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8/10/2019 Supply Chain Management an Introduction to Logistics
1/25
6 AN OV RVI W OF SUPPLY CH IN M N GEMENT
identification
of
the high costs of logistics - with improvements bringin
significant benefits
increasing concerns about risks and vulnerability
of
extended supply chains
a movement away from confrontational relationships and towards cooperatiol'
through alliances, partnerships, collaboration and
other
arrangements. (We
develop this theme in hapter 5.)
hanges in the nature
of
mark
ets
broad
demands
for faster deliveries,
with
materials moving quickly, gi
vi
n
shorter lead times
fiercer compet ition forcing organisations
to
grab every oppor tunity to improvt:
operations
global operations meani
ng that new compet
i
to
rs are continually enterin
established markets
movement of power in supply chains downstream to retailers and customers
concentration
of ownership
meaning that
a
few
large companies get economies
of scale and dominate many industries (as you can see in
the
retail sector that
is
dominated
by chains such as Wal-Mart, Tesco, Toys-R-
Us
and McDonald's)
other changes in retail markets, such as 24-hour opening, home deliveri
es,
out
-of-town
shopping
malls, retail parks, telephone and
online
shopping.
h
nges in the nature
of cus
tomers
growing emphasis on customer satisfaction- and recognition that this depen
ds
on
logistics
more knowledgeable customers who use technology to compare products from
widely dispersed suppliers
more demanding customers who want higher quality, lower costs, fas ter
delivery and generally better service.
hang
es in
busin
e
ss operations
new types of operations - such as just-in-time, lean operations, time com
pression, flexible manufacturing, mass customisation and virtual operations -
which need new services from logistics
improved communications allowing electronic data interchange (EDl), elec
tronic fund transfer
EFT)
, e-commerce, radio frequency identification (RFID
improved contacts with trading partners, point-of-sales-data (POS ), globa.
positioning, satellite navigation, and so
on
broader effects of technology giving improved vehicle design, automated
warehouses, driverless vehicles, new materials for packaging,
and
so
on
8/10/2019 Supply Chain Management an Introduction to Logistics
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DEVELOPMENT OF LOGIST I CS
Organisations focusing on their core operations nd outsourcing periph
eral activities to third parties with services like transport nd warehousing
increasingly outsourced)
m ny organisations adopting a process focus, moving their focus away from a
certain product nd towards the whole process of salisfying customer demand.
hanging
views
of society
Changing ttitudes towards transport, wi th growing concerns about road
congestion, air pollution, environmental damage, waste disposal, road con
struction, safety, nd a host of other green issues.
Traditionally, governments controlled transport, either by public ownership or
regulation, but since the 1970s there has been widespread deregulation of t
he
industry.
This seems like a long list, but it really only begins to describe the pressures
for change. There are many others, including uncertain market conditions,
price inflation, political change, shortage of skilled staff, fluctuating exchange
rates, new customer demands, industrial disagreements, potential accidents, wars,
ch
ange
of
ownership -
nd m ny
more. The result
is
th t
logistics managers are
under const nt pressure to change. They can
not
sit back nd enjoy the status
quo; as more entrepreneurial
comp
etitors will change their own operations to
gain n advantage. Even when a company has
the
best logistics available, this is
only temporary,
as
competitors are always improving their own operations nd
will soon catch up nd overtake.
So the question
is,
how do managers respond to these pressures, nd how is
logistics changing?
We
start to answer this in
the
rest of the chapter. As logistics
managers face many common pressures, it is not surprising th t they often adopt
similar solutions. This creates obvious trends in
the
industry, such as increasing
globalisation, growth of e-business, outsourcing, reducing stock levels, nd so
on. We can review some of the most obvious trends, starting with an increased
emphasis
on
customer satisfac
ti
on.
LOGISTICS
IN
PR CTICE
- CONCERNS ABOUT SUPPLY
CH INS
In 2001 Warwick Business School's Operations Management Group ran
a
survey to identify
con-
cerns
about the
supply cha
in. Interestingly, customer satisfaction did not appear explicitly
in the
survey,
with
the most common management worries reported as:
actor
osts
Integration of
the
supply chain
Globalisation
Procurement
of
respondents
100
86
71
57
37
8/10/2019 Supply Chain Management an Introduction to Logistics
3/25
38 AN OVERVIEW
OF
SUPPLY CH
AIN MANAGEMENT
Customer satisfaction
depends on logistics
meeting, and
preferably
exceeding,
customer
expectations
LOGISTICS IN PRACTICE - CONCERNS ABOUT SUPPLY
CHAINS
CONTINUED)
l . -
--- --- -
Managers did not seem to
be making
much progress,
even
in areas
they were
concerned about.
For instance
integration was clearly
consider
ed
important
with 70 of respondents
saying
that
more
integration
was needed
to reduce costs. However few
organisations
reported
any
real
progress
in this direction,
and
almost
none had achieved
widespread integration. Managers
typi
cally (in 88 of organisations)
said
that they could not increase
integration
because of difficulties
in
merging systems and consolidating electro
nic
data links. Similarly,
many managers regarded
e-business
as the
major
challenge - and opportunity-
facing
business. Yet less than 40 felt that
e-procurement
was
a
strategic issue
and
only
36
includ
ed it
in
a
written strategy.
I
Question
I re you surprised
by
this survey result?
What
factors wou
ld
you expect
logi
stics managers
to
j
be
most
concerned about?
(Sources:
Anon.
(2001) Logistics and Transport ocus 3(1) 48-9 and www.lefevre.co.uk)
ustomer satisfaction
Cus1oml r sa
ti
sfaction
is
clearly one of
the
drhing forces of logistic
s.
The basic
requir
ement
is that customers get products delivered with the level of service
that they expect. A more ambit ious target
is
to give a better level of servi ce than
expected, hopefully leaving customers completely satisfied.
ustomer
satisfaction
depends
on logistics meeting
- and
preferably
exceeding -
customer
expectations.
It is
in
everyone s interest to achieve customer satisfaction so that customers
have the deliveries they want and suppliers can look forward to repeat busi
ness. Unfortunately, it is
mor
e difficult
to
get agreement
on
how to achieve t
hi
s
satisfaction, as customers judge logistics by the product availability, reliability
of
deliveries total travel time travelled, total distance travelled, delivery cost,
information available, order tracking, on- time deliveries, mistakes in deliveries,
comp
laints, frequency of delivery service, loss
and
damage, veh icle utilisation,
consistency-
and
a whole series of
other
factors. Each
of
these
can
be important,
and customers usually judge a service by a mixture of different ones, perhaps
assigning a different weight to each. For instance, a company with a strategy of
cost minimisation will put a lot of weight
on
the cost of logistics, but will also
consider the lead time to make a delivery, reliability, damage, mistakes, and other
relevant factors.
8/10/2019 Supply Chain Management an Introduction to Logistics
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DEVELOPMENT OF LOGIS TI CS
Different views of service
Some aspects of service can be directly measured, and then it is relatively easy to
define a Customer service.
Customer service
is
a
measure or
set of
measures)
, which
show
how well logistics
is
performing.
If
a shop has a particular product
on
its shelves for 95
of
the time, managers
have a clear measure
of
customer service. But
other
factors
cannot be
directly
measured and rely
on
judgement, such as courtesy of staff, ease of ordering,
flexibilit
y,
and delivery conditions. These are more difficult to include
in
a service
measure,
but
they are still important.
People often assume
that
customer satisfaction
and
service are
the
same,
and a
lth
ou
gh
they are related
the
y are essentially different. Service uses objec
tive measures to show how well logistics is performing; satisfaction is more
subjective and takes a customer's perspective. This illustrates a divergence
between:
an
internal
view
of
suppliers ,
who
largely consider a service
in
terms
of
cost
and efficiency
an
external
view
of
custome
rs
, who judge a service by how pleased
they
are
with
the result.
You can see the difference when airline executives want resources used fully
with higher seat occupancy (an internal view), a
nd
passengers prefer low seat
occupancy so
they
have
room
to move about (an external view). The prob
lem is
that when
managers focus
on the in
ternal view they get a very efficient
service,
but one
that customers
do not
like; and
when
they focus
on
the exter
nal view customers like
the
service, b
ut it
is ineffici
en t.
So logistics managers
always have to look for trade-offs between
the
two -
and
this returns
to
the
balance between cost and service
that
we mentioned in
hapte
r 1. This is a
particularly imp
ortant
theme as it introduces two schools
of
thought, which
are described as lean (with efficient operations using
few
resources) and agile
(with flexible operations to ensure customer satisfaction).
We
return
to
this
theme
later
in
this chapte
r,
but
notice
that
in
the
past managers emphasised
the internal view (suggesting
that
their view
of
an efficient serv
ic
e should be
acceptable
to
customers)
and
now they take more notice
of
customer
opin-
ions (recognising that in a competitive environment they have
to
aim for
cu
stome
r satisfaction). The result is a trend towards increasing customer sat
isfaction, which is achieved through better customer service (illustrated in
Figure 2.1
.
39
Customer service
a
measure
or set
of
measures) , that
show how
well logistics is performing
Lean
an approach that aims at
removing
all
waste
Agile
a lexible approach
that
aims that
aims
at removing
all waste
8/10/2019 Supply Chain Management an Introduction to Logistics
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40 AN OVERVIEW OF SUPPLY CHAIN MANAGEMENT
Internal view
Emphasising use
of
resources and
leanness
Logistics
managers look for
the best balance
Trend towards
customer service
Figure 2.1
Logistics managers
always
balance competing aims
External v iew
Emphasising
customer satisfaction
and agility
LOGISTICS
IN PRACTICE - FIRST GREAT WESTERN
The
emphasis
on
customer satisfaction is
by no means
universal,
and you can
find many examples I
where
it
ails. For
instance,
commuters on the
UK's
First Great Western trains
were
dissatisfied with
the
service,
which
they described
as
unreliable, overcrowded, late
and
using old
rolling stock.
First
I
Great Western
did not
seem to respond to these complaints, but raised the price of
fares
by 10
to make them 'the most
expens
ive in
Europe
.
15
Commuters
planned
a
fare
strike
on 28 January
2008,
wore
cow masks to show
that
they
were
being treated like cattle, and printed their own
'Worst
Late
Western'
tickets.
Not many people actually joined the fare strike (which could attract harsh penalties) but First Great
Western
did apologise saying that it, 'accepts
that
it has
failed
to deliver
an appropr
iate level
of
service and is taking
steps to
improve its serv
i
ce'
.
16
At the same time
it
agreed
to
freeze fares and
double
the
compensation for late services.
uestion
Can you
find other examples of logistics
failing
to
give customer
satisfaction?
Sources: BBC News
,
28
January
2008; www.news.sky.com; www.firstgreatwestem.co.uk)
~
Cus
tomer
service is largely determined at the interface between a supplier
and
its customers, and is based
around
the common act ivities that link the two.
These
common
activities include dealing with enquiries, negotiating terms, order
processing, transport, billing, warranty claims and all the others jobs where
they
meet.
Lalonde
and Zinszer
17
say that the essential feature of customer service
is
that
each of
the
parties to
the
transaction or contract
is
better off
at the
co
mpletion of the transaction than they were before the transaction took place .
More recently
rant
et al.
8
described it as a measure
of
how we
ll
the logistics
system is performing in providing time
and
place utility for a product
or
service .
8/10/2019 Supply Chain Management an Introduction to Logistics
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EVELOPMENTO LOGISTI S
In 1976 LaLonde and Zinszer
17
put the elements of customer service
into
three
categories:
1.
Pre transaction ctivities -
include everything that is
done
before an actual com
mercial transaction to set the scene. They might include the place of logistics
within an organisational structure, status
of
logistics and its ability o affect
operations, openness of an organisation to customers, flexibility of systems for
dealing with customers, quality of sales staff,
management
services available,
attitudes towards risk and so on. These are usually defined by the organisa
tion s long-term strategies
and
they provide
the environment
for customer
transactions.
2. Transaction ctivities - include everything that forms part of the commer
cial
tr
ansaction. These are relatively short-term interactions, with three main
elements for:
taking
and processing of orders (including assessment of custom er require
ments, checking product availability, credit checks, financial terms)
ensuring product availability (through inventory systems, substitute prod
ucts, warehouse handling systems, emergency orders, and so on)
delivery of materials (including types
of
transport, lead time, special
deliveries, transhipment, order tracing, and so on).
3. Post transaction
ctivities
- include all the activities that occur after a cus
tomer has received a delivery, such as invoicing, unpacking, installation and
testing of complicated items, maintenance, service and repairs. If things go
wrong these include systems for dealing with compla
in t
s
and
Lhe increasingly
important area of reverse logistics.
These three elements form part of every product package - meaning that logis
tics positively contributes to customers view of a product.
You
see this effect
with something you buy from a website. The ability of logistics lo deliver quickly
contrib
ut
es to your op ini
on of
the product, and you are likely to view a prod
uct that is delivered within a day as better than the same product with delivery
tak ing six weeks.
So
logistics contributes to the product package to give a compet
itive advanta ge, which Jobber
19
describes as, the achievement of corporate goals
thro
ugh meeting and exceeding customer needs better
than the
competition .
spects
of customer
service
We know that customer se rvice can be measured in many ways, and return to this
theme
in Chapter 14. However, it is worth mentioning two particularly important
ways that logistics affect
the
product package: through costs and lead times.
I t
is
in
virtually everyone s interests
to
keep logistics costs as low as possible, so
that
supp
li
ers products remain
compet
itively priced
and
customers pay as
li
tt
le
as possible. But low costs have broader effects, as they
mean that
new operations
41
8/10/2019 Supply Chain Management an Introduction to Logistics
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4
AN
OVERVIEW OF SUPPLY CH IN M N GEMENT
Lead time
th
total time
between
orde
ri
ng materials and
having ltlem delivered
and
available for use
Mass customisation
aproduction
method that
comb
ines th
benefits of
mass production with
the
flexibility ofcustomised
products
Lean
logistics
an approach
that
aims to
remove
all waste from
supply chains
become feasible. For i
nsta
nce, low transport costs
mean
that a firm can sell its
products ove r a wider geographical area, and cheap parcel delivery means that
a manufacturer can sell products directly to customers,
rather
than
using
th
e
traditional route through
who
lesalers
and
retailers.
The kad time is defined as the total time between ordering materials and having
them
delivered a
nd
available for use. Again, it is normally in everyone s interest
to
make this as short as possible. When customers decide
to
buy somethin g
they
wa nt it de liver
ed
as
soon
as possible; suppliers
want to
keep customers
happy
with fast service, and not have products hanging around in supply chains and
raising
sto
rage costs.
The lead time
is pa r
ticularly
important
for products that are customised to
specific requirements. Here lead times are traditionally longer,
but
companies
can use
new
technologies
to
speed
thin
gs up. For instance, mass customisation
combines the benefits
of
mass
production
with the flexibility
of
customised prod-
ucts,
and it
relies on flexible
supp
ly cha
in
s that
can
respond quickly to varying
conditions . Dell com
puter
s made a lot
of
progress with mass customisation, and
in
stead of buil
ding
sta
ndard
computers
and
selling
them through
retailers,
th
ey
waited until a customer placed an order on their website and then build a
com-
puter
with the exact
sp
ecifications requested. Efficient logistics make sure t h
at
raw materials were always ava ilable for manufacturing, and then delivered the
finished
machine
quickly to
the
customer. Unfortunately,
competition
in the
comp
ut
er market forced Dell
to
move away from this strategy and since 2007
they
have us
ed
more traditional methods.
On
the
othe
r
ha nd
, research into
the 3DayCar Programme suggests
that the
motor
industry
could be
come more
flexible with
80
of cars in the
UK
built to order.
20
21
These two factors of costs and lead time are both
important,
and they represent
two
schoo
ls
of
thought for logistics. Low cost
is
clearly aligned with efficiency
a
nd
leanness, while short lead times are aligned with customer service and agility.
ean and
agile
Lean logistics always aims at a more efficient flow of
mate
ri
als, typically looking
for faster deliveries, lower stock levels, less handling, fewer movements,
and
lower costs.
22
23
It focuses on removing all waste from supply chains. Fo r this, its
characteristic approach is to analyse
cu
rr
ent ope
r
ations in the
cha
in
, and th
en
systematically remove all the wasted effort,
movement,
materials, time and other
resources. This seems a simple idea,
and yo
u
might
assume
that
it
is
standard
practice.
To
a certain extent you would be right, but leanness is
more
than a
causal look
around to
fi
nd
obvious improvements, and it is a relen tless search
throughout the whole or
gan
isation
to
identify all waste and design
new
methods
for eliminati
ng
it.
The
result can be dramatic i
mprovements
in pe
rformance.
The alternative view says that leanness is too absorbed in its search for effi-
ciencies
and
can inadvertently reduce cu
stom
er service. The argument is th at
cu
stomer
service is paramount and organisations should be willing to sacrifice
8/10/2019 Supply Chain Management an Introduction to Logistics
8/25
DEVEL OPMENT OF LOGI STICS
some efficiency if it leads to greater customer satis
fa
ction. In particular agile
O ;tSlics should be flexible enough to give a customised se rvice a
nd
respond
quickly to changing demands.
24
t
is easy to assume that there is conflict between these two movement
s.
To
s
om
e e
xtent
this is true but the two themes are not rea
ll
y mu tua lly exclusive and
managers can design logistics that are both lean and agile.
25
26
For instance using
a
we
bs
it
e to collect cust
ome
r orders can both reduce costs and increase customer
satisfaction; reduc
in
g the le
ngth
of
a s
up
ply chain can make t he m
ovement
of
materials both
fa
ster and more
fl
exible; using a specialised de
li
very service can
increase both le
an n
ess and agility. Indeed we might see the low costs achieved
by lea nness as a way
of in
creasing cust
ome
r satisfaction. This is
an
i
mpo
rtant
th
eme
th
at n eeds mo re
att
ention a
nd
we return to it in Chapter 3.
L
OG
I STICS IN PRACTICE - ZARA
The Spanish com
pany
Inditex
is one of
the world
's largest producers
of fashi
on
clothing. It
was
founded in
1975
and gre
w
dramatically to more
than 4000 stores
in
70
countries and
a
urnover of
I
10 billion by 2008. This success in a highly competitive market
has been
achieved with
vi
rtualy
no
marke
ting
,
bu
t
by fo
c
us
i
ng
on customers to the
extent tha
t, '
Our
c
ustomer
s a
re the
bas
is and
re
ason
for
our
group's
existe
n
ce.'
A
key
part
of this
appears
with
their
c
ombination
of lean
a
nd
flex
ible log
i
stics.
T
he
fashion industry
traditio
nally
works
to four
distinct seasons
a
year
. Production schedules
typ
i
call
y
have clothes designed in one season
,
produce
d
in th
e
second
,
and sol
d in
the thi
rd -
givin
g
a total
lead
time
of up
to nine months.
At the
start
of
each
season shops have to be
full
of products in the new styles, meaning that
they have high stocks of
clothes
that
were
mad
e
in the
previous s
eason, and
wholesalers
ha
ve
hi
gh
stocks of the
same
products
to
re-supply shops at short notic
e.
Unfortunately, if demand for
a p
roduct is
parti
cu
l
arly
hi
gh
, the
re are
shortages
as manufacturers have
already moved
on to
next
se
a
so
n
's
designs; and if demand is unexpectedly
low
the supply chain is already
full
of the
p
roduct
, so
the only opti
on s to
get rid of
it
in
end
of season sales.
Z
ar
ahas abandoned this
se
asonal pattern
and
has moved to flex i
ble
operati
on
s that allow contin
uous reviews with,
'
Our ow
n
and our suppliers
' production . . . [are] ab
le
to focus
on trend
c
hanges
ha
ppening
inside each season.
'
In other words,
they
continuously monitor
changes
in
fashion and
have
agile operations
that
can bring
new
products o stores in five or
si
xweeks and sometimes n
less tha
n
wo
weeks.
The compa
ny
makes
85 of produc
ts in
t
he season the
y are
sold
, t c
hanges
75 of products every
three
or four weeks, and creates 10,000
new
products a
year.
Customers
know that
n
ew
products
are
continuously
arriving
,
so
it is wo
rth
maki
ng
frequent v
isits
-
an
d by
clos
ely matching the supply to their demands Zara does not have to discount old stock in end of
seaso
nsal
es.
Zara's process for getting
goods in
stores
so quick
ly begins
with its Design
De
partment
, wh i
ch
collects
in
formation
ab
out trends from compan
y
electronic point
-
of-sales
(E
POS return
s,
fashio
n
---- J
43
Agile logistics
a lexible
ap
proach,
which
ai
ms at
cu
stome
r
satisfaction
Electronic point-of-sales
system for
automatically
re
cordi
ng
and
tr
ansm
itting
information
ab
out
sa
les
from
cash terminals
8/10/2019 Supply Chain Management an Introduction to Logistics
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44
Electronic
data
interchange
uses
standard formats
to
allow
remote computers
to
exchange data without
going
through any
intermediaries
EDI
Electronic
data
interchange
AN OVERVIEW OF SUPPLY CHAIN MANAGEMENT
LOGISTICS
IN PRACTICE - ZARA
CON TINUED
J
shows, competitors stores,university campuses, pubs, clubs, and anywhere else
they
can. These I
ideas
are
worked
into
designs within days.
They
cannot get arapid response
by
shipping products
through extended supply chains,
so at
a time
when
most fashion companies
have moved
manu- 1
facturing to the
Far
East,Zara says that this would
give
unacceptable delays in ts
major
markets of
Europe and
the
Americas. Instead, it
manufactu res
three-quarters
of garments
in quick-response
facilities in
Europe (about half in
Spain). These move
quickly through logistics centres
in Spain
, I
giving at least
two deliveries
a
week
to
all stores
.The company does
import about
aquarter
of
its
garments from low-cost centres in
Asia
, but these are standard garments
with
a onger shelf life
I
I
here cost
is amore important factor.
J
Question
Gan
you
find other examples of companies that combine lean
and agile
logistics?
Sources:
Website at
www.inditex.com and www.zara.com)
.
mproving
communications
Another clear trend in logistics - as in almost every other aspect of life - has been
the increased use of technol
ogy.
This appears in many forms, but probably the
greatest impact com
es
with better communications. In the recent past managers
would
se
nd materials on journeys and effectively lose sight of
them
until they
appeared at their destination. Now they continuously monitor progress and can
make adjustments during the journey.
You can see the effects of improved communic
at
ions in
the
way that com
panies place orders. When a company wants to buy something, it ty
pi
ca lly has
to generate a description of
the
products, a purchase order, order confirmation,
contract te
rms,
shipping papers, financial arrangements, delivery deta
il
s, special
conditions, invoices, and so on. In the past, all of these -
and
mountains of
ot
her
paperwork - had to be printed and posted between org
an
isations. Th is could
make even a simple transaction seem
comp
licated and very time-consuming.
Telephones help with some transactions but, as Sam Goldwyn pointed ou t: a
verbal contract isn
t
worth the paper its written on .
New technology in the past few years has revolutionised
the
way that orders are
placed. Some progress came with fax (or facsimile) machines
that
send electronic
copies of
document
between distant locations in seconds rather than days. But
early fax machines
on
ly transmitted printed documents, so a document could
be produced by computer, printed, fed in to a fax machine, transmitted over
tel
ephone
lines to
anot
her
fax
machine, printed,
and the
informa
tion
entered
onto
another computer.
By the 1990s the obvious next step had arrived with
l l
c ronic cl< ta t
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DEVELOPMENT OF LOGISTI S
systems. This means that their checkouts can record sales
of
each
item
when
scanning
its bar code, and when stocks become low
th
e system automatically
sen
ds
a message asking for another delivery. This use
of
EPOS data results in less
paperwork, lower transaction costs, faster communications, fewer errors, more
integrated systems, and closer business relations.
By
1997
it
was estimat
ed that
2000
compan
ies
in
the
UK
regularly used
EDI
for
trade with suppliers.
27
Over the
next
few years electronic
trading
became more
widespread
and
sophisticated. The
mushrooming
of email
and
was followed by
of
e-business, e-commerce, e-shops, e-auctions - and
soon e
-anyth ing . With
purchasing th is developed
in t
o e-purchasrng or e-procurement (which we discuss
in
Chapter
10). This comes in many forms, all based on the direct exchange
of
data between supplier's and customer's
compute
rs. Two main versions are
B2B
(business
-t
o-business, where one business buys materials directly from another
business)
and B2C
(business-to-customer, where a final customer buys from a
business).
Two associated technologies have developed
to
support e-business. The first is
1em
coding,
which
gives every
item
a unique identifying tag. Early versions of
t
his tag
-
and
still the
most
common
- are bar codes
that
can be read
automati
cally as
an
item moves
along
its journey.
Then
logistics systems know where all
items are at any time, and automatic handling equip
ment
can move, sort, con
solidate, pack
and
deliver
them.
A more recent development is radio frequency
dentification (RFID
),
which is not a passive label,
but
is an active transmitter.
When
it receives
an enqu
iry, a
RFID
tag transmits a range of information
about
the product, its location, status,
and
so
on
.
The second technology to
support
e-business is electronic fund tr
ans
ter (
EFT ),
w
hich
automatically transfers money between
bank
accounts.
When
the receipt
of materials is acknowledged,
EFT
au
tomat
ica
ll
y
deb
its
the
customer's
bank
account and
credits the supplier's. Now there is a closed loop, with EDI to p lace
orders, item coding to track the movement,
and
EFT to arrange payment.
e business
We need hardly say that
Internet trading
has grown
enor
mously in recent yea rs.
In 1998 there was some trading,
but
the future was clea
rl
y signalled
when Gen
eral Motors and Wal-Mart announced that
they
would on ly buy from suppliers
t hrough e-procurement. By 2002 around 83
of
UK suppliers were using elec
tron
ic catalogues for
B2B
28
and
the worldwide value of
B2B
trade was over US 2
tri llion.
29
However, it is difficult to
put
a reliable value one-business as there are
so
many
variations. Is it a transaction where every stage
is co
mpleted through the
Internet,
one
that
is
initiated by a website,
or
one where even a single activity
is
done
over
the
Internet? Figure 2.2 shows two views
of the
early growth of global
electronic trade
30
31
and this is likely to continue for the foreseeable future.
The
imp
ort
ant
po
int about
e-business is that it does
not
just improve
the
speed
of
purchasing by usi
ng standard
formats for instant communicationbetween sys
tems, but
it
allows completely
new
types of operations. For instance, companies
45
EPOS
electron
ic
point
of
sa
l
es
e purchasing
purchasing products using
the Internet
e procuremen
t
acquiring products us
i
ng
the
I
nterne
t
B2B
trad
e
that
is
business to business
B2C
trade
that
is
b
us
ine
ss
t
o customer
Item
coding
gives every
i
tem
a
unique
i
dentifying tag
so
tha
t its
moveme
n
ts
can be
traced
Radio frequency
identification
an active
transmitter
used
for
i
dentifying items
RFID
radio freque
n
cy
identification
Eectronic
fund
transfer
automatically transfers
money between bank
accounts
FT
Electronic fund transfer
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46 AN OVERVIEW
OF
SUPPLY CHAIN
M N GEMENT
8,000
7,000
6,000
2
5,000
ii
4,000
Ql
I
c
>
3,000
2,000
1,000
0
1998 1999
2000 2001
Year
/
2002 2
003
Forrester research ; The gartner group
Figure 2 2 Estimates of
the
value of global
e
lectronic trade
2004
can reduce
the
length of supply chains be dealing directly with upstream suppli
ers, and B2C allows final cus
tom
er to skip tiers of supp
li
er
s.
In many ways it has
moved
the
effort of logistics from physical materials to information , 'replacing
inventory by information'. For example, organisat ions traditionally held spare
stock to allow
fo
r uncertain demand, but e-business removes this by reducing
the uncertainty in
demand
by monitoring real-time information
abo
ut sales, and
locating replacement suppli
es
that can be used to cover any emergencies.
Ea
rly on-line catalogues - effectively e-shops - have developed
in
several ways.
Early moves were to e-auction s
whe
re customers bid against each other for
products. The best known of these is eBay with 276 million registered users
trading goods worth 60 billion in 2007.
32
Searching t
hrough
the websites of
individual supp
li
ers takes some time, so new services appeared
to
automati
cally compare offerings from different sites, and report on the opti
ons
(in the
way that Confused.com co
mpar
es quotes from many car insurance companies).
A similar approach appears in th ird-party marketplaces', where suppliers list
both their own products
and
those available from competitors - and if you buy
from the competitor, the site charges th em a transaction fee.
You
can see th is in
Amazon.com, which lists all available copi
es
of a book and you can choose to
buy either from Amazon or from another supplier.
Although less familiar
the
value of B2B is fa r greater than that of B2C. It started
with direct links between two compa
ni
es and then grew into more sophisticated
formats, starting w
ith
buying exchanges. These have compa
ni
es - usually major
manufacturers - creating their own, private networks for dealing with suppliers,
and
they
on
ly trade with members of this network. In
the
motor industr
y
General
Motors, Ford and DaimlerChrysler initially formed their own trading networks.
However, they dealt with
com
mon suppliers and it was easier to merge the sep
arate networks
in t
o a single exchange, with pooled information making it easier
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DEVELOPMENT
OF
LOGISTI
CS
to p
lan
their own production
and
supplies .
33
Buying exchanges evolved into
e-marketplaces which are large websites that a llow easier interactions businesses.
Essentiall
y they
help buyers find suppliers
and
help suppliers find new buyers.
e-business
continues
to expand
but
a major
concern
is security
and
th e pos
sibility that
unau
thorised people can access information
and
illegally tra nsfer
money. Despite
continuing
devel
opments in
securit
y
fraud a
nd
ide
nti
ty
t
he
ft
are continuing problems. Perhaps the most familiar way of dealing with
these
are
through
intermediaries like PayPal
who
separate
the
buyer from th e seller
and pro
vide a secure
third
party to organise transfers of
money
a
nd
information.
. - . -- - . . .. - -. . .. . . ... . .... . - - -1
S T I S
IN
PR CTIC
E - PH RM CEUTIC L SUPPLY
CH IN
1
I
A common criticism
of e-business
is
that
it automates
existing tran
sactions
but
does not take
the
opportunity
to design entirely new operations. An
example
of
thi
s is
h
e
way that prescription
medicines
are handled.
Traditionally
to
get
a
prescription medicine
a
patient
goes
to their doctor
who examines
the
mand
writes
a paper presc
ription
for
medicine.
The
patient takes the
prescription to a
pharmacist
who
exchanges
it
for the medicine.
There
is
a huge
number of medicines and they can
be expensiv
e
so
pharmacists
only
keep a limited
stock
. If they
do
not have the requested medicine they order
it
from
a
wholesaler who typically makes
several
deliveries
a day.
Then the patient returns
some
time
l
ater
to
pick
it up. Figure
2.3
shows
the
main elements
of
this
supply
chain.
Visit
Doctor
Prescription _
Patient
-
Medicine
Prescription _
-
I I
I I
I Repeat visits as I
I necessary I
I I
I I
I I
Figure
2.3
Part of the traditional supply chain
for
pharmaceuticals
Manufacturer
Wholesale
pharmacy
Retail
pharmacy
47
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48 AN OVERVI EW OF SUPPLY CHAIN M N GEMENT
l LO
G
ST
I CS I N P
RAC
TI C E -
PH AR M
E
UT
S U PPL Y CHA I N
1
( C0 NT I NUED ) _ _
1
The usual approach of
improving
this
involves making
some
adjustments,
such as using
e-mails
for
repeat prescriptions, adding pharmacies to
doctors
premises, and
starting
a prescription collec
tion and
delivery
services. Bute-business allows a
more
efficient
al
ternati
ve shown in Figure 2 4
Here
a
patient
goes
to their
doctor
who examines them, uses an electronic link to the manufacturer,
and
gets
the
medicine delivered
directly to the
patient s
home.
Information
-
Manufacturer
..
;
;o
U
Visit
octor Patient
Figure
2.4 Simplified
supply
cha
in for
medi
ci
ne
Question
What
are
the
benefits of the new system? Does it have
any
disadvantages?
Source: Duncan,
R.
(2007) Internet traders can
increase
profitability
by
reshaping their supply
chains, in Waters,
D.
(editor)
G
obal Logistics
,
Kogan Page,
London.)
Effects
of e business
We have already mentioned some of the common benefits of e-business and a
reasonable list includes the fo
ll
owing:
Less paperwork
The essential feature
of
e-business is that it replaces paper trans
actions by elect r
onic
ones - resulting in less paper fewer manual operations
fewer mistakes faster transactions more
information
available
and
so on
Shorter supply chains
e-business allows upstream
organ
isations
to
trade directly
wit h downstream customers bypassing layers of in termed iaries.
Improved communications
Orga
ni
sations
within
the
supp
ly
chain
can
commu
nicate directly avoiding the traditional restriction
that
routes
information
only
from one tier of organisations
to
the next.
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DEVELOPMENT O LOGISTI S
Transaction recording Most routine t ransactions can be done automatica lly
becoming mu
ch
faster and more reliable. For instanc
e
automated purchasing
does away
with all of the traditional steps in submitting a purchase orde r.
Convenient timing
A major advantage
of
e-business
is that
it is available
at
any
time
and
customers are
not
limited
to
fixed ope
ning
tim es. Suppliers
who
work
with both
e-business
and
traditional stores generally notice
that
their
e-business trade is greater at times when th eir stores are closed.
Convenient location
Pu
rchases can be made from
any
location
that
has a
com
puter so neither customers nor suppliers have to travel to spec
ifi
c locations
for
the tran
saction. This
is
particularly useful for small suppliers
who
can
dramatically expand their geographical coverage.
Lead time
The effect here can differ widely.
I t
tak
es
much longer to get a de
li
very
of goods from a remote supplier
th
an it takes to vi
si
t a local store so there may
be
no point
in u
si
ng
the Internet
for small routine
or
urgent order
s.
On
the
othe
r hand some items - particularly softwar
e
DVDs music and reports - can
be downloaded from websites
and
their delivery
is
much faste
r.
Type
of
faciliti
es
Unlike traditional bus
in
esses
that
are typically located near
to
customers or key suppliers e-businesses can work anywhere
that
has good
communications a
nd
t ransport link
s. So
they generally aim for economies
of
scale and use large facili ties in low cost areas.
Range
o f
products
La rge facilities allow e-business suppliers to hold a much
larger range of products than traditional stores.
Fo
r instance the stock of books
at
Am
azon.com
is
measured in millions
wh il
e that in a regular bookshop is
measured in thousands.
Transport
e-business needs rapid delivery of sma
ll
quantities - often individual
packages -
to
customers. This
is
in herently less efficient
that
traditional trans
po rt which concen
trat
es goods i
nto
fewer large deliveries
and
it probably
accounts for a reduction in the efficiency
of
national vehicle fleets.
4
tock By using large central facilities and improving the flow of materials in
shorter supply chain
s
e-businesses can genera lly work with lower stocks
of
each item.
Order tracking
Int
ernet
orders
can
seem
to
disappear as soon as they are placed
and o nly reappear wh
en
goods are delivered. This effect is reduced by tracking
systems
that
show the location of goods and state of an order
at
any time. For
instance FedEx tracks all of its 7 million shipments a day so that it can give
online reports
on the
exact locati
on
and condition of each.
35
le
xible pricing On li
ne suppliers can change the
ir
prices and terms
to
refle
ct
real-time condit ions. Airlines take advantage of this and when there are spare
seats
on
a flight they offer last-
minut
e bargains - mean ing
that
you
ca
n see
prices
on the
ir websites c
hanging
quickly
in
response to curre
nt
supp
ly
and
demand.
49
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5
AN
OVERVIEW
OF
SUPPLY CHAIN
M N GEMENT
Goods return Sometimes goods have to be returned to suppliers particularly
with
online orders where customers
have no chance to examine goods
before
they
buy
them. I t is more difficult
and
expensive to return items as there is no
store for customers to visit
and
they have
to
make alternative
arrangements
for
collection. A criticism of
online
supermarkets is that deliveries have substitute
products when those
ordered are unavailable
and
customers sometimes feel
that
the
substitutes are unacceptable.
Operati ng costs Efficient operations allow e-businesses to give lower costs
but
this
is
not
inevitable as
high transport
charges
and
slow delivery
can
increase
prices. Price is
only
one factor in
the
decision to use e-business
and other
factors
may be
more
important.
--
LOGISTICS IN
PR CTICE
- FORMATS FOR ONLINE GROCERY
SHOPPING
Although e-business is growing quickly, online grocery shopping has
had
mixed success. Some
firms
have enjoyed dramatic success, while others have closed after ashort period
of trading
.
In principle,
online grocery shopping is a convenient way of avoiding visits to supermarkets,
by
using a
website
to place orders
and
arrange a home delivery. Some people are
attracted
to this
because
of the convenience,
speed,
price, product
variety,
service -
and
the whole experience
of buying
groceries
while avoiding
the crowds
queues, stress and inconvenience of bricks-and
mortar shops.
On
the other
hand,
people are not
attracted
to online grocers when they want to see, touch and
smell
food before
they
buy it, are
worr
ied by security and privacy,
cannot
deal with
deliveries
at
inconvenient
times,
and
would miss the whole experience of visiting shops.
There are three
ways of organising online
groceries.
1
Pure online grocers
do
not
have
stores,
but use
warehouses
to
fulfil customer orders.
This
has the advantage of offering awide range of items, economies of scale, and efficient opera
tions -
but
the disadvantages of high investment,
high
transport
costs, little brand
recognition
or established reputation.
Early
entrants
in the US such
as
Webvan, Homegrocer, Streamline
and
Shoplink all
hit
problems with this
format and
went out of business.
2.
They can
use
the
warehouse system of
an
established
retailer, in
the way that the UK s Ocado
and Waitrose or the
USA s
Peapod and Royal Ahold work. Then online customers
order directly
from the
same
warehouses as
the supe
rmarkets, with the online operations working
in
parallel
with
existing
supply chains. This gives
the benefits of
using a recognised brand name, while
sharing
common
facilities.
3. Local stores
can
to ul il orders. Customer orders are sent to
local super
markets,
which
pick
items from
their
shelves and use
a
small
van
f
or deliveries. This
has
the
advantages
of
using an
established reputation
and
local operations, and is the format used by Tesco the UK s leading
online
grocer.
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DEVELOPMENT OF
LOGISTICS
All
three formats
have
strengths
and
weaknesses
,
but
the
store-based one
is
currently most
succe
ssful.
In 2007 Tesco met 250,000
online orders
each
week,
with a value of more
than
1
billion. All
three formats
also illustrate an
essential
point of e-business,
which is
that
communi
cations are
not
the main problem. It is
easy
to build a good-looking
webs
ite and use it to collect
orders
.The difficult
part is
the
physical collection of
goods and
their
delivery
to customers.
Question
Can
you
give other examples
of
e-business dramatically changing
the way that a
traditional
business
works?
Sourc
es:
Tanskanen,
K.,
Jola, Y.R. and
Holmstrom
, J. 2002) The way
to
profitable Internet
grocery retailing, International
Journal
of Retail
and
Distribution Management 28 1), 1726;
Kempiak,
M. and Fox, M.A. 200
2
Online Grocery Shopping,
www.fi
r
stmonday.org;
and websites
NWW.
tesco
.co.uk
,www.fm i
.org)
esponding
to changes
in the business
environment
' \ 'e have reviewed two areas where logistics
is
changing quickly- greater customer
satisfaction and improving communications. In later chapters we discuss the
;: ri
gins
and
consequences of
other
trends, but here we only
want
to show
that
ogistics is a dynamic area that is moving quickly. Practices that standard
nly a few years ago are no longer acceptable (such as only delivering fresh fruit
: 1at is locally in season) or feasible (such
as
frequent postal deliveries).
To
prepare for later discussion we review some other types of changes. Some
these are relatively minor adjustments, while others change the whole way of
.: D
ing logistics. The changes are
not
all independent and their effects combine
o move logistics
in
certain directions. For instance, new technology, postpone
-:::ient , cross-docking
and
ou tsourcing all combine to give lower stocks. In this
' i
on
we mention some ways in which managers are responding to changes
the business environment, and the next section reviews some new types of
_peration.
Cooperation
and
integration. Organisations within a particular supply chain
increasi
ng
ly recognise
that they
share
an
overriding objective - which is to
sa
tisfy their final customers. If any single member of the supply chain fails,
then customers are
unh
appy and are likely to move their business elsewhere,
meaning
that
all other members of
the
chain suffer. So members should coop
erate to make sure that they all work together to satisfy final customers. This is
an important point, as it
mean
s that competitors are
not other
organisations
1\i thin the s me supply chain, but are organisations in oth r supply chains.
Christopher
36
summarises this view by saying
that
supply chains compete,
'lot companies . We discuss this trend towards integration of supply chains in
Ch
apter 5.
51
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52 AN OVERVIEW
OF
SUPPLY CHAIN MANAGEME NT
Outsourcing
has organisations
concentrating on
their core
operations and outsourcing
peripheral activities to third
parties
Third party logistics
outsources logistics to
specialised third
party
providers
Pl
third party logistics
Globalisation. Improved communications and better transport mean that
physical distances are becoming less significance, and international trade con
tinues to grow. Organisations have become global in outlook - buying, storing,
manufacturing, moving and distributing materials in a single, worldwide mar
ket. Leontiades
37
says that, One of the most important phenomena of the
20th
centu ry has been the international expansion of industry. Today, virtually all
major firms have a significant
and
growing presence
in
business outside their
country of origin.' By 2007 around 12 trillion of merchandise was moved
around
the
world each year, with 1 5 trillion of commercial services.
38
We
return to Lh is question of globalisat ion in Chapter
6.
Outsourcing. More organisations are realising
that
they can benefit from con
centrating on their core operations and outsourcing peripheral activities to
specialists. These peripheral activities might be anything from cleaning and
catering
through
to accounting, legal services and informalion processing. It
is particularly common for organisations to outsource some of their logistics
to specialist service providers - perhaps starting with transport, extending to
wa
rehousing, and then on to other tasks in
the
logistics. This use of third
part)
1 )gistics (
3PL
)
can
give
the
benefits
of
lower fixed costs, expert services,
combined work
to
give
econo
mi
es of
scale, flexible capacity, lower exposure to
risk,
in
creased geographical coverage
and
guaranteed se rvice levels. Sometimes
the
administration of several 3PL contracts gets so complicated
that another
company is used to manage it - giving fourth-party logistics (4PL).
McKinnon says that, 'Outsourcing has been one of
Lhe
dominant business
trends of
the
1980s
and
l 990s.'
39
Almost 60C -fi of Fortune 500 firms outsource
some logistics.
40
In the EU the outsourced logistics market was valued at 176
billion by 2004, and this was set to rise to 45% of all logistics expenditure by
2008.
41
Armstrong and Associates
42
put the value
of
global third-par ty logistics
in 2006 at US 391 billion, of which Europe accounted for US 139 billion and
the USA
a further
US
114 billion.
Using fewer suppliers. Traditionally, organisations have used a large number
of suppliers to encourage competition, ensure that they get the best deal, and
guarantee continuing deliveries if
one
supplier runs into difficulties. However,
increasing cooperation within a supply chain - particularly stra tegic alliances -
encourages organisations to look for a small nu mber of
the
best suppliers and
work exclusively with them. Rank Xerox illustrated this effect, when they
reduced their suppliers from 5000 to 300, while Ford moved from 4000 to 350.
43
Concentration
of
ownership. Large companies achieve economies of scale
and can organise efficie
nt
operations, so a
few
large companies often dominate
industries. There are,
for
examp
le
, many shops and transport companies - but
the biggest ones continue
to
grow at the expense
of
smaller ones. The result
is
a continuing concentration of ownership, which you can see in many logistics
sectors ranging from food wholesalers to cruise lines.
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DEVELOPMENT
O LOG
I STICS
Movement of power to retailers. Historically most power in supply chains
wa s wi
th
manufacturers,
in the
way
that
Toyota is still
the
focal organisation in
its supply of cars. Several trends - including
the
outsourcing of manufacturing
to
l
ow
cost regions
and
global sourcing - have promoted the move
ment
of
power in supply chains. In particular, retailers are often the key p layer because
of th eir link with fina l customers.
Increasing
environmental
concerns. There is growing concern about air
and water pollution, climate
ch a
nge, energy co
nsumpt
ion,
ur
ban develop
ment, waste disposal, population growth and
ot
her aspects of environmenlal
damage. I t is fair to say that logistics does nol have a good reputation for
environmental protect i
on
- demonstrated by the emissions from hea vy lor
ries, noisy and inefficient vehicles, use of green-field sites for warehouses, ca lls
for new road building, use of extensive packaging, oil
sp
illage from tankers,
low reso
ur
ce utilisa tion,
and
so
on.
On the positive side, logistics is
moving
tow
ards greener practices, through its general
ope
ration s as well as expansion
into reve rse l
og
ist ics. There is a growing recognition that careful
management
ca
n combine en
vi
ronmental protection with lower costs and
more
bu
si
ness
opportunitie
s.
Risk
managemen
t. As supply ch ains become longer, there is inevitably more
chance of disruption from bo th na tu ra l
and
organisa
tion
al damage. Managers
are increasingly aware that they have to assess risk and plan
their
actions eit her
to avoid
it
, or to m itiga
te
the effects.
This
is
an increasingly important area
that is discussed in Chapter 15.
ew logistics operations
_:i
rece
nt
years, logistics managers have designed
many new
l
ypes of ope
r
ation to
.mprove performance . There are far too many of these cha
ng e
s to give a
comp
lete
I.st, b
ut
we
can
illu
st
rate
th
e
ir
scope
with
som e examples.
53
~ l p o n e r n e n t Tradit iona
ll
y
manufacturer
s
move
finished goods out of pro-
Postponement
du ction and
store them
in
the
di
st ribu
tion
system until they are needed. When
moves
almost f
inished
the
re are many va riation s of a product,
this can
resu
lt in
high stocks of similar
products. Postponement moves almost finished products in to the chain, and
de lays finishing or customi sation until t
he
last possible mom
ent.
You
can
imag
ine this with package-to-order , where a company keeps a product in stock but
on
ly puts it
in
a box written
in
the ap
prop
riate language when it is abou t lo
ship an order.
Manufacturers of electri cal equipment, such as Phillips and Hewlett-Packard,
used to build
in t
o t heir producls
the
transformers and plugs needed for different
ma
rkets. Then
they
h
ad to
keep separate stocks
of products destined
for each
cou n try. Now th ey make the transformer
and
cables as separate, external units.
This means that they only keep stocks o f the basic sta ndard products,
and
prod
u
cts
into
he
d
str
i
butio
n
system and
delays final
m
odifica
tions
or
customisation until the
last poss
i
ble momen
t
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DEVE L OPMENT
OF
LOGI ST
I
S
Small deliveries. Some operations - such as just-in-time, e-business and direct
deliveries - inevitably lead to smaller, more frequent deliveries. Th is suggests a
movement away from transport in large trucks
and
towards smaller delive
ries
.
s these are inherently le
ss
efficient, logistics managers have to find
wa
ys of
improving
th
eir performance, such as
roun
d-the-clock deliveries
to unatt
ended
destinations, better planning of deliveries, a
nd
hi
gh
er vehicle
ut
ili
sa
ti
on
. The
new requ irements have also spurred the growth of couriers and parcel delivery
services such as FedEx, TNT,
UPS and
DHL.
In
creasing vehicle utilisation. For a variety of reasons - including unbalanced
demand composition of th e vehicle fleet, characteristics of the vehicles and
loads, poor coordination,
and
so on -
ve
hicles spend a proportion of their
time travelling empty or partially loaded. This is
cl
early wasteful , and meth
ods for reducing it include backhauls (where delivery vehicles find loads fo r
their return journeys), reverse logistics (re
turn
ing goods
fo
r repair, reuse or
recycling), freight fo rwarding where loads from several
com
panies are com
bined), and more
ef
ficient schedules (perhaps with regular routes) . To some
extent these measures counteract the move to smaller loads, but after contin
uo
us improvements for almost half a ce
ntur
y,
the
overa
ll
productivity of t
he
Ll
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6
AN
OVERVIEW
OF
SUPPLY CHAIN
MANAGEMENT
LOGISTICS
IN
PRACTICE
CONT
INUED)
__
DEUTSCHE
POST WORLD NET
I focus
on share
hoder
valu
e through concentration
on core
competencies and outsourcing
I advances
in
technology with
continually i
mproving communications.
I
Question
What
other trends do you
think Deutsche Post
Wo
rl
d
Net might have mentioned?
I
I Sources: Deutsch Post World Net (2007)
Annual
Report. Bonn:
DPWN;
website
at www.dpwn.de) I
L _________ ___ _
:. ._j
hapter review
Logistics has been around for as long as people have wanted to move things.
However, it was given little attention by business until the 1970s.
Then
chang
ing economic conditions forced managers to recognise it as an important
function where they
can
make significant savings, improve customer service,
and help achieve organisational objectives.
In recent years, logistics has become one of the most dynamic areas of busi
ness. Managers face many pressures for change, ranging from more demanding
customers through to environmental protection.
Logistics managers have responded to the pressures, and developed new meth
ods and types of operation. Often they adopt similar responses and form
obvious trends
in the industry.
A major trend is towards increasing customer service. Logistics forms a part of
every product package, which means
that
firms can use it
to
gain a competitive
advantage.
Increasing customer service illustrates a major theme of logistics,
which
is
towards agi lity with flexible operations
that
strive for customer satisfaction).
The other theme is towards leanness and more efficient use of resources).
In reality, these two themes are
not
mutually exclusive,
and
managers
can
simultaneously make progress in
both
directions.
Another clear trend in logistics
is
its use of technology. This o ~ n appears
as
e-business, which allows both improvements to existing operations and
entirely new ones.
Other trends in logistics originate with changes in the business environment.
These include integration of supply chains, globalisation, outsourcing, use of
fewer suppliers, concentration of ownership, movement of power, increasing
environmental concerns
and
risk management.
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DEVELOPMEN T OF LOGISTICS
Yet other
trends reflect
new
types of operation including postponement, fac
to
ry gate pricing cross-docking direct delivery
other
stock reduction
methods
sm
all deliveries
and
increasing vehicle utilisation.
CAS E STUDY -
SINTHAL
Y MANGULLO
Sin
thal y Mangullo (SyM) are major food wholesalers in southern
Europe
, dealing with more than
20 million
transactions
amonth. Their business
can be
summa
rised as
buying food
products
from
suppliers, storing
the
products
until
needed
-
and
then picking, sorting, consolidating and deliver
19
loads
to meet customer demand.
The
main
suppliers are different
types of
food manufacturers,
whil
e he
main customers are retail
supermarkets.
There s
intense competition among
food
retailers, and this is
driving
retail
prices
down
- a rend
:llat is encouraged by the growing numbers
of
very large stores, hypermarkets
and
chains of
eavy
price
discounters. In these
conditions, all
firms
are
looking for ways to reduce costs, and
are ac
tively
trying
to
find
more savings in their supply chains. In
particular
, retailers
are
putting
pressure
on wholesalers
to
trim their
margins.
When
this
does not work,
large chains
of
lrtailers
increasingly get supplies directly from
manufacturers.
SyM emphasise that their service improves
overall
choice
and
efficiency
.
Rather than having
lafge
numbers
of
small
deliveries
between
manufacturers and
stores, the
wholesaler
consol
nates
deliveries fro
m
different manufacturers int
o
more efficient full-truck loads
.
They also
Se
stan
dard
equipment
to reduce
the amount of
handling
needed
in stores, provide frequent
:leliv
eries,
schedule
all
deliveries for convenient time slots
, take
care
of
negotiations
with diff
er
: '11 manufacturers,
and
reduce problems with pollution, fuel consumption and congestion. SyM
lso
emphasise
the
support services they
can
provide, such as information analysis, product
;:mmo
tions,
repackaging and vendor
managed
inventory. A
typical service
would
collect
data
artnmatically from
a
retailer
s
P S systems and
use
this to forecast demands, compare perfor
-,ance
with industry standards, identify
areas that need attention,
automatically generate orders
:r replenishment
,
manage stocks, arrange deliveries
,
and
pass
marketing
information back to
'laflufacturers.
is
organised into
three operational
divisions.
The
warehouse division is
responsible
for mate
~ a 1 s stor
age and
movement
within four major
logistics
centres and
ten
smaller, local
warehouses.
1e transport division is responsible for moving goods into, and between, storage facilities,
and
out
to
customers. The information division is
responsible
for the central system that controls
:
transac
tions
within
the company.
cmestions
,'/hat pressures is SyM facing? Are these
the
same as all food wholesalers?
.Vha
t
can
the
company do to respond to
these
pressures?
How do you
think
their
operations
have changed in
recent
years?
57
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