Principles of

Supply Chain Management

SECOND EDITION

Richard E. Crandall

William R. Crandall

Charlie C. Chen

'«C) CRC Press J Taylor & Francis Croup

Boca Raton London New York CRC Press is an imprint of the Taylor & Francis Group, an informa business

Contents

Preface to the Second Edition xxix Preface to the First Edition xxxi Acknowledgments xxxiii Authors xxxvii Introduction xxxix

Section I Overview of Supply Chain Management

1. Evolution of Supply Chains 3 Learning Outcomes 3 What Is a Supply Chain? 6 Importance of SCM 7 Evolution of Supply Chains 9

Early Supply Chains 9 Local Supply Chains 9 Global Supply Chains 10

Changing Government Orientation 13 State-Controlled Governments 13 Market-Driven Governments 13

Current Trends That Link Supply Chain Participants More Closely 14 Relationship Building 14

Customer Relationship Management 14 Supplier Relationship Management 15 Product Life Cycle Management 15

Electronic Business 15 Developing Economies 16 Outsourcing 16 Need for Quality Improvement 17 Changing Customer Demands 18

Decreasing Response Time 18 Lean Supply Chains to Reduce Waste 18

Current Developments in SCM 19 Power Has Shifted from Manufacturers to Retailers 19 Consolidation of Small, Local, or Regional Retailers into National Chains 20 Emergence of "Killer Category" Retailers 20 From a Make-and-Sell Mentality to a Sense-and-Respond Orientation 20

Obstacles to Supply Chain Integration 21 Need for Globalization 22 Complexity of Arranging Entities with Common Interests 22 Lack of Effective Interorganizational Systems 23

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Need for Multiple Supply Chains within Companies 23 Lack of Trust between Participants 23

Examples of Companies with Successful Supply Chains 25 Summary 25 Discussion Questions 28 References 28

2. Supply Chains as a System 31 Learning Outcomes 31 Company Profile: Zara's 31 Introduction 35 Supply Chain Systems 37

Inputs 37 Transformation 38 Outputs 38 Manufacturing versus Services 39

Characteristics of Supply Chains 39 Physical Flow 40 Information Flow 41 Funds Flow 42 Relational Flow 42

Examples of Supply Chains in Different Industries 43 Internal and External Customers 45 Open Systems versus Closed Systems 46 Effect of External Influences on Supply Chains 48 Obstacles and Enablers of Supply Chain Integration 48

Obstacles 49 Enablers 50

Performance Measurement 50 Allocation of Costs, Resources, and Benefits along the Supply Chain 53 Value Creation as the Ultimate Objective 54 Summary 56 Hot Topic 56 Discussion Questions 59 References 59

Section II Demand Perspective

3. Determining Customer Needs 63 Learning Outcomes 63 Company Profile: McDonald's 63 Introduction 67 Group Customers into Homogeneous Segments 68 Determine Needs of the Ultimate Consumer 69

Product Needs 70 Service Needs 70 Marketing Mix 70 Manufacturing and Service Supply Chains 71

Contents ix

Accurately Determine Customer Needs 72 Approaches 72 Market Research 73 Open System Scanning 74

Competition 74 Technology 74 Economy 75 Government 76 Social Trends 76 Business Environment 77

Develop Reliable Demand Forecasts 78 Quantitative Forecasting Methods 78

Simple Moving Average 79 Weighted Moving Average 80 Exponential Smoothing 81 Exponential Smoothing with Trend Adjustment 81 Seasonal Factor Forecasting 81 Regression Analysis 82

Qualitative Forecasting Methods 83 Survey Method 83 Delphi Method 83

Collaborative Forecasting 84 Determine the Attributes of a Well-Designed Product 84

Functionality (Product Works to Satisfy Customers' Needs) 84 Validity (Product Has Value and Functions at a Reasonable Cost) 84 Manufacturability (Product Can Be Efficiently Produced) 85 Reliability (Product Has a Variety of Quality Attributes) 85 Serviceability (Product Can Be Serviced during Its Effective Life) 85 Recyclability (Product Can Be Recycled along the Reverse Logistics Supply Chain)... 86

Consider Alternative Product Design Approaches 86 Quality Function Deployment 87 Concurrent Engineering 87 Design for Manufacturability 88 Design for Sustainability 88

Determine the Number of Supply Chains Needed by a Company 89 Align with Customer Segment 89 Align with Product/Service Bündle 90 Align with Supplier Category 91 Align with Common Incentives 91

Respond to Needs of Internal Customers 92 Conclusion 92 Hot Topic: Human Trafficking 93 Discussion Questions 94 References 95

4. A System to Meet Customer Needs 97 Learning Outcomes 97 Company Profile: GE Aviation 97 Supply Chain Models 101 Global Supply Chain Forum Model 102

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Customer Relationship Management 104 Origins of CRM 104 What Can CRM Do? 105 Benefits 105 CRM Processes 106 Problems 107 CRM's Future 108

Product Life Cycle Management 109 What Is PLM? 109 How Did PLM Evolve? 110 What Does PLM Include? 110 What Does PLM Not Include? 111 What Are the Benefits of PLM? 111 What Are the Obstacles? 112 What Is the Present Status of PLM? 113 What Does the Future Hold? 114

Supply Chain Configuration 115 Basic (Generic) Supply Chain 115 Variations for Different Industries 116 Supply Chain Mapping 116

Determining Resource Requirements 116 Facilities 116 Equipment 119 Employees 120 Inventory 120 Information Systems 120

Designing Processes to Match with Products 121 Make to Stock 122 Assemble to Order 122 Make to Order 122 Engineer to Order 122

Determining the Mix of Make and Buy 123 Core Competency Concept 123 Total Cost of Ownership 123 Cost Reduction versus Revenue Increase Considerations 124 Effect of Outsourcing Movement 124

Aligning Entities along the Supply Chain 125 Entities to Be Involved 126 Allocation of Authority and Responsibility among Entities 126 Collaboration Process 126 Implementation Plan 127

Evaluating the System Design 127 Will It Accomplish Its Objectives? 128 Is It Sustainable? 128 Is It Flexible? 129

Summary 129 Hot Topic: Sweatshops 130 Discussion Questions 132 References 133

Contents xi

5. Demand Management 137 Learning Outcomes 137 Company Profile: NextEra 137 Introduction 143 Definition of Demand Management 144 Importance of Demand Management 146 Managing Demand 146

Accept All Demand 147 Select the Types of Demand to Accept 147 Solicit External Input in Forming Demand Patterns 147 Design the Form in Which Demand Will Be Accepted 147 Impose Constraints on Demand Submission 148

Managing Supply 148 Select a Demand Management Strategy 148 Develop a Demand-Forecasting System 148 Determine the Resource Requirements to Meet the Demand 149

Merging Supply and Demand into a Demand Management Process 149 Sales and Operations Flanning to Match Short-Term Supply and Demand 149 Collaboration among Supply Chain Participants 150

Demand Management in Manufacturing 151 Demand Management in Services 152 Proposed Demand Management Strategies 154 Factors That Affect Selection of a Demand Management Strategy 155

Resources' Value 155 Type of Demand 157 Top Management Strategies 157

Relationship between Factors and Strategies 158 Model for Integrating Demand and Supply Management 160 Programs Used to Implement Demand Management Strategies 164

Provide Strategy Programs 164 Match Strategy Programs 165 Influence Strategy Programs 165 Control Strategy Programs 166

Demand Management along the Supply Chain 166 Retail 167 Wholesale 167 Manufacturer 167 Mining and Agriculture 167

Summary 167 Discussion Questions 170 References 170

Section III Supply Perspective—Distribution, Production, Procurement, and Logistics

6. Distribution and Retailing 175 Learning Outcomes 175 Company Profile: Lowe's 175

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Introduction 179 Retail Function 180 History of Retailing 180 Characteristics of the Industry 184

Customers and Markets 184 Outputs 186 Inputs 186 Transformation Process 187 Impact on Operations Management 188

Designing the Retail Process 188 Strategie Orientation 189 Critical Design Points: Keys to Success 190 Additional Factors to Consider in Retail Store Design 193

Multidiscipline Project 193 Continuing Need to Readjust or Redesign 193 E-Commerce Considerations (Direct vs. Indirect Selling) 193 Strategie or Long-Term Considerations 194

Managing a Retail Business 194 Determine the Expected Demand 194 Plan Capacity to Meet Demand 195 Implement the Operating Plan 195 Measure Performance 196 Replan for the Next Period 196

Retail and Inventory Management 196 Value 196 Availability 197 Variety 197 Presentation 197 Service 197 Response Time 197

Present Situation in Retailing 197 Future in Retailing 198 Role of Wholesalers and Distribution Centers 199

Ordering 199 Receiving 199 Stocking 199 Picking 200 Loading the Trucks 200 Transporting to Stores 200 Unloading and Display at Stores 200

Critical Success Factors for Distribution 201 Inventory within Distribution Functions 201 Inventory Management between Retailer and Distributor 202 Technology in Distribution Functions 202

At the Retail Store 202 Movement of Goods 203 At the Distribution Center 203

Distribution Center Design 203 Positioning Services within the Distribution Functions 204

Contents xiii

Presale Services 204 Postsale Services 204 Role of Third-Party Service Providers 205

Distribution Performance Measurement 205 Financial Performance Measures 205 Operating Performance Measures 205 Collaboration Performance Measures 205

Retailer-Distributor Relationship 206 Summary 206 Hot Topic: Contaminated Milk 207 Discussion Questions 209 References 210

7. Production and Service Processes 211 Learning Outcomes 211 Company Profile: Caterpillar 211 Introduction 216 Evolution of the Production Function 218

From Craft to Mass Production 219 From Mass Production to Mass Customization 219

Critical Success Factors for Manufacturers 220 Cost and Efficiency 220 Quality 220 Responsiveness: Timing of Delivery 220 Responsiveness: Product/Service Mix 221

Flexibility 221 Agility 221 Information Technology 221

Manufacturing Strategies 221 Make to Stock 222 Locate to Order 222 Assemble to Order 223 Make to Order 223 Engineer to Order 223

Batch to Lean Operations 223 Present Batch Flow 224

Machine Breakdowns 225 Supplier Failures 225 Worker Flexibility 225 Customer Lead Times 225 Customer Order Size 226

Proposed Lean Production Flow 226 Customer Lead Time 226 Extra Available Space 227 Faster Detection of Quality Problems 227 Ease of Transferring Operators 227 Reduced Scheduling Requirements 227 Smaller Lot Sizes 227

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No Buildup of WIP Inventory 228 Empowered Employees 228 Reduced Equipment Breakdowns 228 Reduced Late Material Deliveries 228 Reduced Write-Off of Inventory 228

Obstacles to Implementing Lean 228 Make or Buy Strategies 229

Vertical Integration 229 Outsourcing 230

Capacity Flanning 232 How Much Capacity? When? What Kind? 232 Location and Ownership 233

Service Production Strategies 233 Relationships with Downstream Customers 234 From Transactions to Processes 236

Transactions versus Processes 236 Basic Processes of a Business 237 Benefits of a Process Orientation 238

Effect of Process Orientation 238 Organizational Structure 238 Strategies 239 Knowledge Management 239 Change Management 240

Trends in Production 240 From Manual to Automated 240 From Domestic to Global 241 From Standard Products to Customized 241 Postponement 241 Sales and Operations Flanning 242 Additive Manufacturing 242

Performance Measurement 242 As Measured by Accounting 242 As Measured by Production 243 Measures along the Supply Chain 243

Summary 243 Hot Topic: Clothing Manufacturing 244 Discussion Questions 246 References 247

8. Procurement/Purchasing 249 Learning Outcomes 249 Company Profile: Nestle 249 Introduction 254 Role of Procurement in the Supply Chain 255 Traditional Purchasing 256 Contemporary Purchasing 258 Changing Role of Purchasing 259 Critical Success Factors for Purchasing 261

Functionality 261

Contents xv

Availability 261 Cost 261 Quality 262 Match Inflow with Outflow 262 Reduce Variances in Delivery 262 Increase Supplier Dependability 263 Reduce the Bullwhip Effect 263 Become an Intercompany Facilitator 263 Find Sustainable Suppliers 263

Purchasing Functions: Participating 264 Product Design 264 Product Specifications 264 New Product Introduction 264 Target Costing 266 Strategie Sourcing 267 Supplier Location 268 Inventory Management 268 Supplier Risk Management 269

Purchasing Functions: Directing 269 Purchasing Process 269 Supplier Evaluation 270 Supplier Relationship Management 271 Supply Chain Coordination/Collaboration 271

Purchasing along the Supply Chain 271 Consumer 271 Retail 272 Wholesale 272 Manufacturer 273 Mining and Agriculture 273 Services 273

Offshore Outsourcing 274 As a Strategie Concept 274 TCO Considerations 275 As a Project, with Project Management Needs 277 Other Considerations: Intangible Costs and Public Acceptance 277 Supplier Location as a Strategy for Entering an Offshore Market 278

Performance Measurement 278 Traditional: Positive Purchase Price Variance 278 Contemporary: Enhanced Value for the Consumer 278

Future of Purchasing 279 Summary 280 Hot Topic: Apple Juice 281 Discussion Questions 283 References 283

9. Logistics: The Glue That Holds the Supply Chain Together 287 Learning Outcomes 287 Company Profile: Transportation Insight 287

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Scope of Logistics 293 Evolution of Integrated Logistics 295 Transportation 297

Truck: Privately Owned or Third-Party Carriers 298 Rail: For Selected Goods 298 Waterways 299 Air 299 Pipeline 299 Parcel 299 Transmission Lines 299 Fiber-Optic Cable Networks 300

Materials Management 300 Interim Storage 300 Exchange Points 301 Traceability 301 Integration 301 Outsourcing 302

Drivers of the Outsourcing Movement 303 Sustainability 304 Social Responsibility 304 Ethical Responsibility 304 Future Company Well-Being 304

Steps in the Outsourcing Decision 304 Step 1. Determine Project Feasibility 304 Step 2. Prepare a Project Plan 305 Step 3. Estimate Annual Savings 306 Step 4. Identify Risks or Disruption Costs 306 Step 5. Estimate the Return on Invested Capital 307 Step 6. Implement the Offshore Outsourcing Program 307 Step 7. Measure Progress 307 Step 8. Review and Revise 308 Summary 308

Reshoring Initiative 308 Rise of 3PLs 309

Benefits of 3PL Services 312 Reduces Total Cost 312 Decreases Total Time from Origin to Destination 312 Results in More Consistent Processing: Less Variability in Elapsed Time 312 Allows Individual Participants to Concentrate on Core Functions 313 Increases Flexibility of the Supply Chain 313 Leads to Market Development through 3PL Contacts 313 Taps into Specialized Knowledge Not Normally Internal to Company 313

Obstacles to Successful Implementation 313 Lack of Qualified Personnel within the Company to Manage the 3PLs 313 Lack of Full-Service Providers 314 Perceived Loss of Control by Outsourcing Company 314 Difficulty in Coordinating Disparate Participants 314 Lack of a Comprehensive Financial Analysis before Implementing 314 Difficulty in Selecting and Using Appropriate Performance Measures 314

Contents xvii

Trend toward Outsourcing the Distribution Function 315 Major Companies 315 Role of 4PL in Building Supply Chain Relationships 315

High-Tech Industry Issues 316 Risk Management 317 Status Report 317 Hot Topic 319 Discussion Questions 321 References 321

10. Reverse Supply Chains 325 Learning Outcomes 325 Company Profile: GENCO 325 Introduction 329 Description of Reverse Supply Chain Networks 329

Benefits of Reverse Logistics 330 Barriers to Reverse Logistics 331 Continuation of Forward Supply Chains 331

History of Reverse Logistics 333 Principal Drivers of the Movement 333

Individual Consumers 333 Individual Businesses 335 Society as a Group 335

Environmental Concerns 335 Resource Scarcity Concerns 336

Business Sector 336 Economic Benefits Possible 336 New Businesses, Even New Industries, Possible 337

Educational Institutions 337 Governments: At All Levels 337

Activities in Reverse Logistics 338 Service: Assure Proper Use of Product 338 Returns: Repackaging or Relocation 338 Restoration: Minor Modification or Repair 338 Remanufacturing: Overhaul and Major Rebuilding 339 Recycling: Reconstitution as Part of Another Product 339 Disposal: Return to Natural State 339 Hazardous Waste Disposal 340

Role of Private Industry 340 New Paradigms in Product Design (Design for Sustainability) 341 Design and Operate Green Supply Chains 341 Develop Systems to Manage Reverse Logistics 341 Participate in Joint Ventures to Seek Social Objectives 342

Role of Government 342 Research: To Identify Threats and Opportunities 342 Legislation: To Standardize Business Requirements 344 Regulation: To Monitor Performance 345 Participation: To Encourage and Support Ongoing Programs 345

Role of Consumer 345

xviii Contents

Participant in Reverse Supply Chain Programs 346 Educated Consumer 346 Supporter of Green Supply Chain Efferts 346

Reverse Logistics Network 347 Continuation of the Forward Supply Chain 347 Open System Environment 348 Heavily Outsourced by Major Businesses 348

Need for a Life Cycle Systems Approach 349 Need for IT 351 Other Considerations in Designing Reverse Supply Chains 352 Future 352

Growth in Amount of Materials Recycled 352 Increase in Number of Companies Performing Reverse Logistics Activities 353 Joint Ventures between Private Business and Government 353 Increased Emphasis on Prevention, Not Just Reusing 353 More Companies Will Design Integrated Reverse Logistics Systems 353

Summary 353 Discussion Questions 356 References 357

Section IV Need for Integration

11. The Need to Integrate 361 Expected Outcomes 361 Company Profile: Cisco 361 Introduction 367 Setting the Stage 368

Reasons to Integrate 369 Research in Support of Integration Efferts 370

From Mass Production to Mass Customization 372 From Graft to Mass Production 372 Prelude to Mass Customization 373

From Vertical Integration to Virtual Integration 375 From Homogeneous Cultures to Diverse Cultures 377 From Bottom Line to Triple Bottom Line 377 Drivers of Change 379

Global Competition 379 Global Markets 380 Economic Advantage 380

Lower Costs 380 Higher Revenues 381

Relationships and Trust among Supply Chain Participants 381 Trust between Individuais 381 Formal Contracts or Agreements 381 Common Interests or Projects (Enforced Trust) 381

Involves Change Management 382 Change Is Difficult within a Company 382

Embedded Culture 382

Contents xix

Policies and Procedures 383 Organization Structure 383 Customer Relationships 383 Supplier Relationships 383 Union Relationships 384

Change Is More Difficult for a Community 384 Company-Community Relationship 384 Difficulty in Changing Laws and Regulations 385 Difficulty in Changing Infrastructure 385

Change Is Most Difficult for an Entire Country 385 Political Implications 385 Regional Differences 385

Steps in the Integration Process 386 Build Interfaces with Customers and Suppliers 386 Change Interfaces to Interlaces to Make the Relationships Closer 386 Change Interlaces to Integrated Relationships 386

Need for Strategie Flanning 386 Categories of Operations 387

Normal Operations 387 Improvement Programs 388 Problem-Solving Programs 388 Crisis Management 388

Need for a Multiyear Project Plan 388 Performance Measurement across the Supply Chain 389 Integration Requires Sharing 389 Summary 389 Hot Topic: AECL, Part 1 390 Discussion Questions 392 References 393

12. Why Integration Is Difficult 395 Learning Outcomes 395 Company Profile: Boeing 395 Introduction 400 Determining Strategie Objectives 401 Evaluating the Potential Return on Investment 401

Uncertainty of Benefits 401 Tangible or Direct 402 Intangible or Indirect 402

Uncertainty of Costs 402 Product Costs 402 Support (Overhead) Costs 403

Uncertainty of Assets Employed 403 Designing for Participant Differences 403

Participants Are Not Equal 403 Commitment 403 Contribution 404 Different Roles: Drivers and Followers 404

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Technical Differences 404 Size 404 Proximity 405 Type of Operation 405

Need for Multiple Supply Chains 405 Different Customer Segments 406 Different Supplier Segments 406 Different Logistics Networks 407 Separating Interwoven Networks 408

Selecting and Implementing Technology 408 Product and Service Processes 408

Remove Barriers 408 Eliminate Redundancy 408 Develop Compatible Processes 409 Strive for Effectiveness and Efficiency 409

Incomplete Interorganizational Systems 409 Lack of Systems Compatibility 409 Lack of Information 410 Lack of a System 410

Financial Funds Flow 410 Realigning Infrastructure 411

Internal Organization 411 Effect of Outsourcing Movement 412 External Organization 412 Policies and Procedures 412 Physical Infrastructure 413

Transforming Company Cultures 413 Internal 413 External 413

Building Relationships 414 Communicate 414 Coordinate 414 Cooperate 414 Collaborate 414

Lack of Trust Inhibits Collaboration 415 Measuring Performance 418 Maintaining the System 419

Düring the Implementation Process 419 Düring the Operation of the Supply Chain 419 Extension into Reverse Logistics 420

Obstacles to International SCM 420 Summary 420 Discussion Questions 424 References 424

13. How to Build an Integrated Supply Chain 427 Learning Outcomes 427 Introduction 432

Contents xxi

Who Manages the Supply Chain? 433 Past and Future of Supply Chain Management 433 Present Supply Chains 434

Virtual Supply Chains 435 Contractual Alliances 435 Dominant Party Management 435 Third-Party Direct Management 436 Third-Party Indirect (Third-Party) Management 436

World of Lean Production 437 Product 438 Purchasing Process 438 Production Process 439 Delivery Process 439 Demand Variation 439

Moving from Functional Focus to Cross-Enterprise Collaboration 439 Comprehensive Supply Chain Model 441 Decisions Needed to Achieve a Lean and Agile Supply Chain 443

Commitment 443 Concept 443 Configuration 444

Top Management 444 Marketing 444 Purchasing 445 Manufacturing 446 Distribution 446 Finance and Accounting 446 Communication 447 Culture 447

Customization 448 Integrated Supply Chain 449

Coordination 450 Cooperation 450 Collaboration 450

Steps in the Change Process 456 Investigate 456 Involve 456 Include 456 Initiate 456 Invigorate 456 Implement 456 Integrate 457 Institutionalize 457 Innovate 457

A Look Ahead 457 Complexity 458 Clairvoyance 459

Summary 460 Discussion Questions 462 References 463

xxii Contents

Section V Financial and Information Technology Perspectives

14. Information Flow along the Supply Chain 467 Learning Outcomes 467 Company Profile 467 Introduction 478 Need for Information Flow 478 Types of Information Transmitted 480

Upstream Suppliers 480 Midstream (Internal) 481 Downstream Customers 481 Reverse Supply Chain 482 Supply Chain Connectivity 482

Intracompany Technologies Used 484 Data Capture and Communication 484

Computer-Aided Design 484 Point-of-Sale Terminals 485 Automatic Identification Systems 485 Groupware 486

Data Storage and Retrieval 486 Data Manipulation and Reporting 487

Supply Chain Direct Links 488 Customer Relationship Management 488 Supplier Relationship Management 489

Linking Technologies 489 Interorganizational Systems 489 EDI and Internet EDI 489

Linking Applications 490 Videoconferencing 490 Sales and Operations Flanning 492 Product Life Cycle Management 492

Third-Party Services 492 Service-Oriented Architecture 492 Software as a Service 493 Cloud Computing 494

Benefits of Information Technologies 495 Tangible Benefits 495

Increase Revenues 495 Reduce Product Costs 496 Reduce Transaction Costs 496 Reduce Product Development Lead Time 496 Reduce Capital Investment Costs 496

Intangible Benefits 496 Improve Customer Relations 497 Improve Decision Making 497 Streamline Administrative Processes 497 Integrate Company Flanning and Execution 497

Contents xxiii

Barriers to IT Adoption 498 Technological Obstacles 498

Standards Interoperability 498 Back-End Interoperability 498 Scope of Applications 498 Security 499

Managerial Obstacles 499 Power Structure 499 Trust 500 Economic Issues 500 Employee Acceptance 500

Societal Obstacles 500 Model of an Integrated Supply Chain Information System 501 Summary 502 Hot Topic 502 Discussion Questions 505 References 505

15. Funds Flow along the Supply Chain 509 Learning Outcomes 509 Company Profile: Wells Fargo 509 Overview of the Flow of Funds 514 Need for Cash Flow within a Company 515 Supply Chain Funds Flow 516

Flows in a Supply Chain 516 Benefits of Improved Funds Flow 517 Obstacles 517

External Sources of Funds 518 Banks and Other Lending Institutions 518 Supply Chain Finance 519

Performance Measurement 520 Financial Accounting Measures: Current Ratio 520 Management Accounting Measures 520

Need for Finance and Operations to Collaborate 522 Effect of Production Strategies on Funds Flow 522 Effect of Outsourcing on Product Costs and Capital Requirements 523 Interorganizational Systems 524

Benefits 525 Obstacles 525 Evolution 526 Future 526

EDI 527 Benefits 528

Funds Flow in the Reverse Supply Chain 529 Comprehensive Example 529

Components of a Financial Statement 529 Analyzing the Cash Flow Statement 530 Looking at Alternatives 532

xxiv Contents

Summary 534 Hot Topic: Boeing 787 Dreamliner 534 Discussion Questions 536 References 537

16. ROI for Supply Chains and Other Issues 539 Learning Outcomes 539 Company Profile: Apple 540 Supply Chain Configurations 547 Programs Requiring Close Supply Chain Relationships 548 Need to Evaluate Supply Chain ROI 548

Tangible Benefits 548 Reduced Inventory 549 Reduced Cycle Times 549 Improved Customer Service 549 Improved Quality 549

Tangible Costs 549 Communications 549 Retraining Internal Employees 550 Restructure Supplier Network 550 Design Customer Network 550 Capital Investment 550

Indirect Costs 550 Meetings Required to Organize Customer and Supplier Relationships 551 Programs to Change Internal Culture 551 Changes in Organization Structure 551 Realignment of Roles of Supply Chain Participants 551

Intangible Benefits 552 Integrated Flow of Goods and Services 552 Faster Resolution of Problems 552 Match Customer Wants with Products Provided 552 Reduced Excess Capacity along the Supply Chain 552 Increased Knowledge 553 Reduced Risk of Supply Chain Disruption 553

Intangible Costs 553 Loss of Confidential Information 553 Increased Awareness of Inequitable Treatment among Participants 554 Discrepancy between Contribution and Payoff among Participants 554 Legal Actions 554

Obstacles to Equitable Distribution among Members 554 How to Organize? 554 How to Distribute? 555

Supply Chain Governance Models 555 Prime Mover in the Supply Chain 556

Organize 556 Select the Team 557 Monitor Ongoing Operations 558 Evaluate Performance 558 Initiate Change 558

Contents xxv

Third-Party Provider 559 Changes in Supply Chain Composition 559

Dictated by Prime Mover 560 Consensus of the Supply Chain Participants 560 Consultation with an Outside Adviser 560 Mediation by Third Party 560 Legal Action 560

Case Studies 560 Use of Accounting Records 561 RFID Implementation 561 Cost Reductions with Investment Requirements 561 Supply Chain Finance 562 Benefits of Supply Chain Collaboration 562

Summary 563 Hot Topic 563 Discussion Questions 565 References 566

Section VI The Future

17. Trends in Supply Chain Management 569 Learning Outcomes 569 Company Profile: Amazon 569 From the Past to the Present 577

From the American Revolution to World War II 577 From World War II until the Present 578

Evolution of Critical Success Factors in the United States 579 Beginning (from First Settlements through 1800) 581 Industrial Revolution (1840s-1890s) 581 Growth and Recovery (1890s-1930s) 581 Mass Production (1940s-1950s) 581 Arisings (1960s-1970s) 582 Awakening (1980s) 582 Globalization I (1990s) 582 Globalization II and Mass Customization (2000 and after) 582

Major Drivers of Change in Supply Chains 583 Global Business Perspective 584 Balanced Approach to Offshore Outsourcing 584

Total Cost of Ownership 585 Risk Management 585 Other Issues 586

Continuing Advances in Technology 586 Retail Operations 586 Demand Forecasting 587 Transportation and Distribution 587 Information Systems 587 From Special-Purpose to General-Purpose Resources 588

xxvi Contents

Evolution from Transactions to Processes 589 Transactions versus Processes 589 Benefits of a Process Orientation 590

Vanishing Boundaries between Manufacturing and Services 590 Infrastructure Refinements 591

From Vertical to Horizontal Organizations 591 From Rigid Rules to Flexible Policies and Procedures 592 From Tacit Knowledge to Implicit Knowledge 592 From Financial Accounting to Management Accounting 593

Culture and Employees 593 From Passive or Obstructing Culture to Engaged and Receptive Culture 593 Employees: From Specialized to Empowered 594

Supply Chain Relationships 595 From Adversarial to Collaborative 595 Trust and Distrust 596

Emergence of Third-Party Supply Chain Coordinators 597 Risk Management 598

Increased Complexity and Risk 598 Internal Risks 600 External (Open System Environment) Influences 601 Natural Disasters 601

Sustainability 602 Triple Bottom Line 603 Beyond the Triple Bottom Line 604 Why Should Business Take the Lead? 604 Need for Alliances 604 Benefits and Obstacles 605 Sustainability in the Future 605

Strategie Employee Plan 605 Summary 606 Hot Topic 606 Discussion Questions 609 References 609

18. Preparation for the Future 613 Learning Outcomes 613 Company Profile 613 Recognize the Need to Adapt 620

Globalization 620 Competition 620 Economy 621 Technology 621 Customers 621 Employees 622

Develop New Measures of Success 622 Financial Success 622 Social Responsibility 623 Environment 623 Integrating Financial Results, Society Equity, and Sustainability 624

Contents xxvii

Identify What Needs to Be Done 624 APICS E&R Foundation Inc 624 McKinsey Study 626 University of Tennessee 627

Adapt to Government Actions 627 Environment 627 Business Ethics 628 Product Safety 628 Social Equity 629 Infrastructure 629

Capitalize on Third-Party Skills 629 Direct Support: Outsourcing 629 Indirect Support: Financing and Insurance 630 Advisory: Consulting and Training 630 Analyst: Measure Performance and Identify Needs 630 Manager: Virtual Holding Company 630

Utilize Information Technology 630 Enterprise Resource Flanning Extension 631 Service-Oriented Architecture 631 Internet Processes 631 Interorganizational Systems 632

Take Advantage of Other Technologies 632 Organization and Teams 632 Project Management 632 Process Technology 633

Build Strategie and Operational Plans 633 Continue the Drive for Collaboration 633 Develop Performance Measures for Supply Chain Management 634

Integrate Delivery Effectiveness Measures 634 Integrate Cost and Quality Measures 635 Supplier Profitability 635 Effectiveness of Supply Chain Integration 635

Structure the Organization to Manage Change 636 Purchasing 636 Integrate All Functions 637 Educate the Work Force 637 Increase Marketing Influence 638 Overcome Inertia 638

Expand Knowledge Management 639 From Data to Information 640 From Information to Knowledge 640 From Knowledge to Wisdom 641 Some Ways to Learn 642 Obstacles to Knowledge Transfer 642 Will Knowledge Replace "Things"? 643

Acquire Data Analytics Capabilities 644 Background 645 Benefits 645 Obstacles 646

xxviii Contents

Applications 647 Techniques 647 Conclusions 648

Integrate Manufacturing and Services 649 Apply Chaos Theory to Business 650 Summary 651 Hot Topic 651 Questions for Discussion 653 Discussion Questions 653 References 654

Index 657