer relationship management process team is
actively involved.
The team is responsible for formalizing the product development project. This step
includes determining time-to-market expectations, identifying likely product profitability
scenarios, and further examining the strategic fit of the product within the firm and its key
markets.
The product development team manages the process of designing and building
prototypes of the product ideas. For example, the auto companies develop concept cars to
test new product ideas. In this phase, each team works with suppliers and performs a value
analysis to determine what portions of the product design and rollout process add value.
They then source materials and manufacture prototypes.
Once the team evaluates the prototypes, they determine how much of the new
product should be manufactured in-house. Many firms adopt a short-term perspective for
making make/buy decisions. However, these decisions may have strategic implications for
the firm. For example, during the development of the personal computer, IBM outsourced
the operating system to a small company named Microsoft. This decision may have
enabled IBM to bring the PC to market quicker, but with hindsight, it was clearly a strategic
error. The make/buy decision “...should be formulated from a strategic perspective with
senior management involvement”. Once it is determined what will be sourced, the team
assesses supply capabilities and manages requests for quotations. Sourcing decisions
require interfaces with the customer relationship management, manufacturing flow and
supplier relationship management processes.
In the sixth sub-process, the team determines the marketing and distribution channels
for the new product. These channels are defined with input from customer relationship

management and order fulfillment. Then, the team develops the market plan for the product
and does initial inventory planning.
The next step is the actual product rollout. Many products are unsuccessful due to
poor management of product rollout. In this step, the team sources materials, positions
inventory, and manufacture the product. They also implement the market plan, train the
sales force on the new product offering, and execute the promotion plan. Inventory is
deployed using methodologies developed in demand management. It is important that the
other process teams are involved in planning and executing the product rollout.
In the final step, the team measures process performance through the metrics
developed at the strategic level, and communicates results to the customer relationship
management and supplier relationship management teams.
Returns Management
Effective returns management is a critical part of supply chain management.
While many firms neglect the returns process because management does not believe
it is important, this process can assist the firm in achieving a sustainable competitive
advantage. Effective management of the returns process enables the firm to identify
productivity improvement opportunities and breakthrough projects.
In the first step of the strategic returns process, the team reviews environmental and
legal compliance guidelines. Team members need to understand laws that apply to used
products and products planned for disposal. They also need to recognize rules associated
with recall campaigns and packaging issues.
Next, the team develops return avoidance, gate keeping and disposition guidelines.
Return avoidance means manufacturing and selling the product in a manner such that
returns are minimized. This avoidance can be derived from improved quality or better
instructions to the consumer as to how to properly operate the product. Gate keeping is the
screening of defective and unwarranted returned merchandise at the entry point into the
reverse logistics process. Improved gate keeping is a critical factor in making the entire
reverse flow manageable and efficient. It assures that only product that should be returned
to a specific point in the returns network is indeed returned to that point. Disposition
guidelines define as clearly as possible the returned item’s ultimate destiny. Typical
disposition options include return to supplier, refurbish or remanufacture, recycle, and
landfill. The team can examine potential secondary markets including Internet-based
auctions or retailers that specialize in returned goods or “seconds”.
A firm should be able to make disposition decisions quickly. The team develops the
rules in conjunction with other members of the supply chain, as well as with input from
other processes, such as customer relationship management, product development and
commercialization, and supplier relationship management. Disposition and return reason
codes compliant with company policy are developed during this stage of the process.

Next, the team develops the returns network and flow options. During this stage, the
team develops plans for transporting and holding returned products until they reach their
final disposition. For some firms, products may be routed to central returns centers where
returned items are consolidated and examined. The team also determines what
transportation programs the firm will employ. For example, supply chain managers might
decide that utilizing backhauls may be the most efficient way of transporting returns.
Developing the returns network requires input from customer service management, order
fulfillment, and supplier relationship management.
In the fourth step, the process team develops credit rules governing the returns
process. At this stage, the finance organizations of the focal firm, and key suppliers and
customers negotiate how returned merchandise will be credited. The team establishes credit
authorization guidelines and credit policies. Since this involves both suppliers and
customers, supplier relationship management and customer relationship management are
involved in determining the rules.
The last step of the strategic returns process is developing the framework of metrics
and communicating it to the customer relationship management team. Possible metrics are
return rates and financial impact of returns. As part of this sub-process, the team develops
procedures for analyzing return rates and tracing the returns back to the root causes.
At the operational level, the returns process is about managing the day-to-day returns
activities. The process is initiated when a return request is received from a customer. This
customer may be a consumer returning an item, or a retailer or distributor sending back
items that did not sell. In some cases, these returns come through the customer service
management process.
Once a return request is received, it is necessary to determine the routing for the
returned product and generate the return material authorization (RMA) derived from the
request. Advanced ship notices are sent, signalling to the receiving firm that the returns are
on their way.
Once the item is returned, it is verified, inspected, and processed. This processing
should be completed as quickly as possible so that product value does not decrease any
more than necessary. The order fulfilment team may become involved at this point to assist
in managing the return flow back to the warehouse or central returns centre.
Employees analyze the returns and select the appropriate dispositions using the rules
developed in the strategic returns process. The disposition of the product can include return
to the supplier, refurbishment, and remanufacture, recycling, reselling as is, reselling
through a secondary market, or sending the product to a landfill.
Once the returns are processed, credit is given to the appropriate customer, consumer
or supplier. In some circumstances, a supplier might be crediting the firm for a return. This
sub-process will use the credit authorization guidelines developed in the strategic returns
process.

In the final step of the returns process, the team analyzes the causes of the returns and
measures process performance. The data on returns are used to make improvements to the
product and the processes. This analysis might result in feedback to the customer
relationship management, manufacturing flow management, supplier relationship
management, or product development and commercialization processes. This analysis
should be used in the ongoing strategic returns process to help develop avoidance
guidelines.
Implementing Integrated Supply Chain Management
The implementation of supply chain management involves identifying the supply
chain members with whom it is critical to link, the processes to be linked with each of these
key members, and the type/level of integration that applies to each process link. The
objective of supply chain management is to create the most value for the entire supply chain
network, including the end-customer. Successful supply chain management involves the
coordination of activities within the firm and between members of the supply chain.
Consequently, supply chain process integration and reengineering initiatives should be
aimed at boosting total process efficiency and effectiveness across the supply chain.
Although the functional expertise remains in place, implementing supply chain
management requires making the transition from a functional organization to one focused
on business processes first inside the firm and then across firms in the supply chain.
If the proper coordination mechanisms are not in place across the various functions,
the supply chain processes will be neither effective nor efficient. By taking a process focus,
all functions that touch the product or provide information must work together. For
example, purchasing depends on sales and marketing data fed through a production
schedule to assess specific order levels and timing of requirements. These orders drive
production requirements that, in turn, are transmitted upstream to suppliers.
The increasing use of outsourcing has accelerated the need to coordinate supply chain
processes since the organization becomes more dependent on suppliers. Consequently,
coordination mechanisms must be in place within the organization. Where to place these
coordination mechanisms, and which teams and functions are responsible for managing
them become critical decisions.
The requirements for successful implementation of supply chain management include:
 Executive support, leadership and commitment to change.
 An understanding of the degree of change that is necessary.
 Agreement on the supply chain management vision and the key processes.
 The necessary commitment of resources and empowerment to achieve the stated
goals.

UNIT II
LOGISTICS MANAGEMENT
[ Meaning and definition – significant of logistics –business logistics- concepts of
logistics management – objectives of logistics management – elements of logistics
management – logistics management v/s supply chain management – integrated logistics-
operating of objectives of integrated logistics.]
INTRODUCTION
As far back as history records, the goods that people wanted were not always
produced where they wanted to consume them, or these goods were not accessible when
people wanted to consume them. Food and other commodities were widely dispersed and
were only available in abundance at certain times of the year. Early peoples had the choice
of consuming goods at their immediate location or moving the goods to a preferred site and
storing them for later use. However, because no well developed transportation and storage
systems yet existed, the movement of goods was limited to what an individual could
personally move, and storage of perishable commodities was possible for only a short time.
This limited movement-storage system generally constrained people to live close to the
sources of production and to consume a rather narrow range of goods. Even today, in some
areas of the world consumption and production take place only within a very limited
geographic region. Striking examples can still be observed in the developing nations of
Asia, South America, Australia, and Africa, where some of the population live in small,
self-sufficient villages, and most of the goods needed by the residents are produced or
acquired in the immediate vicinity. Few goods are imported from other areas. Therefore,
production efficiency and the economic standard of living are generally low. In this type of
economy, a well-developed and inexpensive logistics system would encourage an exchange
of goods with other producing areas of the country, or even the world.
As logistics systems improved, consumption and production began to separate
geographically. Regions would specialize in those commodities that could be produced
most efficiently. Excess production could be shipped economically to other producing (or
consuming) areas, and needed goods not produced locally were imported. This exchange
process follows the principle of comparative advantage. This same principle, when applied
to world markets, helps to explain the high level of international trade that takes place
today. Efficient logistics systems allow world businesses to take advantage of the fact that
lands, and the people who occupy them, are not equally productive. Logistics is the very
essence of trade. It contributes to a higher economic standard of living for us all. To the
individual firm operating in a high-level economy, good management of logistics activities
is vital. Markets are often national or international in scope, whereas production may be
concentrated at relatively few points. Logistics activities provide the bridge between
production and market locations that are separated by time and distance. Effective
management of these activities is the major concern of this Program.
MEANING AND DEFINITION OF LOGISIC MANAGEMENT
The benefits of co-ordinated logistics management appeared around 1961, in part
explaining why a generally accepted definition of business logistics is still emerging.
Therefore, it is worthwhile to explore several definitions for the scope and content of the
subject.
A dictionary definition of the term logistics is:
“The branch of military science having to do with procuring, maintaining, and
transporting material, personnel, and facilities.”
This definition puts logistics into a military context. To the extent that business
objectives and activities differ from those of the military, this definition does not capture
the essence of business logistics management. A better representation of the field may be
reflected in the definition promulgated by the Council of Logistics Management (CLM), a
professional organization of logistics managers, educators, and practitioners formed in 1962
for the purposes of continuing education and fostering the interchange of ideas. Its
definition:
“Logistics is that part of the supply chain process that plans, implements, and controls the
efficient, effective flow and storage of goods, services, and related information from the
point of origin to the point of consumption in order to meet customers’ requirements.”
This is an excellent definition, conveying the idea that product flows are to be
managed from the point where they exist as raw materials to the point where they are
finally discarded. Logistics is also concerned with the flow of services as well as physical
goods, an area of growing opportunity for improvement.
It also suggests that logistics is a process, meaning that it includes all the activities
that have an impact on making goods and services available to customers when and where
they wish to acquire them. However, the definition implies that logistics is part of the
supply chain process, not the entire process.
Although early definitions such as physical distribution, materials management,
industrial logistics and channel management - all terms used to describe logistics - have
promoted this broad scope for logistics, there was little attempt to implement logistics
beyond a company’s own enterprise boundaries, or even beyond its own internal logistics
function. Now, retail firms are showing success in sharing information with suppliers, who
in turn agree to maintain and manage inventories on retailers’ shelves. Channel inventories
and product stock outs are lower. Manufacturing firms operating under just-in-time
production scheduling build relationships with suppliers for the benefit of both companies
by reducing inventories.

SIGNIFICANCE OF LOGISTICS
Logistics is about creating value - value for customers and suppliers of the firm, and
value for the firm’s stakeholders. Value in logistics is primarily expressed in terms of time
and place. Products and services have no value unless they are in the possession of the
customers when (time) and where (place) they wish to consume them. For example,
concessions at a sports event have no value to consumers if they are not available at the
time and place that the event is occurring. Good logistics management views each activity
in the supply chain as contributing to the process of adding value. If little value can be
added, it is questionable whether the activity should exist. However, value is added when
customers are willing to pay more for a product or service than the cost to place it in their
hands. To many firms throughout the world, logistics has become an increasingly important
value-adding process for a number of reasons.
Costs Are Significant
According to the International Monetary Fund (IMF), logistics costs average about
12 percent of the world’s gross domestic product. Robert Delaney, who has tracked
logistics costs for more than two decades, estimates that logistics costs for the U.S.
economy are 9.9 percent of the U.S. gross domestic product (GDP), or $921 billion. For the
firm, logistics costs have ranged from 4 percent to over 30 percent of sales. Logistics costs,
substantial for most firms, rank second only to the cost of goods sold (purchase costs) that
are about 50 percent to 60 percent of sales for the average manufacturing firm. Value is
added by minimizing these costs and by passing the benefits on to customers and to the
firm’s shareholders.
Logistics Customer Service Expectations Are Increasing
The Internet, just-in-time operating procedures, and continuous replenishment of
inventories have all contributed to customers expecting rapid processing of their requests,
quick delivery, and a high degree of product availability.
In most of the companies finished goods inventory turnover is 20 or more times per
year Total order cycle time of five working days Transportation cost of one percent of
sales revenue or less, if products sold are over $5 per 500 gms As might be expected, the
average company performs below these cost and customer service benchmarks.
Supply and Distribution Lines Are Lengthening with Greater Complexity
The trend is toward an integrated world economy. Firms are seeking, or have
developed, global strategies by designing their products for a world market and producing
them wherever the low-cost raw materials, components, and labour can be found (e.g.,
Ford’s Focus automobile), or they simply produce locally and sell internationally. In case,
supply and distribution lines are stretched, as compared with the producer who wishes to
manufacture and sell only locally? Not only has the trend occurred naturally by firms
seeking to cut costs or expand markets, but it is also being encouraged by political
arrangements that promote trade. Examples of the latter are the European Union, the North
America Free Trade Agreement (NAFTA) between Canada, the United States, and Mexico,

and the economic trade agreement among several countries of South America
(MERCOSUR).
Globalization and internationalization of industries everywhere will depend heavily
on logistics performance and costs, as companies take more of a world view of their
operations. As this happens, logistics takes on increased importance within the firm since
its costs, especially transportation, become a larger part of the total cost structure. For
example, if a firm seeks foreign suppliers for the raw materials that make up its final
product or foreign locations to build its product, the motivation is to increase profit.
Material and labor costs may be reduced, but logistics costs are likely to increase due to
increased transportation and inventory costs. The “trade off”, may lead to higher profit by
reducing materials, labour, and overhead costs at the expense of logistics costs and tariffs.
“Outsourcing” adds value, but it requires careful management of logistics costs and
product-flow times in the supply channel.
Logistics Is Important To Strategy
Firms spend a great deal of time finding ways to differentiate their product offerings
from those of their competitors. When management recognizes that logistics/SC affects a
significant portion of a firm’s costs and that the result of decisions made about the supply
chain processes yields different levels of customer service, it is in a position to use this
effectively to penetrate new markets, to increase market share, and to increase profits. That
is, good supply chain management can generate sales, not just reduce costs.
Logistics Adds Significant Customer Value
A product, or service, is of little value if it is not available to customers at the time
and place that they wish to consume it. When a firm incurs the cost of moving the product
toward the customer or making an inventory available in a timely manner, for the customer
“value” has been created that was not there previously. It is value as surely as that created
through the production of a quality product or through a low price. It is generally
recognized that business creates four types of value in products or services. These are:
form, time, place, and possession. Logistics creates two out of these four values.
Manufacturing creates form value as inputs are converted to outputs that are raw materials
are transformed into finished goods. Logistics controls the time and place values in
products, mainly through transportation, information flows, and inventories. Possession
value is often considered the responsibility of marketing, engineering, and finance, where
the value is created by helping customers acquire the product through such mechanisms as
advertising (information), technical support, and terms of sale (pricing and credit
availability). To the extent that SCM includes production, three out of the four values may
be the responsibility of the logistics/supply chain manager. In addition to the four Ps in
marketing(product, price, place, promotion)now added a fifth one is Pace (speed) through
logistic service.
Customers Increasingly Want Quick, Customized Response
Fast food retailers, automatic teller machines, overnight package delivery, and
electronic mail on the Internet have led us as consumers to expect that products and services
can be made available in increasingly shorter times. In addition, improved information

systems and flexible manufacturing processes have led the marketplace toward mass
customization. Rather than consumers having to accept the “one size fits all” philosophy in
their purchases, suppliers are increasingly offering products that meet individual customer
needs.
Companies too have been applying the concept of quick response to their internal
operations in order to meet the service requirements of their own marketing efforts. The
quick response philosophy has been used to create a marketing advantage. Saks Fifth
Avenue applied it, even though big profits are made through big margins and not on cost
reductions that might be achieved from good logistics management. Supply chain costs
may even rise, although the advantage is to more than cover these costs through increased
profits.
Logistics/SC in Non-manufacturing Areas
It is perhaps easiest to think of logistics/SC in terms of moving and storing a
physical product in a manufacturing setting. This is too narrow a view and can lead to
many missed business opportunities. The logistics/SC principles and concepts learned over
the years can be applied to such areas as service industries, the military and even
environment management.
Service Industry
The service sector of industrialized countries is large and growing. In the United
States, over 70 percent of all jobs are in what the federal government classifies as the
service sector. The size of this sector alone forces us to ask if logistics concepts are not
equally applicable here as they are to the manufacturing sector. If they are, there is a
tremendous untapped opportunity yet to be fulfilled.
Many companies designated as service firms in fact produce a product. Examples
include: McDonald’s Corporation (fast foods); Dow Jones & Co., Inc. (newspaper
publishing); and Sears, Roebuck and Co. (merchandise retailing). These companies carry
out all the typical supply chain activities of any manufacturing firm.
However, for service companies such as Bank One (retail banking), Marriott
Corporation (lodging) and Consolidated Edison (electric power), supply chain activities,
especially those associated with physical distribution, are not as obvious. Even though
many service-oriented companies may be distributing an intangible, nonphysical product,
they do engage in many physical distribution activities and decisions.
A hospital may want to extend emergency medical care throughout the community
and must make decisions as to the locations of the centers. United Parcel Service and
Federal Express must locate terminals and route pickup and delivery trucks. The East
Ohio Gas Company inventories natural gas in underground wells during the off-season in
the region where demand will occur.

Bank One must locate and have cash inventory on hand for its ATMs. The Federal
Reserve Bank must select the methods of transportation to move cancelled cheques among
member banks.
The Catholic Church must decide the number, location, and size of the churches
needed to meet shifts in size and location of congregations, as well as to plan the inventory
of its pastoral staff.
Xerox’s repair service for copying equipment is also a good example of the logistics
decisions encountered in a service operation.
Managing logistics in service industries does represent a new direction for the future
development of logistics practice.
Military
Before businesses showed much interest in co-ordinating supply chain processes, the
military was well organized to carry out logistics activities. More than a decade before
business logistics’ developmental period, the military carried out what was called the most
complex, best-planned logistics operation of that time-the invasion of Europe during World
War II. Although the problems of the military, with its extremely high customer service
requirements, were not identical with those of business, the similarities were great enough
to provide a valuable experience base during the developmental years of logistics. For
example, the military alone maintained inventories valued at about one-third of those held
by all U.S. manufacturers. In addition to the management experience that such large-scale
operations provide, the military sponsored, and continues to sponsor, research in the
logistics area through such organizations as the RAND Corporation and the Office of Naval
Research. With this background, the field of business logistics began to grow. Even the
term logistics seems to have had its origins in the military. A recent example of military
logistics on a large scale was the conflict between the United States and Iraq over Iraq’s
invasion of the small country of Kuwait. This invasion has been described as the largest
military logistics operation in history. The logistics support in that war is yet another
illustration of what world class companies have always known: Good logistics can be a
source of competitive advantage.
Environment
Population growth and resultant economic development have heightened our
awareness of environmental issues. Whether it is recycling, packaging materials,
transporting hazardous materials or refurbishing products for resale, logisticians are
involved in a major way. After all, the United States alone produces more than 160 million
tons of waste each year; enough for a convoy of 10-ton garbage. In many cases, planning
for logistics in an environmental setting is no different from that in manufacturing or
service sectors. However, in a few cases additional complications arise, such as
governmental regulations that make the logistics for a product more costly trucks reaching
halfway to the moon. by extending the distribution channel.

Business Logistics in the Firm

It has been the tradition in many firms to organize around marketing and production
functions. Normally, marketing mean selling something and production means making
something. Although few business people would agree that their organization is so simple,
the fact remains that many businesses emphasize these functions while treating other
activities, such as traffic, purchasing, accounting, and engineering, as support areas. Such
an attitude is justified to a degree, because if a firm’s products cannot be produced and sold,
little else matters. However, such a pattern is dangerously simple for many firms to follow
in that it fails to recognize the importance of the activities that must take place between
points and times of production or purchase and the points and times of demand. These are
the logistics activities, and they affect the efficiency and effectiveness of both marketing
and production.
The difference in operating objectives (maximize revenue versus minimize cost) for
marketing and production/operations may lead to a fragmentation of interest in, and
responsibility for, logistics activities, as well as a lack of co-ordination among logistics
activities as a whole. This, in turn, may lead to lower customer service levels or higher
total logistics costs than are necessary. Business logistics represents a regrouping, either by
formal organizational structure or conceptually in the minds of management, of the move-
store activities that historically may have been partially under the control of marketing and
production/ operations.
NATURE AND CONCEPTS
Logistics is a recent addition in the jargon of integrated business management,
formerly with the traditional fields of marketing, finance, production and per-sonnel,
although it has been an integral part of these sectors since the Industrial Revolution.
Business logistics, physical distribution, materials management, outbound logistics, in-
bound logistics, logistics management, supply chain management are only some of the
terms being used to define and describe the concept of approximately the same subject—
logistics, perhaps due to a rapid change in the scope and wide use of the subject matter.
The term 'Logistics' stems from the Greek word 'Logisticos', meaning 'the science -of
computing and calculating.' Since ancient times, logistics has been performed but earlier, it
was used first within the facet of military science. In the militafysense, Webster defines
Logistics as 'the procurement, maintenance and transportation of military materials,
facilities and personnel' (Webster's Dictionary, 1963).
Further, a US Air Force Technical Report (1981) defines this term as 'the science of
planning and carrying out the movement and maintenance of forces. In this most
comprehensive sense ,logistics pertains to those aspects of military operations which deal
with: (a) design and development, acquisition, storage, movement, distribution,
maintenance, evacuation and disposition of materials; (b) movement, evacuation and
hospitalization of personnel; (c) acquisition or construction, maintenance, operation,
disposition of facilities and(d)acquisition or furnishing of services.

In 1905, Major Chauncey B. Baker wrote, 'That branch of the Art of War pertaining
to the movement and supply of armies is called Logistics.'
Logistics systems and various models were used by military forces during World
War II to ensure that troops and materials were made available at the_ right place to meet
the country's requirements. For instance, in a book of Gulf War, it is noted on the first phase
that US forces planned, moved, and served 122 million meals during the brief
engagement—a task comparable to feeding all the residents of Wyoming and Vermont
three meals a day for forty days (Transport Topics,199l).
Hence, from a military point of view, logistics refers to a supportive system which
reflects the practical art of moving armies and materials engaged in combats enemy to
achieve the desired results.
Today, in the industrial and commercial world, logistics has acquired wider meaning.
Essentially, it covers activities for the material flow from the source to the processing
facilities, and subsequent distribution of finished goods from there to the ultimate users.
Previously, the term physical distribution was commonly used, which refers to
manufacturing and commerce to describe the broad range of activities concerned with
efficient movement of finished products from the end of production line to the consumers'
An early definition encompassing the total material flow involves 'a total approach to
the management of all activities involved in physically acquiring, moving and storing raw
materials, in-process inventory and finished goods. Inventory from the point of origin to the
point of use or consumption.
In 1961, in broader sense, this same term has been defined as 'that area of business
management responsible for the movement of raw materials and finished products and the
development of material system.
In 1991, the Council of Logistics Management (CLM), a prestigious professional
organization, modified its 1976 definition of Physical Distribution Management by first
changing the term to Logistics and then changing the definition as follows:
''Logistics is the process of planning, implementing and controlling of efficient, effective
flow and storage of goods, services and related information from the point of origin to the
point of consumption for the purpose of conforming to customer expectations.
An engineering-oriented definition of logistics has been given by The Society of
Logistics Engineers (SOLE, 1947), a professional organization, comprising about 10,000
practitioners of logistics engineering from government, the armed forces, and defence-
related cooperation, as:
The art and science of management, engineering, and technical activities concerned with
the requirements, design, and supplying and maintaining the resources to support
activities, plans and operations.
A more systematic definition of logistics management has been given by Bowersox
and Closs (1996) as:

Logistical Management includes the design and administration of system to control the
flow of materials, work-in-process, and finished inventory to support business unit
strategy.
On the basis of above facet of logistics management, a more comprehensive
definition of it is:
Logistics management refers to designing, developing, producing and operating an
integrated system which responds to customer expectations by making available the
required quantity of required quality products as and when required to offer best
customer service at the least possible costs.
It is an internal integration of interrelated managerial functions to ensure a smooth
flow of raw materials from the point of inception to the first production point, semi-finished
goods within production process, and finished goods from the last production point to the
point of consumption. Hence, a set of activities which are involved in the gamut of logistics
include procurement, materials handling, storage and warehousing, protective packaging,
order processing, forecasting, inventory management, transportation, and related
information system. After careful analysis and review of various definitions, the major
features of logistics management may be drawn as:
(i) It ensures a smooth flow of all types of goods such as raw materials,
work-in-process and finished goods.
(ii) It has the ability to meet customer expectations and requirements of goods.
(iii) It ensures the delivery of quality product.
(iv) It offers the best possible customer service at the least possible cost.
(v) It is an integration of various managerial functions for optimization of
resources.
(vi) It deals with movement and storage of goods in appropriate quantity.
(vii) It enhances productivity and profitability.
Companies have to present best quality product at a reasonably least price as and
when required, avoiding a stock-out situation which has given impetus to the concept of
Logistics Management, since it has the ability to ensure a consistency in the quality,
tremendous cost-saving potential and making available goods at the place of requirements
in time.
BUSINESS LOGISTICS
Business logistics is a relatively new field of integrated management study in
comparison with the traditional fields of finance, marketing, and production. As previously
noted, logistics activities have been carried out by individuals for many years. Businesses
also have continually engaged in move store (transportation-inventory) activities. The
newness of the field results from the concept of co- ordinated management of the related
activities, rather than the historical practice of managing them separately, and the concept
that logistics adds value to products or services that are essential to customer satisfaction
and sales. Although co-ordinated logistics management has not been generally practiced
until recently, the idea of co-ordinated management can be traced back to at least 1844. In
the writings of Jules Dupuit, a French engineer, the idea of trading one cost for another
(transportation costs for inventory costs) was evident in the selection between road and
water transport:
“The fact is that carriage by road being quicker, more reliable and less subject to loss or
damage; it possesses advantage to which businessmen often attach a considerable value.
However, it may well be that a saving induces the merchant to use a canal; he can buy
warehouses and increase his floating capital in order to have a sufficient supply of goods on
hand to protect himself against slowness and irregularity of the canal, and if all told the
saving in transport gives him a cost advantage, he will decide in favour of the new route.”
Supply chain management (SCM) is a term that has emerged in recent years that
captures the essence of integrated logistics and even goes beyond it. Supply chain
management emphasizes the logistics interactions that take place among the functions of
marketing, logistics, and production within a firm and those interactions that take place
between the legally separate firms within the product-flow channel. Opportunities for cost
or customer service improvement are achieved through co-ordination and collaboration
among the channel members where some essential supply chain activities may not be under
the direct control of the logistician.
Definitions of the supply chain and supply chain management reflecting this broader
scope are:
“The supply chain (SC) encompasses all activities associated with the flow and
transformation of goods from the raw materials stage (extraction), through to the end user,
as well as the associated information flows. Materials and information flow both up and
down the supply chain.”
“Supply chain management (SCM) is the integration of these activities, through improved
supply chain relationships, to achieve a sustainable competitive advantage.”
After careful study of the various definitions being offered, Mentzer and other
writers propose the broad and rather general definition as follows:
“Supply chain management is defined as the systematic, strategic coordination of the
traditional business functions and the tactics across these business functions within a
particular company and across businesses within the supply chain, for the purposes of
improving the long-term performance of the individual companies and the supply chain as
a whole.”
It is difficult, in a practical way, to separate business logistics management from
supply chain management. In so many respects, they promote the same mission:
“To get the right goods or services to the right place, at the right time, and in the desired
condition, while making the greatest contribution to the firm.”
Some claim that supply chain management is just another name for integrated
business logistics management (IBLM) and that the broad scope of supply chain
management has been promoted over the years. Conversely, others say that logistics is a
subset of SCM, where SCM considers additional issues beyond those of product flow. For
example, SCM may be concerned with product pricing and manufacturing quality.
Although SCM promotes viewing the supply channel with the broadest scope, the reality is
that firms do not practise this ideal. Fawcett and Magan found that companies that do
practise supply chain integration limit their scope to one tier upstream and one tier
downstream.
The focus seems to be concerned with creating seamless processes within their own
companies and applying new information technologies to improve the quality of
information and speed of its exchange among channel members.
The boundary between the logistics and supply chain management terms is fuzzy.
OBJECTIVES OF LOGISTICS MANAGEMENT
Within the broader objectives of the firm, the business logistician seeks to achieve
supply channel process goals that will move the firm toward its overall objectives.
Specifically, the desire is to develop a logistics activity mix that will result in the highest
possible return on investment over time.
There are two dimensions to this goal:
(1) The impact of the logistics system design on the revenue contribution.
(2) The operating cost and capital requirements of the design.
Ideally, the logistician should know how much additional revenue would be
generated through incremental improvements in the quality of customer service provided.
However, such revenue is not generally known with great accuracy. Often, the customer
service level is set at a target value, usually one that is acceptable to customers, the sales
function, or other concerned parties. At this point, the logistics objective may become one
of minimizing costs subject to meeting the desired service level rather than profit
maximization or return on investment. Unlike revenue, logistics costs usually can be
determined as accurately as accounting practice will allow and are generally of two types:
operating costs and capital costs.
Operating costs are those that recur periodically or those that vary directly with
variation in activity levels. Wages, public warehousing expenses, and administrative and
certain other overhead expenses are examples of operating costs.
Capital costs are the one-time expenses that do not change with normal variations in
activity levels. Examples here are the investment in a private trucking fleet, the
construction cost of a company warehouse, and the purchase of materials-handling
equipment. If it is assumed that there is knowledge of the effect of logistics activity levels
on revenues of the firm, a workable financial objective for logistics can be expressed in the
ratio known as
ROLA (return on logistics assets).
ROLA is defined as:

ROLA =Contribution to revenue - logistics operating costs

Logistics assets
The contribution to revenue refers to the sales resulting from the logistics system
design. Logistics operating costs are the expenses incurred to provide the level of logistics
customer service needed to generate sales. Logistics assets are the capital investments
made in the logistics system. ROLA is to be maximized over time.
If the value of money is high, maximizing the present value of cash flows or
maximizing the internal rate of return is a more appropriate statement of the objective.
Maximizing the cumulative return on investment over time is the single most important
objective to ensure the long-run survival of the firm.
Operational objective of logistical management:
1. Right response
2. Right quality
3. Right quantity
4. Right value
5. Right cost trade-offs
6. Right information
ELEMENTS OF LIGISTICS MANAGEMENT
Logistics management consists of eight elements called wings of logistics. These are
discussed in a nutshell below.
1. Customer Order Processing
Flow of Actions
1. Filling up the order form
2. Deciding the specifications of the product
3. Deciding the quality check list of the product
4. Deciding the delivery schedule
5. Deciding the location of delivery
Important Factors
1. Cost of order processing
2. Whether the company is capable of producing a component
3. Detailed list of specifications
Techniques
1. Electronic data Interchange (EDI)
2. E-ERP or CPFR
3. Web portal

2. Location Analysis
Flow of Actions
1. Cost of transportation of raw materials and finished goods
Proximity to suppliers
Proximity to customers
2. Availability and type of land
3. Availability of secondary resources
4. Availability of desired manpower at affordable cost
5. Communal harmony
6. Governmental regulation and taxation
Important Factors
1. Cost of operations as a percentage of sales
2. Shelf life of product
3. Inventory Control
Flow of Actions
1. on hand inventory analysis
2. Communicating the quantity, quality and timing of material with the supply points.
3. Getting the material of right quality, quantity and at right time
Important Factors
1. Inventory control at planning stage
2. Lead time
3. Cost vs. importance of raw material
Techniques
1. DRP and replenishment order control
2. Fixed order interval system
3. Economic order quantity with ROP system
4. Selective inventory control (ABC, VED, FSN analysis etc.)
5. Order forecasting using statistical tools
4. Material Handling
Flow of Actions
1. Type of material (Business significance like raw material, finished goods etc.)
2. Material handling requirements of the material (Fragile, inflammable)
3. Cost ratio of material handling to material cost.

4. Material default location, identification and traceability
Important Factors
1. Material breakage
2. Pilferage
3. Cost of material handling
4. Number of handlings
Techniques
1. Operational research
2. Material flow analysis
3. Computerized material retrieval system
4. ASRS (Advanced Storage & Retrieval System)
5. Packaging
Flow of Actions
1. Packaging requirement for the material (Refrigeration, Fragile etc.)
2. Primary packaging
3. Secondary packaging
4. Cost of packaging
5. Transportation requirement for packaging (Vibration proof, water or moisture tight)
Important Factors
1. Protection to product
2. Holding the product
3. Communicating the message to customers
4. Customer requirement for packaging
5. Reverse logistics for packaging
6. Recycling of packaging material
7. Cost of packaging
Techniques
1. Standardized box packaging
2. Containerization of packaging
3. Direct part marking
4. ISO 14001
5. Recycling of packaging materials

6. Reusable packaging materials
7. Eco-friendly packaging materials
8. Bar coding
9. Bumpy bar coding
10. GPS tracking system
11. RFID
6. Transportation
Flow of Actions
1. Mode of transportation
2. Cost of product
3. Speed of transportation
4. Ambience requirement of material (Refrigeration, Vacuum)
5. Cost of transportation
6. Urgency of the product to customers
Important Factors
1. Urgency of the product
2. Cost of product
3. Cost of transportation
Techniques
1. Containerized transportation
2. Cool Chain Transport (Refrigerated Vans/Containers)
3. Multi-modal Logistics
4. Milk Run Distribution systems
5. Cross Docking
6. Direct Shipment
7. Warehousing
Flow of Actions
1. Location of the warehouse
2. Inventory level at the warehouse
3. Storage requirement of the product
4. Packaging and repackaging requirement of the product
5. Shelf life of the product
Important Factors
1. Availability of space
2. Availability of proper material handling systems
3. Strategic location
4. Packing and Re-packing facilities
5. Information and allied services
Techniques
1. Third Party Logistics
2. Third party warehousing
8. Customer Service
Flow of Actions
1. Contractual services offered to client
2. Type of customer service required for the product
3. Location of the service centre
4. Service level at the service centre
5. Cost of service vs. replacement
Important Factors
1. Contractual requirement of customer service
2. Service quality
3. Reverse logistics
Techniques
1. AMC (Annual Maintenance Contracts) and free replacements
2. Limited (free) trial period
3. Guarantee & warrantee
4. User clubs
5. Help lines, toll free number, call centers
6. CRM
Quick Response Manufacturing (QRM)
Quick response manufacturing (QRM) is a companywide strategy to cut lead times
in all phases of manufacturing and office operations. It can bring the manufacturing firm's
products to market more quickly and secure its business prospects by helping to compete in
a rapidly changing manufacturing arena.

QRM will not only make the manufacturing firm more attractive to potential
customers; it will also increase profitability by reducing non-value-added time, cutting
inventory and increasing return on investment.
Kanban System
The kanban system is an information system to harmoniously control the production
quantities in every process. It is a tool to achieve just-in-time production. In this system
what kind of units and how many units needed are written tin a tag-like card called kanban.
The kanban is sent to the people of the preceding process from the subsequent process. As a
result, many processes in a plant are connected with each other. This connecting of
processes in a factory allows for better control of necessary quantities for various products.
Autonomation
Autonomation means to build in a mechanism a means to prevent mass production of
defective work in machines or product lines. Autonomation is not automation, but the
autonomous check of abnormality in the process. The autonomous machine is a machine to
which an automatic stopping device is attached. In Toyota factories, almost all the machines
are autonomous, so that mass production of defects can be prevented end machine
breakdowns are automatically checked. The idea of Autonomation is also expanded to the
product lines of manual work. If something abnormal happens in a product line, the worker
pushes stop button, thereby stopping his whole line.
Two-bin System
The Working of the System begin with, the stock from the first bin is consumed. The
emptying of first bin indicates that the stock has reached ROL and the replenishment action
is initiated. The quantities in the second bin are consumed during the replenishment period.
This system reduces the work involved in record keeping and entering (clerical) errors.
JUST IN TIME (JIT)
JIT is a Japanese management philosophy, which has been applied in practice since
the early 1970s in many Japanese manufacturing organizations. It was first developed and
perfected within the Toyota manufacturing plants by Taiichi Ohno as a means of meeting
consumer demands with minimum delays. Taiichi Ohno is frequently referred to as the
father of JIT. JIT is more of a manufacturing and waste elimination philosophy than
commodity purchasing technique. It originally referred to the production of goods to meet
customer demand exactly, in time, quality and quantity, whether the customer is the final
purchaser of the product 01 another process further along the production line. It has now
come to mean producing with minimum waste. Waste is taken in its most general sense and
includes time and resources as well as materials. There are seven types of waste namely:
Waste from overproduction
Waste of waiting time
Transportation waste
Processing waste
Inventory waste
Waste of motion
Waste from product defects
VENDOR MANAGED INVENTORY (VMI)
VMI can be defined as:
It is a streamlined approach to inventory and order fulfillment. With it, the supplier
and not the retailer, is responsible for managing and replenishing inventory. This is done by
using EDI, by electronic transfer of data over a network. It can also be seen as a mechanism
where the supplier creates the purchase orders based on the demand information exchanged
by the retailer/customer. Vendor Managed Inventory (VMI) is basically evolved to facilitate
the operations at retail stores. It involves a continuous replenishment program that uses the
exchange of information between the retailer and the supplier to allow the supplier to
manage and replenish merchandise stock at the store or warehouse level. VMI was first
applied to the grocery industry, between companies like Procter & Gamble (supplier) and
Wal-Mart (distributor).
JIT - II
Lance Dixon, the father of JIT-II describes it, as "This is the ultimate partnership
program for compatible customers and suppliers, because it is the next logical step in the
application of the management cycle to the value chain, through the management of time
within the supply chain. It represents the use of alignment and mobilization strategies with
suppliers using in-plant vendor representatives to achieve breakthrough changes". JIT
system was based upon the synchronized planning between the buyer's needs and the
supplier's production capabilities. It will not produce any breakthroughs or generate any
major organizational transformation. It will result into proper materials control across
organizations. JIT-II can be regarded as a major catalyst for the productive change across
organizations and qualifies a toy component of the macro logistics management model. In
other words, we can say that JIT system assures the un-interrupted incoming material
supply as per demand, whereas JIT-II ensures the un-interrupted production from
manufacturing lines.
DISTRIBUTION STRATEGIES
Distribution strategies can be of the following types:
 Cross docking
 Milk runs
 Direct shipping
 Hub and spoke model
Cross Docking
Cross docking co-ordinates the supply and delivery so that the goods arrive at the
receiving area and are transferred straight away to the loading area, where they are put into

delivery vehicles. In other words, Cross docking is the movement of materials from the
receiving docks directly to the shipping docks.
Milk Runs
A milk run is a route in which a truck either delivers product from a single supplier
to multiple retailers or goes from multiple suppliers to single retailer . In other words, in a
milk run, a supplier delivers directly to multiple retail stores on a truck or a truck picks up
deliveries for many suppliers of the same retail store. The main job of the supply chain
manager is to decide on the routing of each milk run.
Direct Shipping
Direct shipping refers to the method of distribution in which the goods come directly
from the suppliers to the retail stores. In case of direct shipment network, the routing of
each shipment is specified and the supply chain manager only needs to decide on the
quantity to ship and the mode of transportation to use. This system eliminates the need for
the intermediate facilities that are otherwise required, e.g. warehouses and distribution
centers. The products that are generally distributed through the method of direct shipping
are certain perishable items, high volume goods, high bulk items and specialty products.
Hub and Spoke Model
In case of the hub and spoke model the distribution model's hub is the location that
holds inventory for a large region, with each spoke .leading to a smaller distribution centre,
which houses inventory for a smaller region. The main driver of the hub and spoke model is
the proximity to the customer, with the goal being to supply to a maximum amount of
customers in a minimum amount of time. In today's distribution environment, however, this
goal can be attained in many cases without a hub and spoke operation, which has very high
overheads. Hub and spoke, these days, is often restricted to fulfilling the just-in-time needs
of heavy manufacturing industries.
THIRD-PARTY LOGISTICS (TPL/3PL)
Third-party logistics refers to the concept of outsourcing the logistics and
distribution of a manufacturing or service firm to a logistics service provider so that the
manufacturing company can focus on its core competencies of new product development
manufacturing them and marketing the products.
The logistics and distribution activities add up to almost around 5 per cent to the cost
to thereby increasing the final cost of the product. In addition to this the inventory costs add
around 15 per cent to the cost of the product. To increase operational efficiency it is
necessary for firms to cut these costs to remain competitive. So manufacturing firms
outsource these activities to LSPs which in coordination with the manufacturing firms'
needs control inventory and reduce costs. Third party logistics is the activity of outsourcing
activities related to logistics and distribution. The 3PL industry includes Logistics Solution
Providers (LSPs) and the shippers whose business processes they support. Companies opt
for third party logistics for the following reasons:

 Improved strategic focus: Using 3PLs companies can concentrate on their

core tasks and improve customer satisfaction.
 Resource constraints.
 Lowered costs: According to research reports companies can reduce their
inventory management costs by around 15-30 per cent. Also 3PL service
providers invest large sums of money in developing processes that aim to
achieve logistical excellence, which are unavailable to other companies.
 Expansion of markets: Outsourcing logistical activities to 3PLs allow
companies to get into new businesses, new markets or a new channel of
distribution quickly and with a limited outlay of cash.
 For more professional and scientific approach to logistical problems.
 For improvement in service levels with improved response time.
 For efficient management of inventory resulting in better utilization of
working capital.
 Increased flexibility: A 3PL contract provides for relatively short term
commitments as compared to building and maintaining the same resources by
the company itself, thus freeing up resources for other uses.
In addition to the logistics and distribution functions, 3PLs also perform functions
such as fund collection, providing information of goods movement consumer
demographics, warehousing and value-added activities such as assembling, packaging, flow
of funds and reverse logistics.
FOURTH-PARTY LOGISTICS (4PL)
The term 4PL with the following definition:
"An integrator that assembles the capabilities, technology and resources of its own
organization and other organizations to design, build and run comprehensive supply chain
solutions."
For a firm to be 4PL it must have exhaustive skills in investing and maintaining the
infrastructure and resources that makes it the manager of multiple 3PL service providers
crucial to the client organization. However, the definition of 4PL was misinterpreted by
many 3PLs who thought 4PL as a kind of 3PL plus service and began providing some
value-added activities such as assembling, picking and then marketing themselves as 4PL
providers.
BENCHMARKING
A benchmark is a standard of performance Benchmarking helps organizations
identify standards of performance in other organizations and to import them successfully to
their own. It allows organizations to discover where they stand in relation to others. By
identifying, understanding, comparing, and adapting ewe's own organization with the
outstanding practices and processes of others, an organization can target problem areas, set
levels of performance, and identify solutions to improve results. A public sector
organization can borrow the best practices of the private sector, and vice versa.
Organizations that accomplish a particular activity at the highest value, i.e. at the lowest

cost and/or quality or efficiency are considered best-in-class. In determining what qualifies
as world class, benchmarking asks the question: "who are we now, and who do we want to
be?" The best benchmarking efforts not only match the performance of others but also
motivate to exceed it. Typically performed by internal personnel who already have a
thorough knowledge of the process under review, benchmarking looks beyond performance
measures and cost ratios. It considers the total organizational impact. In benchmarking with
comparison to others, an organization:
 Determines how leading organizations perform specific processes
 Compares their methods to its own
 Uses the information to improve upon or completely change its processes
SUPPLY CHAIN MANAGEMENT V/S LOGISTICS MANAGEMENT.
A supply chain is “the connected series of activities which is concerned with
planning, coordinating and controlling material, parts and finished goods from suppliers to
the customer”.
Supply chain management includes all value-adding activities from the extraction
of materials through the transformation processes and through delivery to the end user.
Supply chain management spans and crosses organizational boundaries and treats the
organisations within the supply chain as a unified virtual business entity .Supply chain
management, focuses on “integrating and managing flow of goods and services and
information trough the supply chain in order to make it responsive to customer needs while
lowering total costs”.
Supply chain management requires managing the flow of information through the supply chain in order
to attain the level of synchronisation that will make it more responsive to customer needs, while lowering
costs. The keys to effective supply chain management are information, communication, cooperation, and
trust.
Essentially, the existence of supply chain management is “to manage the flow of
information, products and services across networks of customers, organisations and supply
chain partners”.
Logistics constitutes the supply chain management.
Logistics management is the partof supply chain management that plans, implements
, and controls the efficient, effective, forward, and reverse flow and storage of goods,
services, and related information between the point of origin and the point of consumption
in order to meet customer's requirements.
Supply Chain Management establishes and manages the business-to-business links
that ultimately enables the sale of goods (or services) to consumers.
Logistics essentially transfers or moves the good (or service) from one place to the
other. Logistics is a function that falls under the wide umbrella of Supply Chain
Management, and is only one part of the entire process.

Supply Chain Management is a much broader, integrating process which entails

many other aspects aside from Logistics.
INTEGRATED LOGISTICS MANAGEMENT
Integrated Logistics is defined as “ the process of anticipating customer needs and
wants; acquiring the capital, materials, people , technologies and information necessary to
meet those needs and wants; optimizing the goods-or-service-producing a network to fulfill
customer requests; and utilizing the network to fulfill customer request in a timely way.”
Integrated logistics is a service-oriented process. It incorporates actions that help
move the product from the raw material source to the final customer.
Integrated Logistics Management
The movement of raw materials and components to a manufacturing company must
be managed. So must the movement of finished goods from the manufacturing plant to
further processing, to the retail, or to the final consumer. The management of this
movement is called integrated logistics management.
Variables affecting the Evaluation and Growth of Integrated Logistic
Many variables affected the evaluation and growth of integrated logistic.
The first was the growth of the consumer awareness and the marketing concept.
Product line expanded to meet the rising demand for more selections. This product line
expansion put great presser on distribution channels to move more products and keep cost
down, especially in transportation and inventory.
A second factor was the introduction of the computer. Computer experts and
integrated logistic manager quickly found a multitude of computer application for logistic.
This application offered still greater efficiency in transportation routing and scheduling,
inventory control, warehouse layout and design, and every aspect of integrated logistic. In
fact computers allowed integrated logistic managed to modal integrated logistic system and
then analyze the effect of proposed change. This application greatly advances the system’s
approach.
The third variable leading to the growth of integrated logistics was the world wide
economy in the 1970s and 1980s. Global recession and rising interest rates caused many
firms to refocus attention on reducing cost advantage; many firms were forced to revaluate
overall transportation needs. Also, rising interest rates turned attention to maintaining
minimum inventory levels because of the cost of capital.
Globalization of business and the development of world trade blocks are a fourth
factor influencing the growth of integrated logistics. Integrated logistic can provide firms
with a cost advantage. Furthermore, trading blocks in Europe. Southeast Asia, Asia, Africa
and the Americans (European Union, association of Southeast Asian nations and the Asian-
pacific economic cooperation, southern African development community, North American
free trade agreement and now the free trade agreement of the Americas) require integrated
logistics to tie the participating countries into single marketplaces.

The final factor affecting integrated logistics is the growth of just-in-time

manufacturing (JIT), supply management, transportation, and electronic data interchange
(EDI) in the 1980s and 1990s. As manufacturers adopted total quality management (TQM),
JIT, and EDI, integrated logistics management has come to the forefront. Effective TQM
and JIT require optimizing the inbound and outbound transportation and more efficient
inventory management.
Activities related to integrated logistics.
1. Physical distribution.
2. Materials management.
3. Logistics engineering.
4. Business logistics.
5. Logistics management.
6. Integrated logistics management.
7. Distribution management.
8. Supply chain management.
Although the activities include under each term vary, they share one key
ingredient: “The concept of a continuous uninterrupted flow of the product.”
Operations involved in integrated logistics model.
1. Inbound logistics: - It is referred to as procurement or physical supply. It deals
with the relationship between the firm and its suppliers. It addresses the flow of
materials from the suppliers to the plant or into service operations.
2. Conversion / operations: - It deals with the logistical relationship between and
among the facilities of the firm. It addresses how goods and materials move
among workstations within operations.
3. Outbound logistics: - It is referred to as physical distribution. It is the logistical
relationship between the firm and its customers. It is the movement of s finished
product out of the plant to the final customer.
Each of these relationships is sustained by the execution of 5 primary logistics activities
like transportation, facility structure, inventory management, material handling and
communication / information. These activities are interwoven throughout the integrated
logistics system. Each is vital and is found at every stage.
 Transportation :- it is necessary in outbound, inbound as well as conversion processes. It
deals with the movement of a product into, through, and out of the plant / warehouse. It
is the most expensive logistics activity, accounting for 50 % or more of total logistics
costs.

 Facility structure refers to the strategic placement of warehouses, service centre, and
plants throughout the supply chain. It includes the numbers and types of plants, their
locations and their operations.
 Inventory management refers to product buffers of raw materials, work in progress, and
finished goods in logistics pipelines.
If every activity worked perfectly, if there were no variation in transit time, no variation
in processing time, no loss or damage, no volume discounts for transportation, no
volume discount for products, and if firms could forecast demand accurately there
would be no need to store product.
Unfortunately, integrated logistics managers operate in an imperfect world and
buffer inventory is a reality.
OPERATIONAL OBJECTIVES OF INTEGRATED LOGISTICS
To achieve logistical integration within a supply chain context, six operational
objectives must be simultaneously achieved:
(1) Responsiveness,
(2) Variance reduction,
(3) Inventory reduction,
(4) Shipment consolidation,
(5) Quality, and
(6) Life cycle support.
The relative importance of each is directly related to a firm’s logistical strategy.
Responsiveness
A firm’s ability to satisfy customer requirements in a timely manner is referred to
as responsiveness. Information technology is facilitating response-based strategies that
permit operational commitment to be postponed to the last possible time, followed by
accelerated delivery. The implementation of responsive strategies serves to reduce
inventories committed or deployed in anticipation of customer requirements.
Responsiveness serves to shift operational emphasis from forecasting future requirements
toward accommodating customers on a rapid order-to-shipment basis. Ideally, in a
responsive system, inventory is not deployed until a customer commits. To support such
commitment, a firm must have the logistical attributes of inventory availability and timely
delivery once a customer order is received.
Variance Reduction
All operating areas of a logistical system are susceptible to variance. Variance results
from failure to perform any expected facet of logistical operations as anticipated. For
example, delay in customer order processing, an unexpected disruption in order selection,
goods arriving damaged at a customer’s location, and/or failure to deliver at the right

location on time all create unplanned variance in the order-to-delivery cycle. A common
solution to safeguard against detrimental variance is to use inventory safety stocks to buffer
operations. It is also common to use premium transportation to overcome unexpected
variance that delays planned delivery. Such practices, given their associated high cost, can
be minimized by using information technology to maintain positive logistics control. To the
extent that variance is minimized, logistical productivity will improve. Thus, variance
reduction, the elimination of operational disruptions, is one basic objective of integrated
logistics management.
Inventory Reduction
To achieve the objective of inventory reduction, an integrated logistics system must
control asset commitment and turn velocity. Asset commitment is the financial value of
deployed inventory. Turn velocity reflects the rate at which inventory is replenished over
time. High turn rates, coupled with desired inventory availability, mean assets devoted to
inventory are being efficiently and effectively utilized; that is, overall assets committed to
support an integrated operation are minimized.
It is important to keep in mind that inventory can and does facilitate desirable
benefits. Inventories are critical to achieving economies of scale in manufacturing and
procurement. The objective is to reduce and manage inventory to the lowest possible level
while simultaneously achieving overall supply chain performance objectives.
Shipment Consolidation
One of the most significant logistical costs is transportation. On average over 60
cents of each logistics dollar is expended for transportation. Transportation cost is directly
related to the type of product, size of shipment, and movement distance. Many logistical
systems that feature direct fulfillment depend on high-speed, small-shipment transportation,
which is costly. A system objective is to achieve shipment consolidation in an effort to
reduce transportation cost. As a general rule, the larger a shipment and the longer the
distance it is transported, the lower the transportation cost per unit. Consolidation requires
innovative programs to combine small shipments for timely delivery. Such programs
require multi firm coordination because they transcend the supply chain. Successful e-
commerce fulfillment direct-to-consumers require innovative ways to achieve effective
shipment consolidation.
Quality
A fundamental operational objective is continuous quality improvement. Total
Quality Management (TQM) is a major initiative throughout industry. If a product becomes
defective or if service promises are not kept, little if any value can be added by the logistics
process. Logistical costs, once expended, cannot be reversed or recovered. In fact, when
product quality fails after customer delivery and replacement is necessary, logistical costs
rapidly accumulate. In addition to the initial logistics cost, products must be returned and
replaced. Such unplanned movements typically cost more than original distribution. For this
reason, commitment to zero-defect order-to-delivery performance is a major goal of
leading-edge logistics.
Logistics itself is performed under challenging conditions. The difficulty of

achieving zero-defect logistics is magnified by the fact that logistical operations typically
are performed across a vast geographical area during all times of day and night and without
direct supervision.
Life Cycle Support
The final integration design objective is life cycle support. Few items are sold
without some guarantee that the product will perform as advertised. In some situations, the
initial value-added inventory flow to customers must be reversed. Product return is common
as a result of increasingly rigid quality standards, product expiration dating, and
responsibility for hazardous consequences. Reverse logistics also results from the
increasing number of laws encouraging the recycling of beverage containers and packaging
materials. The significant point concerning reverse logistics is the need to maintain
maximum control when a potential liability exists, such as potentially contaminated
product. A well-designed and coordinated reverse logistical capability is important when
firms are required to recall products. During 2010, Johnson & Johnson confronted the need
to recall several products. These recalls extended across several months involving a number
of different brands. The efficiency and effectiveness of their predetermined reverse logistics
capabilities were a major factor in the success of these recalls. The operational requirements
for reverse logistics range from lowest total cost, such as returning bottles for recycling, to
maximum control in situations involving defective products. Firms that design efficient
reverse logistics often are able to reclaim value by reducing the quantity of products that
might otherwise be scrapped or sold at a discount. Sound integrative strategy cannot be
formulated without careful review of reverse logistical requirements.
For some products, such as copying equipment and printers, primary profit lies in the
sale of supplies and aftermarket service. The importance of life cycle support is
significantly different in situations where in a majority of profits are achieved in the
aftermarket. For firms marketing consumer durables or industrial equipment, the
commitment to life cycle support constitutes a versatile and demanding marketing
opportunity as well as one of the largest costs of logistical operations. Life cycle support
requires cradle-to-cradle logistics. Cradle-to-cradle logistical support goes beyond reverse
logistics and recycling to include the possibility of aftermarket service, product recall, and
product disposal.

UNIT III
TOTAL QUALITY MANAGEMENT:

Quality – Meaning & Definition – Quality education – Efficiency v/s effectiveness –
drivers of quality – quality management –internal & external customers- vision statement –
Mission statement – objectives of QM – Targets – Action Plans – Principles of QM – Total
quality management :Evolution , Definition – Preparing for TQM – Stages in TQM
implementation – TQM models – TQM planning – TQM software.
INTRODUCTION
Our globalized economy is dominated by three Cs – Competition, Change and
Complexity. The best way to meet the challenge of the three Cs is to focus on our
customers. Once it is accepted that success begins and ends with the customer, we find
ourselves on to the path to Total Quality Management (TQM).
MEANING AND DEFINITION OF QUALITY
Quality is consistent conformance to customer expectations.
This means that when customer needs and wants change we have to change to
accommodate those needs, or we will no longer be delivering quality.
Total quality is the perfect control over all technical and business processes.
We never achieve total quality. However, this is the goal for companies that practice lean
manufacturing. Some people use the lean mterm lean thinking when lean manufacturing
techniques are used by non-manufacturing companies; but it is the same thing.
The dictionary has many definitions of “quality”. A short definition that has
achieved acceptance is: “Quality is Customer Satisfaction”. “Fitness for use” is an
alternative short definition. Here, customer means anyone who is impacted by the product
or process.
Quality is “a predictable degree of uniformity and dependability, at low cost and
suited to the market”.
Quality is a relative term, generally used with reference to the end-use of a product.
Quality should be aimed at the needs of the consumer, present and future.
According to ISO 8402, quality is “the totality of features and characteristics of a
product or service that bear on its ability to satisfy stated or implied needs”.

Broadly quality is:

a) Fitness for use
b) Grade
c) Degree of preference
d) Degree of excellence
e) Conformity to requirements
Dimensions of Quality: The following are the components reveal the dimensions of
quality.
Manufacturing and Service Industries
Product Features Accuracy
Performance Timeliness
Reliability Completeness
Durability Friendliness and courtesy
Ease of use Anticipating customer needs
Serviceability Knowledge of server
Aesthetics
Availability Reputation
Reputation
Quality Planning: Quality planning is the pre determined activities in order to achieve
conformation to the requirements. Many organizations are finding that strategic quality
plans and business plans are inseparable. The quality planning procedure given by
Joseph. A. Juran has the following steps:
· Identify the customers
· Determine their needs
· Translate those needs into our language.
· Develop a product that can respond to those needs
· Optimize the product features to meet our and customer needs
Quality Costs : All organizations make use of the concept of identifying the costs needed
to carry out the various functions – product development, marketing, personnel, production
etc.,
Until the 1950’s this cost concept had not been extended to quality function, except
for the departmental activities of inspection and testing.
During the 1950’s the concept of “Quality Cost” emerged. Different people assigned
different meanings to the term. Some people equated quality cost with the cost of attaining
quality; some people equated the term with the extra incurred due to poor quality. But, the

widely accepted thing is “Quality cost is the extra cost incurred due to poor or bad quality
of the product or service”.
Categories of Quality Cost: Many companies summarize quality costs into four broad
categories. They are (a) internal failure costs - The cost associated with defects that are
found prior to transfer of the product to the customer.
b) External failure costs - The cost associated with defects that are found after product is
shipped to the customer.
c) Appraisal costs - The cost incurred in determining the degree of conformance to quality
requirement.
d) Prevention costs - The cost incurred in keeping failure and appraisal costs to a minimum.
We can also include the hidden costs ie., implicit costs.
But higher quality doesn't mean higher costs. The companies estimate quality costs
for the following reasons:
a) To quantifying the size of the quality problem in the language of money improves
communication between middle managers and upper managers.
b) To identify major opportunities for cost reduction.
c) To identify the opportunities for reducing customer dissatisfaction and associated
threats to product saleability.
QUALITY EDUCATION
Quality education: - Many definitions of quality in education exist, testifying to the
complexity and multifaceted nature of the concept. The terms efficiency, effectiveness,
equity and quality have often been used synonymously
(Adams, 1993). Considerable consensus exists around the basic dimensions of quality
education today, however.
Quality education includes:
1. Learners who are healthy, well-nourished and ready to participate and learn, and
supported in learning by their families and communities;
2. Environments that are healthy, safe, protective and gender-sensitive, and provide
adequate resources and facilities;
3. Content that is reflected in relevant curricula and materials for the acquisition of
basic skills, especially in the areas of literacy, numeracy and skills for life, and
knowledge in such areas as gender, health, nutrition, HIV/AIDS prevention and
peace;
4. Processes through which trained teachers use child-centred teaching approaches in
well-managed classrooms and schools and skilful assessment to facilitate learning
and reduce disparities;

5. Outcomes that encompass knowledge, skills and attitudes, and are linked to national
goals for education and positive participation in society.
This definition allows for an understanding of education as a complex system
embedded in a political, cultural and economic context. This paper will examine research
related to these dimensions. It is important to keep in mind education’s systemic nature,
however; these dimensions are interdependent, influencing each other in ways that are
sometimes unforeseeable.
This definition also takes into account the global and international influences that
propel the discussion of educational quality (Motala, 2000; Pipho, 2000), while ensuring
that national and local educational contexts contribute to definitions of quality in varying
countries (Adams, 1993). Establishing a contextualized understanding of quality means
including relevant stakeholders. Key stakeholders often hold different views and meanings
of educational quality. Indeed, each of us judges the school system in terms of the final
goals we set for our children our community, our country and ourselves.
Definitions of quality must be open to change and evolution based on information,
changing contexts, and new understandings of the nature of education’s challenges. New
research — ranging from multinational research to action research at the classroom level—
contributes to this redefinition.
Systems that embrace change through data generation, use and self-assessment are
more likely to offer quality education to students. Continuous assessment and improvement
can focus on any or all dimensions of system quality: learners, learning environments,
content, process and outcomes.
EFFICIENCY V/S EFFECTIVENESS
The difference between efficient and effective is that efficiency refers to how well
you do something, whereas effectiveness refers to how useful it is.
For example, if a company is not doing well and they decide to train their workforce
on a new technology. The training goes really well - they train all their employees in record
time and tests show they have absorbed the training well. But overall productivity doesn't
improve. In this case the company's strategy was efficient but not effective. Quality
management includes both aspects. The following chart shows the comparative importance
of efficiency and effectiveness in quality management.
Effectiveness Efficiency
Efficiency is about doing things in an optimal

Effectiveness is about doing the
way, for example doing it the fastest or in the
Meaning: right task, completing activities
least expensive way. It could be the wrong
and achieving goals.
thing, but it was done optimally.
Effort
No Yes
oriented:

Effectiveness Efficiency
Process
No Yes
Oriented:
Goal
Yes Yes
oriented:
Time
No Yes
oriented:
QUALITY MANAGEMENT
Quality management is the process of identifying and administering the activities
needed to achieve the quality objectives of an organisation.
INTERNAL AND EXTERNAL CUSTOMERS
A customer is anyone who needs our help - in any, whichever, way.orA customer is
anyone we are trying to help.
There are two types of customers – external and internal:
1. External customers are outside the organization. They need our help with
information, purchase, and use of the product. Suppliers also are customers because
they need information and other inputs.
2. Internal customers include everyone in the organization. Everyone in the
organization plays three roles: supplier, processor and customer. Each person
receives something from someone (as a customer), does something with it (as a
processor) and passes it to a third individual (as a supplier).
It is necessary to satisfy all the needs of internal customers and keep them happy.
This has a big impact on how well they serve external customers. We have to very strongly
focus on our external customers - users and suppliers. There are at least six good reasons for
doing so:
1. The customer decides the worth of a product and service (henceforth collectively
called 'product'). She decides whether the value of the product is worth its price.
Value is a subjective measure of the benefits vis-à-vis cost of the product.
2. If the customer feels that the product has poor value she may not buy it. We cannot
let this happen.
3. Customer focus helps us understand her needs and wants. By giving her exactly what
she wants we ensure very good value for our offering. We win against competition
only by offering superior value.
4. Focus on capturing the "voice of the customer". To deliver superior value, a product
should be conceived, developed and delivered as per customer expectations.

5. When a product meets all customer expectations, it has Good Quality. Without
customer focus there is little chance that we can deliver superior products.
6. Customer focus is necessary because a one-size-fits-all solution is unacceptable. It
just does not deliver full value. This is why firms differentiate the market and
concentrate on serving customers who belong to a specific segment.
QUALITY STATEMENTS: VISION STATEMENT AND MISSION STATEMENT.
Core values and concepts provide the unity of purpose. In addition to that, the quality
statements include the vision statement, mission statement and quality policy statement.
They are the part of the strategic planning process.
Vision Statement: It is a short declaration of what an organization aspires to be tomorrow.
It is the ideal state that might never reach but which you continuously strive to achieve.
Example: We will be the preferred provider of safe, reliable, and cost-effective
products and services that satisfy the electric-related needs of all customer segments.
FLORIDA POWER & LIGHT COMPANY
Mission Statement: The mission statements answers the following questions :
Who we are? Who are the customers? What we do? And How we do it ?
It is the usually a one paragraph statement which describes the function of the organization.
It provides a clear statement of purpose for employees, customers and suppliers.
Example: To meet customers’ transportation and distribution needs by being the best
at moving their goods on time, safely and damage free.
CANADIAN NATIONAL RAILWAYS
OBJECTIVES OF QUALITY MANAGEMENT
The objective of quality management is to provide products which are dependable,
satisfactory and economical.
PRINCIPLES OF QUALITY MANAGEMENT
The principles are derived from the collective experience and knowledge of the
international experts who participate in ISO Technical Committee ISO/TC 176, Quality
management and quality assurance, which is responsible for developing and maintaining
the ISO 9000 standards. The eight quality management principles are defined in ISO
9000:2005, Quality management systems – Fundamentals and vocabulary, and in ISO
9004:2009, Managing for the sustained success of an organization –A quality management
approach.
Principle 1 – Customer focus
Principle 2 – Leadership
Principle 3 – Involvement of people
Principle 4 – Process approach
Principle 5 – System approach to management
Principle 6 – Continual improvement

Principle 7 – Factual approach to decision making
Principle 8 – Mutually beneficial supplier relationships
Principle 1 – Customer focus
Organizations depend on their customers and therefore should understand current
and future customer needs, should meet customer requirements and strive to exceed
customer expectations.
• Increased revenue and market share obtained through flexible and fast responses to
market opportunities
• Increased effectiveness in the use of the organization’s resources to enhance
customer satisfaction
• Improved customer loyalty leading to repeat business.
• Researching and understanding customer needs and expectations
• Ensuring that the objectives of the organization are linked to customer needs and
expectations
• Communicating customer needs and expectations throughout the organization
• Measuring customer satisfaction and acting on the results
• Systematically managing customer relationships
• Ensuring a balanced approach between satisfying customers and other interested
parties (such as owners, employees, suppliers, financiers, local communities and
society as a whole).
Principle 2 – Leadership
Leaders establish unity of purpose and direction of the organization. They should
create and maintain the internal environment in which people can become fully involved in
achieving the organization’s objectives.
• People will understand and be motivated towards the organization’s goals and
objectives
• Activities are evaluated, aligned and implemented in a unified way
• Miscommunication between levels of an organization will be minimized.
• Considering the needs of all interested parties including customers, owners,
employees, suppliers, financiers, local communities and society as a whole
• Establishing a clear vision of the organization’s future
• Setting challenging goals and targets
• Creating and sustaining shared values, fairness and ethical role models at all levels of
the organization
• Establishing trust and eliminating fear
• Providing people with the required resources, training and freedom to act with
responsibility and accountability
• Inspiring, encouraging and recognizing people’s contributions.

Principle 3 – Involvement of people at all levels are the essence of an organization and
their full involvement enables their abilities to be used for the organization’s benefit.
• Motivated, committed and involved people within the organization
• Innovation and creativity in furthering the organization’s objectives
• People being accountable for their own performance
• People eager to participate in and contribute to continual improvement.
• People understanding the importance of their contribution and role in the
organization
• People identifying constraints to their performance
• People accepting ownership of problems and their responsibility for solving them
• People evaluating their performance against their personal goals and objectives
• People actively seeking opportunities to enhance their competence, knowledge and
experience
• People freely sharing knowledge and experience
• People openly discussing problems and issues.
Principle 4 – Process approach
A desired result is achieved more efficiently when activities and related resources
are managed as a process.
• Lower costs and shorter cycle times through effective use of resources
• Improved, consistent and predictable results
• Focused and prioritized improvement opportunities.
• Systematically defining the activities necessary to obtain a desired result
• Establishing clear responsibility and accountability for managing key activities
• Analysing and measuring of the capability of key activities
• Identifying the interfaces of key activities within and between the functions of the
organization
• Focusing on the factors – such as resources, methods, and materials – that will
improve key activities of the organization
• Evaluating risks, consequences and impacts of activities on customers, suppliers
and other interested parties.
Principle 5 – System approach to management
Identifying, understanding and managing interrelated processes as a system contributes to
the organization’s effectiveness and efficiency in achieving its objectives.
• Ability to focus effort on the key processes

• Providing confidence to interested parties as to the consistency, effectiveness and
efficiency of the organization.
• Structuring a system to achieve the organization’s objectives in the most effective
and efficient way
• Understanding the interdependencies between the processes of the system
• Structured approaches that harmonize and integrate processes
• Providing a better understanding of the roles and responsibilities necessary for
achieving common objectives and thereby reducing cross-functional barriers
• Understanding organizational capabilities and establishing resource constraints prior
to action
• Targeting and defining how specific activities within a system should operate
• Continually improving the system through measurement and evaluation.
Principle 6 – Continual improvement
Continual improvement of the organization’s overall performance should be a
permanent objective of the organization.
• Performance advantage through improved organizational capabilities
• Alignment of improvement activities at all levels to an organization’s strategic
intent
• Flexibility to react quickly to opportunities.
• Employing a consistent organization-wide approach to continual improvement of
the organization’s performance
• Providing people with training in the methods and tools of continual improvement
• Making continual improvement of products, processes and systems an objective for
every individual in the organization
• Establishing goals to guide, and measures to track, continual improvement
• Recognizing and acknowledging improvements.
Principle 7 – Factual approach to decision making
Effective decisions are based on the analysis of data and information
• Informed decisions
• An increased ability to demonstrate the effectiveness of past decisions through
reference to factual records
• Increased ability to review, challenge and change opinions and decisions.
• Ensuring that data and information are sufficiently accurate and reliable

• Making data accessible to those who need it

• Analysing data and information using valid methods
• Making decisions and taking action based on factual analysis, balanced with
experience and intuition.
Principle 8 – Mutually beneficial supplier relationships
An organization and its suppliers are interdependent and a mutually beneficial
relationship enhances the ability of both to create value
• Increased ability to create value for both parties
• Flexibility and speed of joint responses to changing market or customer needs and
expectations
• Optimization of costs and resources.
• Establishing relationships that balance short-term gains with long-term
considerations
• Pooling of expertise and resources with partners
• Identifying and selecting key suppliers
• Clear and open communication
• Sharing information and future plans
• Establishing joint development and improvement activities
• Inspiring, encouraging and recognizing improvements and achievements by
suppliers.
TOTAL QUALITY MANAGEMENT
TQM is a process designed to focus on customer expectations, preventing problems,
building commitment to quality amongst all managers and staffs, and promoting open and
transparent decision making.
An organization must define its own version of TQM. This definition is its goal, in general
terms, of what it is trying to accomplish. It becomes a building block for the company's
vision, mission, and quality statements. It also helps to define the critical success factors
that will lead it to success
The success of a company depends largely on continuous quality improvement using
TQM. Implementing TQM requires action by everyone. What we need is integrated TQM
based on teams working on all fronts. We cover this separately in a subsequent presentation
EVOLUTION OF TOTAL QUALITY MANAGEMENT
The history of quality control is undoubtedly as old as industry itself.
In 1924, W.A. Shewhart of Bell Telephone Laboratories developed a statistical chart
of the control of product variables. This chart is considered to be the beginning of statistical
quality control.

Later in the same decade, H.F.Dodge and H.G.Romig, both of Bell Telephone
Laboratories, developed the area of acceptance sampling as a substitute of 100% inspection.
In 1946, the American society for Quality Control was formed. Recently the name
was changed into Americn Society for Quality (ASQ).
In 1950’s W.Edwards Deming emphasized about the management’s responsibility to
achieve quality.
In 1960’s the first quality control circles were formed for the purpose of quality
improvement.
In the late 1980’s the automotive industry began to emphasize statistical process
control.
After 1990’s the ISO became the model for a quality management system world
wide.
Quality Movement in India:
Before Independence in India, quality has been a tradition but not in a consolidated
form.
Walter Shewhart, the father of Statistical Quality Control, visited India for a short
period of three months during 1947-48 and initiated the SQC movements in Indian
companies.
The quality movement was consolidated in the 1980s in the Indian Industries to
bring out synergy of resources by the pioneering efforts of Confederation of Indian
Industries (CII)
Dr.W.Edward Deming, the father of Quality Control , who taught Japanese about
applying PDCA cycle (Deming Cycle) came to India in early 1950s.
The TQM movement in USA in 1980s triggered quality movement in India in the
year 1982 and Quality Circle was born.
Prof. Ishikawa , the founder of quality movement in Japan was invited by CII to
come to India to address Indian Industry in 1986.
CII organized a first major seminar with Joseph Juran in 1987.
CII provided a focus and an impetus to the quality movement by forming a TQM
division in 1987. By then the focus was shifted from quality circles to quality management.
CII set up the TQM division with the help of 21 companies who agreed to support
the journey of TQM in India. The chief executives of these companies formed a National
Committee on Quality.
CII also launched the first news letter on Quality.
The year 1987 brought the ISO 9000 standards into reality and visible strategies
emerged.

CII organized training programmes in ISO 9000 quality systems for international
standards and certification in the year 1989.
From the year 1991, Indian companies started to get the ISO 9000 certifications.
The concept of TQM spread over the service sector and technology apart from
engineering applications.
CII organized and launch of National Quality Campaign in 1992, led by the Prime
Minister of India and the “ Quality Summit ” organized by CII has now become an annual
feature across the country. The future thrust on quality movement in India would be based
on: Application Research ( Industry and Academics) Experience Sharing ISO certifications
Environmental protection, safety and consumer protection for quality enhancement.
DEFINITION OF TOTAL QUALITY MANAGEMENT
Definition of TQM: “Total Quality Management is a management approach that
tries to achieve and sustain long term organizational success by encouraging employee
feedback and participation, satisfying customer needs and expectations, respecting societal
values and beliefs, and obeying governmental statutes and regulations.”
Five Pillars of TQM are,
· Product
· Process
· System
· People
· Leadership
“Total Quality Management is an effective system for integrating the quality development,
quality maintenance and quality improvement efforts of various groups in an organization
continuously, so as to enable marketing, engineering, production and service at the most
economic levels which allow for full customer satisfaction.”
PREPARATION FOR TQM
The TQM is applied to many stages of Industrial Cycle which are listed below:
1. Marketing
2. Engineering
3. Purchasing
4. Manufacturing
5. Mechanical
6. Shipping
7. Installation and product service.

Fundamental factors affecting Quality: (9 M’s)

1. Market
2. Money
3. Management
4. Men
5. Motivation
6. Materials
7. Machines and Mechanization
8. Modern Information Methods
9. Mounting Product Requirements.
Benefits of TQM
Customer satisfaction oriented benefits
1. Improvement in product quality
2. Improvement in product design
3. Improvement in production flow
4. Improvement in employee morale and quality consciousness
5. Improvement in product service
6. Improvement in market place acceptance
Economic improvement oriented benefits:
1. Reduction in operating costs
2. Reduction in operating losses
3. Reduction in field service costs
4. Reduction in liability exposure.
Principles of TQM
Visionary leadership
Customer-driven excellence
Organizational and personal learning
Valuing employees and partners
Agility
Focus on the future
Managing for innovation
Management by fact
Public responsibility
Focus of results and creating values
Systems perspective
Quality Council:
In order to build quality in the culture, a quality council is established to provide
overall direction. It is the driver for the TQM engine.
In a typical organization the quality council is composed of the chief executive
officer (CEO); the senior managers of the functional areas, such as design, marketing,
finance, production, and quality; and a Coordinator or consultant.
Duties of the quality council:
a) To develop the vision, mission and quality statement of the organization, with the
input from all the personnel.
b) To develop strategic long-term plan with goals and annual quality improvement
program with objectives.
c) Create a total education and training plan.
d) Determine and continuously monitor the cost of poor quality.
e) Determine the performance measures of the organization and monitor.
f) Continuously determine those projects that improve and affect external and
internal customer satisfaction.
g) Establish multifunctional project and work group teams and monitor their
progress.
h) Establish and revise the recognition and reward system to account for the new
way of doing business.
TQM MODELS
In today’s global competition and economic liberalization, quality has become one
of the important factors for achieving competitive advantage. Quality management has
represented a rebirth in organization management with an emphasis on excellence. The
market offers different alternatives for quality management implementation, such as the
ISO standards, the European Foundation for Quality Management (EFQM) model, the
Malcolm Baldrige model or the Six Sigma methodology. The difficulty in implementation
of each initiative varies from case to case. The quality movement has gone through many
transformations. In the past, controlling quality meant that the product had to be inspected
after it was produced to check whether it met all the specifications or not. The
transformation from inspection mode to prevention mode is considered to be a very
important step in building quality from the very beginning of the manufacturing process.
The quality movement focused on building quality in every task that is performed in an
organization. Therefore, it was seen a dramatic shift in the quality management focus from

a concentration just on manufacturing, to a wide company spectrum of activities and, more

specifically, to the needs of the internal and external customers.
Promoting sustainable excellence in Europe is also the declared mission of the
European Foundation for Quality Management (EFQM), organization that defines
excellence as an expression of the following eight fundamental concepts: 1) Achieving
Balanced Results; 2) Adding Value for Customers; 3) Leading with Vision, Inspiration and
Integrity; 4) Managing by Processes; 5) Succeeding through People; 6) Nurturing Creativity
and Innovation; 7) Building Partnerships; 8) Taking Responsibility for a Sustainable Future.
It can observe that these concepts, which are the underlying principles of the EFQM
Excellence Model have explicit or implicit connections with the basic principles of TQM.
TQM EXCELLENCE MODELS
Business Excellence is “excellence” in strategies, business practices, and
stakeholder-related performance results that have been validated by assessments based on
specific models proven to support the challenging journey towards excellence. TQM
models are often called Business Excellence Models. Also, TQM itself is now often called
Business Excellence. TQM models as a key mechanism for improving the performance Of
organisations, as well as national competitiveness. The most popular of these models are
manifestations of principles of TQM implementation in the entire organisation. By far the
majority of organisations that use such a model do so for a self-assessment through they can
identify improvement opportunities, areas of strengths, using the model as a framework for
future organisational development.
3.1. The EFQM Model
The EFQM Excellence Model has recently been reviewed and revised so to align the
framework with current business needs and trends. Used as a tool for assessment, it delivers
a picture of how well the organization compares to similar or very different kinds of
organizations. As a management model, it can be used to define aspirations for the
organization’s capability and performance. EFQM model supports organizations in defining
what sustainability means, providing approaches for its implementation and ensuring
consistency between apparently conflicting responsibilities toward shareholders, employees
and society.
EFQM Excellence Model 2010
According to some recent estimation there are at least 76 countries operating a
national Business Excellence award and the Foundation (EFQM) believes that, in Europe
alone, at least 30,000 organisations use its model. The EFQM estimation is based on the
number of EFQM members, plus the members of its national partners and other
organisations about there are information that they use the model. The purpose of use varies
by the different managerial targets, from mergers up to self-assessment.
The Baldrige Model
The most popular and influential model in the western world is the one launched by
the US government called the Malcolm Baldrige Award Model (also commonly known as

the Baldrige model, the Baldrige criteria, or The Criteria for Performance Excellence).
More than 60 national and state/regional awards base their frameworks upon the Baldrige
criteria. In the US nearly two million copies of the Malcolm Baldrige Model (Figure 9)
have been distributed since the award’s launch in1988.
Malcolm Baldrige Model (six Sigma methodologies)
The Baldrige model provides a systems perspective for understanding performance
management and reflects validated, leading-edge management practices against which an
organisation can measure itself. With their acceptance nationally and internationally as
referential model for performance excellence, the Baldrige criteria represent a common
language for communication among organisations for sharing best practices.
The Australian model: Business Excellence Framework
The Australian model, named Business Excellence Framework (BEF), is defined as
an integrated leadership and management system that describes the elements essential to
sustainable organisational excellence” BEF is based on enduring principles of
organisational improvement that are interpreted according to individual business settings
using seven ‘Categories’ and seventeen sub-categories, or ‘Items’. The seven business
settings (Categories) are the following: information and knowledge; leadership; customer
and market focus; strategy and planning; people; process management, improvement and
innovation;
THE STATE OF “EXCELLENCE” IN ROMANIA
In Romania, “the journey” through TQM toward Business Excellence began in fact
after 1990 with the transition to the quality assurance approach. Very likely, the major
driving force was the imperative of EU integration that imposed a series of necessary
changes related to harmonizing national legislation, structures and procedures with those of
European Community countries.
In a pertinent analysis of the existing situation after a first decade of attempts aiming
at quality assurance.
This national Quality Award is based on the former version of EFQM Model, i.e. the
framework for European Quality Award used in Europe until 2000, so he adopted the same
criteria, sub-criteria and weights.
TQM PLANNING AND IMPLEMENTATION
There are seven basic steps to strategic quality planning.
a) Customer needs
b) Customer positioning
c) Predict the future
d) Gap analysis
e) Closing the gap
f) Alignment
g) Implementation

Strategic planning can be performed by any organization. It can be highly effective,

allowing organizations to do the right thing at the right time, every time.
Deming Philosophy
W. Edwards Deming, an American quality expert, become a Parama-Guru in Japan because
he preached the philosophical basis of quality and productivity, which was accepted,
absorbed and implemented with sustained positive results by the Japanese. The Highest
Award in the Japanese Industrial Circles is the Deming prize for quality. Dr. Deming
introduced the Plan –Do-Study-Act cycle to the Japanese decades ago. A Company plans a
change, does it, checks the results and depending upon the results, acts either to standardize
the change or to begin the cycle of improvement again with new information.
Continuous or never ending improvement requires such a circular approach.
Deming’s Philosophy is given in his 14 points of quality management. Most of these points
were given in a seminar for 21 presidents of leading Japanese industry in 1950. The rest
were developed and the original ones modified over a period of three decades.
1. Create and publish the aims and purposes of the organization.
2. Learn the new philosophy.
3. Understand the purpose of inspection.
4. Stop awarding business based on price alone.
5. Improve constantly and forever the system.
6. Institute training.
7. Teach and institute leadership.
8. Drive out fear, create trust and create a climate for innovation.
9. Optimize the efforts of teams, groups and staff areas.
10. Strive to eliminate intradepartmental conflicts
11. Eliminate exhortations for the work force.
a) Eliminate numerical quotas for the work force.
b) Eliminate Management by Objective.
12. Remove barriers that rob people of pride of workmanship.
13. Encourage education and self-improvement of everyone.
14. Take action to accomplish the transformation.
In addition he also pointed out the 7 deadly diseases that affecting the above transformation.
The Seven Deadly Diseases
1. Lack of constancy of purpose.
2. Emphasis on short-term profits.
3. Evaluation by performance, merit rating, or annual review of performance.
4. Mobility of management.
5. Running a company on visible figures alone.
6. Excessive medical costs.
7. Excessive costs of warranty, fuelled by lawyers that work on contingency fee.
A Lesser Category of Obstacles
1. Neglect of long-range planning.
2. Relying on technology to solve problems.
3. Seeking examples to follow rather than developing solutions.
4. Excuses such as "Our problems are different".
5. Others.
Barriers to TQM Implementation:
a) Lack of management commitment
b) Inability to change organizational culture
c) Improper planning
d) Lack of continuous training and education
e) Incompatible organizational structure and isolated individuals and department
f) Ineffective measurement techniques and lack of access to data and results
g) Paying inadequate attention to internal and external customers
h) Inadequate use of empowerment and team work
i) Failure to continually improve
TQM SOFTWARE
TQM software helps an organization to build and manage quality programs. Now
ERP ,SAP are commonly developed by organization for TQM through information
technology Enterprise resource planning (ERP) is a cross-functional enterprise system
driven by an integrated suite of software modules that supports the basic internal business
processes of a company. ERP gives a company an integrated real-time view of its core
business processes such as production, order processing, and inventory management, tied
together by ERP applications software and a common database maintained by database
management systems. ERP systems track business resources (such as cash, raw materials,
and production capacity) and the status of commitments made by the business (such as
customer orders, purchase orders, and employee payroll), no matter which department
(manufacturing, purchasing, sales, accounting, and so on) has entered the data into the
system. ERP facilitates information flow between all business functions inside the
organization, and manages connections to outside stakeholders.

Enterprise system software is a multi-billion dollar industry that produces

components that support a variety of business functions. IT investments have become the
largest category of capital expenditure in United States-based businesses over the past
decade. Enterprise systems are complex software packages that offer the potential of
integrating data and processes across functions in an enterprise. Although the initial ERP
systems focused on large enterprises, there has been a shift towards smaller enterprises also
using ERP systems.
Organizations consider the ERP system a vital organizational tool because it
integrates varied organizational systems and enables flawless transactions and production.
However, an ERP system is radically different from traditional systems development. ERP
systems can run on a variety of computer hardware and network configurations, typically
employing a database as a repository for information.
Systems, Applications, Products in data processing, or SAP
Systems, Applications, Products in data processing, or SAP, was originally
introduced in the 1980s as SAP R/2, which was a system that provided users with a soft
real-time business application that could be used with multiple currencies and languages.
As client–server systems began to be introduced, SAP brought out a server based version of
their software called SAP R/3, henceforth referred to as SAP, which was launched in 1992.
SAP also developed a graphical user interface, or GUI, to make the system more user
friendly and to move away from the mainframe style user interface.
For the next 10 years SAP dominated the large business applications market. It was
successful primarily because it was extremely flexible. Because SAP was a modular system
(meaning that the various functions provided by it could be purchased piecemeal) it was an
extremely versatile system. A company could simply purchase modules that they wanted
and customize the processes to match the company’s business model. SAP’s flexibility,
while one of its greatest strengths is also one of its greatest weaknesses that lead to the SAP
audit.
There are three main enterprise resource planning (ERP) systems used in today’s
larger businesses: SAP, Oracle, and PeopleSoft. ERP's are specifically designed to help
with the accounting function and the control over various other aspects of the company’s
business such as sales, delivery, production, human resources, and inventory management.
Despite the benefits of ERP’s, there are also many potential pitfalls that companies who
turn to ERP’s occasionally fall into.
***********

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EMERGING TRENDS

(2011 Admission Onwards)

EMERGING TRENDS IN MANAGEMENT

Prepared by: Sri. Ratheesh.K.Nair,

Scruitnised by: Dr. K. Venugopalan,

Layout & Settings: Computer Cell, SDE

EMERGING TRENDS IN MANAGEMENT Page 2

UNIT CONTENT PAGE

I SUPPLY CHAIN MANAGEMENT 05 - 29

III TOTAL QUALITY MANAGEMENT 56 - 74

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SUPPLY CHAIN MANAGEMENT

[Supply Chain Management : Meaning and definition components/participants of

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 Improving supply chain processes by including risk assessment measures.

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SUPPLY CHAIN PLANNING

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Customer Order Fulfilment

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can be made available in increasingly shorter times. In addition, improved information

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Business Logistics in the Firm

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ROLA =Contribution to revenue - logistics operating costs

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3. Cost ratio of material handling to material cost.

5. Recycling of packaging materials

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 Improved strategic focus: Using 3PLs companies can concentrate on their

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Supply Chain Management is a much broader, integrating process which entails

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The final factor affecting integrated logistics is the growth of just-in-time

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Logistics itself is performed under challenging conditions. The difficulty of

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