Supply Chain Management an Introduction to Logistics

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


2/25

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


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.


4/25

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


5/25

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 .


6/25

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


7/25

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


8/25

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


9/25

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


10/25

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


11/25

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


12/25

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


13/25

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.


14/25

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


15/25

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.


16/25

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


17/25

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.


18/25

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


19/25


20/25

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


21/25

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.


22/25

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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Documents

Supply Chain Management an Introduction to Logistics