Contents

Dedication ...........................................................................................................v
Preface ...............................................................................................................vii
Acknowledgements ............................................................................................xi

PART ONE: CONCEPTS AND STRATEGIC ISSUES

1. Supply Chain Management: An Evolutionary View ....................................3

1.1 Overview of Supply Chain Management .............................................3
1.2 Supply Chain Management in E-Biz Environment: Virtual
Integration ............................................................................................7
1.3 An Evolution: From Material Management to Supply Chain
Management .........................................................................................9
1.4 Supply Chain Management Models ..................................................12
1.4.1 Competitive priorities and manufacturing strategy ..................12
1.4.2 Efficient supply chain and responsive supply chain ................ 13
1.4.3 Clock-speed of product, process, and organization
life cycles .................................................................................14
1.4.4 Pull and push processes ............................................................15
1.5 Collaborative Planning, Forecasting, and Replenishment
(CPFR) – An e-Biz Solution to Transforming Demand .....................17
1.5.1 The basics of CPFR ..................................................................17
1.5.2 Major activities of CPFR ..........................................................19
1.5.3 CPFR in practice .......................................................................20
1.6 Issues of Supply Chain Management in a Global Setting ..................21
1.6.1 SCM issues in the US ...............................................................22
1.6.2 SCM issues in Europe ..............................................................22

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xiv Supply Chain Management: Concepts, Techniques, and Practices

1.6.3 SCM issues in Asia ...................................................................24

1.6.4 SCM Issues in Latin America ...................................................25
1.7 Summary .............................................................................................26
1.7.1 Supply chain management challenges ......................................26
1.7.2 Road map for supply chain management .................................27
References ..................................................................................................29

2. The Right Design of Supply Chain: Examples............................................31

2.1 Design the Right Supply Chain ..........................................................31
2.2 Responsive Supply Chain in Manufacturing Industry ........................33
2.2.1 Responsive supply chain and fast clock-speed
product – Personal computer ....................................................33
2.2.2 Responsive supply chain and medium clock-speed
product – Automobile industry ................................................34
2.2.3 Responsive supply chain and slow clock-speed
product – Commercial aircraft .................................................36
2.3 Efficient Supply Chain in Manufacturing Industry ............................37
2.3.1 Efficient supply chain and fast clock-speed
product – Apparel industry ......................................................37
2.3.2 Efficient supply chain and medium clock-speed
product – Beer industry ............................................................39
2.3.3 Efficient supply chain and slow clock-speed
product – Steel industry ...........................................................40
2.4 Service Industry ..................................................................................42
2.4.1 The book industry – Amazon.com ...........................................42
2.4.2 The retail industry – Wal-Mart .................................................43
2.5 Synchronizing Supply Chain ..............................................................45
2.5.1 Linking manufacturer to retailer – HP and Wal-Mart ..............45
2.5.2 Linking suppliers to manufacturers – Covisint .........................45
2.6 Lessons to Learn .................................................................................47
2.6.1 Retail industry – K-Mart ..........................................................47
2.6.2 PC industry – IBM ...................................................................49
2.7 Summary ............................................................................................50
Questions for Pondering .............................................................................51
References ..................................................................................................52
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PART TWO: PURCHASING, SUPPLY NETWORK,

STRATEGIC SOURCING

3 Purchasing and e-Procurement ...................................................................57

3.1 The Role of Purchasing ......................................................................57
3.1.1 Introduction to purchasing ........................................................57
3.1.2 Evolution of purchasing and supply chain management ..........59
3.1.3 Commodity types and purchasing strategy ...............................62
3.1.4 Centralized purchasing vs. decentralized purchasing ...............63
3.2 Purchasing Procedure .........................................................................66
3.2.1 Supplier market analysis ..........................................................66
3.2.2 Types of request .......................................................................66
3.2.3 Purchasing plan implementation ..............................................67
3.3 e-Procurement Marketplace ...............................................................69
3.3.1 The role of technology in purchasing .......................................69
3.3.2 Vertical and horizontal partnership ..........................................70
3.3.3 One or many relationships ........................................................70
3.3.4 e-Marketplace ...........................................................................72
3.3.5 Supplier-oriented marketplace ..................................................72
3.3.6 Buyer-oriented marketplace .....................................................73
3.3.7 Intermediary-oriented marketplace ...........................................73
3.3.8 Disintermediation and reintermediation ...................................74
3.4 Green Purchasing ...............................................................................75
3.5 Total Cost of Ownership Analysis in Purchasing ...............................76
3.6 Enhancing Value through e-Procurement ..........................................77
3.7 Purchasing Performance Metrics ........................................................79
3.7.1 Efficiency metrics of purchasing ..............................................79
3.7.2 Effective metrics of purchasing ................................................80
3.8 Summary ............................................................................................81
Questions for Pondering .............................................................................81
Problems .....................................................................................................82
References ..................................................................................................83

4. Supplier Relations and Strategic Sourcing .................................................85

4.1 The Basics of Supplier Relations .......................................................85
4.1.1 Types of supply relations .........................................................85
4.1.2 Strategic sourcing .....................................................................88
4.1.3 Supplier base development .......................................................88
xvi Supply Chain Management: Concepts, Techniques, and Practices

4.2 Supplier Selection ..............................................................................91

4.2.1 Value analysis ..........................................................................91
4.2.2 Techniques: Decision model for supplier selection .................93
4.2.2.1 Preference matrix ........................................................93
4.2.2.2 Make-or-buy decision ..................................................94
4.2.2.3 Decision tree ................................................................95
4.2.3 Supply certificate – ISO series .................................................98
4.2.4 Trust and commitment ..............................................................99
4.3 Outsourcing ......................................................................................100
4.3.1 Creating outsourcing vision ...................................................100
4.3.2 Model for implementing outsourcing .....................................101
4.3.3 Outsourcing benefits and risks ...............................................103
4.4 Third Party Logistics and Fourth Party Logistics .............................105
4.4.1 Third party logistics practices ................................................105
4.4.2 Fourth party logistics practices ...............................................106
4.5 Enhancing Value through Supplier Relations and Strategic
Sourcing ...........................................................................................107
4.6 Sourcing Performance Metrics .........................................................108
4.7 Summary ..........................................................................................108
Questions for Pondering ...........................................................................109
Problems ...................................................................................................109
References ................................................................................................112
Supplement 4.1: Discount Cash Flow Analysis .......................................113

PART THREE: DEMAND TRANSFORMATION IN SUPPLY CHAIN

5. Demand Management: Customer Order Forecast ....................................117

5.1 Demand Management through Collaborative Forecasting ...............117
5.1.1 Forecast characteristics ..........................................................118
5.1.2 Forecast in efficient supply chain vs. responsive
supply chain ...........................................................................119
5.1.3 A better method: Collaborative forecasting in
supply chain ...........................................................................120
5.2 Components of Demand Forecast ....................................................122
5.2.1 Patterns of demand .................................................................122
5.2.2 Forecast process .....................................................................124
5.3 Determine Forecasting Methods ......................................................127
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5.3.1 Moving average ......................................................................127

5.3.2 Weighted moving average ......................................................128
5.3.3 Exponential smoothing ...........................................................129
5.3.4 Double exponential smoothing for trended data .....................130
5.3.5 Multiplicative seasonal method for seasonal data ..................132
5.4 Reduce Forecast Variability .............................................................134
5.4.1 Sources of variability ..............................................................134
5.4.2 Measure variability .................................................................135
5.4.2.1 Measure bias and accuracy ........................................136
5.4.2.2 Tracking signal ..........................................................137
5.4.3 Reduce demand variability and increase production
flexibility ................................................................................138
5.5 Demand Management: Forecasting in e-Business Environment ......139
5.5.1 Enhance value through synchronize demand forecast ............139
5.5.2 Delayed differentiation and postponement .............................140
5.6 Demand Management Performance Metrics ....................................141
5.7 Summary ..........................................................................................141
Questions for Pondering ...........................................................................142
Problems ..................................................................................................142
Supplement 5.1: Synchronizing Production and Inventory
Management in Supply Chain: Introduction to Beer Game ......................145
References ................................................................................................147

6. Transforming Demand in Supply Chain: Production Planning and

Scheduling ................................................................................................149
6.1 Transforming Demand through Production Planning .......................149
6.1.1 Aggregate planning ...............................................................151
6.1.2 Dimensions of aggregation planning ......................................152
6.1.3 Planning alternatives ..............................................................152
6.1.4 Planning strategies ..................................................................153
6.2 Master Production Schedule .............................................................153
6.2.1 The basics of master production scheduling ...........................153
6.2.2 Available to promise .............................................................158
6.2.3 Available to sell ......................................................................158
6.2.4 e-Business solution – Global available to promise .................158
6.3 Collaborative Planning .....................................................................159
6.3.1 Overview of collaborative planning .......................................159
6.3.2 Pull and push boundary in production planning ....................161
xviii Supply Chain Management: Concepts, Techniques, and Practices

6.3.3 Manufacturing flexibility .......................................................163

6.3.4 Synchronization – HP example ..............................................165
6.4 Demand Transformation ...................................................................166
6.4.1 Enhancing value through demand transformation in
supply chain ...........................................................................166
6.4.2 Demand transformation performance metrics ........................167
6.5 Summary ..........................................................................................168
Questions for Pondering ...........................................................................169
Problems ..................................................................................................169
References ................................................................................................170

7. Managing Inventories in Supply Chain ....................................................173

7.1 Brief History of Inventory Management ..........................................173
7.2 Inventory Concepts ..........................................................................175
7.2.1 Definition of inventory ...........................................................175
7.2.2 Purpose of holding inventory .................................................176
7.2.3 Inventory for independent and dependent demand .................177
7.2.4 Inventory costs .......................................................................178
7.2.5 The cost of inaccurate inventory ............................................178
7.2.6 Inventory measures .................................................................180
7.3 Managing Inventory Cost – EOQ-Based Inventory Models ............181
7.3.1 Economic order quantity ........................................................181
7.3.2 Inventory replenishment – Reorder point system ...................183
7.3.3 Inventory replenishment – Periodic review system ................184
7.4 Improving Customer Service Level: Managing Safety Stock ..........185
7.4.1 Safety stock ............................................................................185
7.4.2 Cycle service level ..................................................................186
7.4.3 Fill rate ...................................................................................187
7.5 New Initiatives e-Business Initiatives for Inventory
Management .....................................................................................191
7.5.1 Bullwhip effects and information sharing ..............................191
7.5.2 Push-pull strategy in inventory management .........................192
7.5.3 Vendor managed inventory ....................................................193
7.5.4 Inventory reduction: Lean inventory systems ........................194
7.5.5 Issues related to information technology ................................196
7.6 Enhancing Value through Inventory Management in
Supply Chain ....................................................................................197
7.7 Inventory Management Performance Metrics ..................................198
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7.8 Summary ..........................................................................................199

Questions for Pondering ...........................................................................199
Problems ...................................................................................................199
Supplement 7.1: Quantity Discount .........................................................202
Supplement 7.2: Risk Pooling ..................................................................210
References ................................................................................................211

PART FOUR: TRANSPORTATION AND LOGISTICS

8. Logistic Network and Distribution ...........................................................215

8.1 Logistics in Supply Chain Management ...........................................215
8.1.1 Facility configuration of global supply chain .........................216
8.1.2 Reversed logistic network ......................................................218
8.2 Data for Logistic Network Planning .................................................220
8.2.1 Data sources ...........................................................................220
8.2.2 Data check list ........................................................................221
8.3 Techniques for Logistic Network Configuration ..............................221
8.3.1 Optimization models ..............................................................222
8.3.2 Computer simulation ..............................................................222
8.3.3 Heuristics model .....................................................................222
8.3.4 Expert systems and decision support systems ........................223
8.4 Facility Location and Configuration ................................................223
8.4.1 Single facility location ............................................................223
8.4.1.1 The center of gravity method ....................................223
8.4.1.2 The median method ...................................................228
8.4.2 Configure multiple facilities ...................................................230
8.5 Warehouse ........................................................................................235
8.5.1 Nature and importance of warehouse .....................................235
8.5.2 Warehouse in supply chain .....................................................237
8.5.2.1 Public and private warehouse ....................................237
8.5.2.2 Types of warehouse ..................................................239
8.5.3 Cross docking .........................................................................239
8.6 Enhancing Value through Logistics Management in
Supply Chain ....................................................................................240
8.7 Summary ..........................................................................................240
Questions for Pondering ...........................................................................241
xx Supply Chain Management: Concepts, Techniques, and Practices

Problems ...................................................................................................241
References ................................................................................................243

9. Transportation Systems and e-Distribution ..............................................245

9.1 Transportation ..................................................................................245
9.1.1 Carriers ...................................................................................246
9.1.2 Shippers ..................................................................................247
9.2 Overview of Carrier Operations .......................................................247
9.2.1 Motor carrier ..........................................................................247
9.2.2 Railroads ................................................................................249
9.2.3 Water carrier ...........................................................................250
9.2.4 Air carrier ...............................................................................251
9.2.5 Pipeline ...................................................................................251
9.2.6 Intermodal service ..................................................................252
9.2.7 Shipping containers ................................................................253
9.3 The Network of Shipper and Carrier in e-Distribution .....................254
9.3.1 Carrier side e-Distribution ......................................................254
9.3.2 Shipper side e-Distribution .....................................................255
9.3.3 The network of shipper and carrier in e-Distribution .............256
9.4 The Rise of Intermediaries in Transportation ...................................257
9.4.1 The rise of intermediaries .......................................................257
9.4.2 Third party logistics in transportation service ........................258
9.4.3 Fourth party logistics in transportation service ......................259
9.5 Trade-off of Transportation and Inventory Costs .............................260
9.6 Vehicle Routing and Scheduling ......................................................262
9.6.1 Characteristics describing vehicle routing ..............................264
9.6.2 Solution procedure for vehicle routing and scheduling ..........264
9.6.3 e-Business tools for creating routes ........................................270
9.7 Railway Freight Car Scheduling ......................................................270
9.7.1 Railway system ......................................................................271
9.7.2 Characteristics describing railway freight scheduling ............271
9.8 Enhancing Value through Transportation ........................................273
9.9 Summary ..........................................................................................274
Questions for Pondering ...........................................................................274
Problems ...................................................................................................275
References ................................................................................................277
Appendix 1: World Container Ports: Top 25 2001-2003 .........................278
Appendix 2: Airport Cargo Loading & Unloading: Top 25 2001-2003 ...279
 Contents xxi

PART FIVE: e-BUSINESS SOLUTIONS

10. e-Business Solutions: The Enabler of Global Supply Chain ....................283

10.1 e-Business Solutions: The Enabler of Global Supply Chain ..........283
10.1.1 Global supply chain ...........................................................283
10.1.2 e-Solution outsourcing: A perceivable trend ......................284
10.2 Enterprise Information Systems (EIS) ...........................................285
10.2.1 Business process re-engineering: The foundation for
implementing EIS ..............................................................286
10.2.2 Legacy systems .................................................................287
10.2.3 Client / server technology ..................................................288
10.2.4 Major modules of EIS systems ..........................................289
10.2.5 Major EIS systems vendors ................................................290
10.2.6 Small and mid-size EIS market ..........................................292
10.3 Customer Relation Management (CRM) .......................................293
10.3.1 CRM’s relation to supply chain management ....................293
10.3.2 CRM implementation .........................................................294
10.4 Other e-Business Solutions ............................................................295
10.4.1 Collaborative planning, forecasting, and
replenishment (CPFR) ........................................................296
10.4.2 e-Hub .................................................................................297
10.4.3 Electronic product code: radio frequency ID (RFID) .........298
10.4.4 Global available-to-promise (GATP) .................................299
10.4.5 Vendor managed inventory (VMI) .....................................300
10.4.6 Cross docking .....................................................................301
10.4.7 Geographic information systems (GIS) ..............................301
10.5 Technology Standardization of e-Business ....................................302
10.5.1 Electronic data interchange (EDI) ......................................302
10.5.2 Extensible markup language (XML) ..................................303
10.6 Enhancing Value through e-Business Applications .......................304
10.7 Summary ........................................................................................305
Questions for Pondering ...........................................................................305
References ................................................................................................306

11. Business Intelligence in Supply Chain Management: Data,

Information, and Knowledge.....................................................................307
11.1 Business Intelligence .....................................................................307
11.1.1 Business intelligence definition .........................................307
xxii Supply Chain Management: Concepts, Techniques, and Practices

11.1.2 Business intelligence value chain .......................................308

11.2 The Value of Business Intelligence ................................................311
11.2.1 Bullwhip effects ................................................................311
11.2.2 Effects of information flow on material flow .....................312
11.3 Data, Information, and Knowledge in Supply Chain
Management ...................................................................................313
11.3.1 Data collection and organization ........................................313
11.3.2 Information extraction ........................................................314
11.3.3 Knowledge management ....................................................316
11.4 Business Intelligence Methodology ...............................................316
11.4.1 Data warehousing ...............................................................316
11.4.2 Data mining ........................................................................317
11.5 Enhancing Value through Knowledge Managing in
Supply Chain ..................................................................................318
11.6 Summary ........................................................................................319
Questions for Pondering ...........................................................................319
References ................................................................................................320
Appendix 3: Data Mining and Warehousing Tools and Vendors .............321

PART SIX: SUPPLY CHAIN PERFORMANCE AND EVALUATION

12. Performance Measures: From Order Winning to Order Fulfillment ........325

12.1 Introduction ....................................................................................325
12.2 Order Winning in Supply Chain ....................................................325
12.2.1 Identify and capture the right customers ............................325
12.2.2 Create a customer-responsive supply chain ......................326
12.3 Fulfillng Orders in Supply Chain ...................................................327
12.3.1 Creating a collaborative, flexible and cost-efficient
order fulfillment process ....................................................327
12.3.2 Choosing the right technology to support supply
chain operations .................................................................328
12.3.3 Fulfilling customer orders in supply chain .........................329
12.4 Financial Measurement ..................................................................329
12.4.1 Inventory measures ............................................................330
12.4.2 Relationship of supply chain variables to income
statement ............................................................................330
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12.4.3 The shortcomings of financial performance .......................332

12.5 The Supply Chain Operations Reference Model (SCOR) ..............333
12.6 The Balanced Scorecard .................................................................335
12.7 The Future of Supply Chain Management .....................................336
Questions for Pondering ...........................................................................338
References ................................................................................................338

Subject Index ...................................................................................................339

Company Index ...............................................................................................345