Integrating the Supply Chain

Pressures to Improve Logistics

Customers are more knowledgeable, and demand higher
quality, lower costs and better service.
Competition is getting fiercer, and organizations must look
at every opportunity to remain competitive.
There is changing power in the supply chain. Very large
retail chains demand customized logistics from their
suppliers.
Other changes in retail markets include the growth of 24hour opening, home deliveries, out-of-town malls, retail
parks, telephone and on-line shopping.
International trade continues to grow
Organizations are introducing new types of operation,
such as JIT, flexible manufacturing, etc.

Pressures to Improve Logistics

(contd)
Some organizations are turning from a product focus to a
process focus. This encourages improvement to
operations, including logistics.
There have been considerable improvements in
communication.
Organizations are increasing cooperation through
alliances, partnerships, and other arrangements.
Managers are recognizing the strategic importance of the
supply chain.
Attitudes towards transport are changing, because of
increased congestion on roads, concerns about air quality
and pollution, broader environmental issues, etc.

Current Trends in Logistics

Improving Communications
Improving Customer Service
Other significant trends:
Globalization
Reduced number of suppliers
Concentration of ownership
Outsourcing
Postponement
Cross-docking

Current Trends in Logistics

Direct delivery
Other stock reduction methods
Increasing environmental concerns
More collaboration along the supply chain

Three Important Themes

for Logistics to Consider

Lean Logistics

Agile Logistics

Integration

Integrating Logistics within an

Organization
Integrating logistics within an organization has all the
related activities working together as a single function.
This is responsible for all storage and movement of
materials throughout the organization. It tackles
problems from the viewpoint of the whole organization,
and looks for the greatest overall benefit.
In practice, it is difficult to integrate all the logistics
within an organization.
The supply chain consists of many different activities,
with different types of operation, using different
systems and geographically dispersed

Stages in Integration
1. Separate logistics activities are not given much
attention or considered important
2. Recognizing that the separate activities of logistics are
important for the success of the organization
3. Making improvements in the separate functions, making
sure that each is as efficient as possible.
4. Internal Integration recognizing the benefits of internal
cooperation and combining the separate functions into
one.
5. Developing a logistics strategy, to set the long-term
direction of logistics.
.

Stages in Integration
6. Benchmarking - comparing logistics performance
with other organizations, learning from their
experiences, identifying areas that need improvement
and finding ways of achieving this.
7. Continuous Improvement accepting that further
changes are inevitable and always searching for
better ways of organizing logistics.

Benefits of Integration
Genuine cooperation between all parts of the supply
chain, with shared information and resources
Lower costs due to balanced operations, lower
stocks, less expediting, economies of scale, elimination
of activities that waste time or do not add value
Improved performance due to more accurate
forecasts, better planning, higher productivity of
resources, rational priorities, and so on
Improved material flow, with coordination giving faster
and more reliable movements

Benefits of Integration
Better customer service, with shorter lead times, faster
deliveries and more customization
More flexibility, with organizations reacting faster to
changing conditions
Standardized procedures, becoming routine and wellpracticed with less duplication of effort, information,
planning, and so on
Reliable quality and fewer inspections, with integrated
quality management programs.

 Integration can be difficult and involve major

changes. There are, however, many benefits,
and most companies have moved in the direction
of internal integration.
There are also the benefits of extending
integration to more organizations in the supply
chain. There are several ways of organizing this
external integration, ranging from informal
agreements to vertical integration. The most
popular has some form of strategic alliance or
partnership.

Logistics Management

Logistics and Supply Chain

Case study
Seven-eleven convenience store
Describe the key logistics processes at 7-11.
What differences between the early reform
and the regional distribution center at 7-11.
What do you think are the main logistics
challenges in running the 7-11 operation.

Case study

First stage

No
distribution
center

Second stage

Centralized
distribution

Third stage

Built its own

distribution
center---joint
distribution

Key issues

What is supply chain,

and how is it
structured?

What is the purpose

of a supply chain?

The Supply Chain Concept

Development of the Concept
Total systems cost - remains an important element
of logistics analysis.
Outbound logistics the warehousing and
distribution of finished goods.
Inbound logistics the receiving and warehousing
of raw materials, and their distribution to
manufacturing as they are required.
Value chain analysis integrated logistics activities.

Business Logistics in a Firm

The Supply Chain management Concept

A supply chain is a group of partners who
collectively convert a basic commodity
(upstream) into a finished product
(downstream) that is valued by end-customers,
and who manage returns at each stage.

Definition

Planning and controlling all of the

processes that link partners in a
supply chain together in order to
serve needs of the end-customer.

Supply chain:
structure and tiering
The process starts with
several external suppliers
that move milk, cardboard,
and plastic to the processing
plant.
After the milk is processed
and packaged, it is delivered
to retailers, who sell it to
customers. The alternative
delivery system is delivery
from a warehouse directly to
customers homes.

Supply chain:
structure and tiering

Supply chain can be fairly

complex. The supply
chain for a car
manufacturer includes
hundreds of suppliers,
dozens of manufacturing
plants (for parts) and
assembly plants (for
cars), dealers, direct
business customers,
wholesalers, customers,
and support functions
such as product
engineering and
purchasing.

Logistics concept

The task of coordinating

Definition material flow and information
flow across the supply chain.

Activity 1
Wheat

Flour

Praline

Printed
materials

Confectionery
manufacturer

Fiberboard

Multiple
retailers

Wafers

Chocolate

Aluminium

Packing

Wholesalers

End
customers

Others
(hospital etc.)
Creamery
(milk)

Cocoa
beans

Sugar

Vegetable
oil

Cocoa
butter

Lecithin

Emulsifiers,
Salt, etc.

Key issue

What is the relationship between

material flow and information
flow?

Case study: Seven-eleven

Case study: Seven-elevens distribution

strategy
Delivery arrives from over 200 plants
Delivery is cross docked at DC (over 80 DCs
for food)
Food DCs store no inventory
Combined delivery system: frozen foods,
chilled foods, room temperature and hot
foods
11 truck visits per store per day (compared
to 70 in 1974)
No supplier (not even coke!) delivers direct

Case study: Seven-elevens

Information Strategy
Quick access to up to date information (as
contrasts with data)
High speed data network linking stores, headquarters,
DCs and suppliers
Store hardware

Store computer
POS registers linked to store computer
Graphic Order Terminals
Scanner terminals for receiving

Integrated Logistics Management

Material and information flow

Material and information flow

Material flow

Information flow

Key issues

How do products win

orders in the
marketplace?

How does logistics

contribute to
competitive advantage?

Creating logistics advantage: three

basic ways
time

quality

Logistics advantage

cost

Creating logistics advantage:

controlling variability

Variability undermines the dependability with which a product or

service meets target.

Order winners and order qualifiers

Different logistics
performance
objectives
Order winners
are factors that directly and
significantly help products to
win orders in the
marketplace.
Customers regard such
factors as key reasons for
buying that product or
services.

Order qualifiers
are factors that are regarded
by the market as an entry
ticket.
Unless the product or service
meets basic performance
standards, it will not be taken
seriously.

The value chain: Linking supply chain

and business strategy
Business Strategy
Supply Chain Strategy
New Product
Strategy

Marketing
Strategy

New
New
product
Product
Development
Development

Marketing
Marketing
and and Operations
OperationsDistribution
Sales
Sales

Service

Finance, Accounting, Information Technology, Human Resources

How to Achieve Strategic Fit

Understanding the Customer
Lot size
Response time
Service level
Product variety
Price
Innovation

How to measure?

Implied Demand
Uncertainty

Levels of Implied Demand Uncertainty

High Fashion

Detergent

Customer Need
Price

Responsiveness

Low

High

Implied Demand Uncertainty

Understanding the Supply Chain: CostResponsiveness Efficient Frontier

Responsiveness
High

Low

Cost
High

Low

Achieving Strategic Fit

Responsive
supply chain

of it
e
n ic F
o
Z eg
t
ra
t
S

Responsiveness
spectrum

Efficient supply
chain
Certain
demand

Implied
uncertainty
spectrum

Uncertain
demand

Strategic Scope
Suppliers Manufacturer Distributor
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy

Retailer

Customer

Drivers of Supply Chain Performance

Competitive strategy
Efficiency

Responsiveness

Supply chain strategy and structure

Inventory

Transportation
Drivers

Facilities

Information

Considerations for Supply Chain Drivers

Driver

Efficiency

Responsiveness

Inventory

Cost of holding

Availability

Transportation

Consolidation

Speed

Facilities

Consolidation /
Proximity /
Dedicated
Flexibility
What information is best suited for
each objective

Information