Integrating the Supply Chain
Pressures to Improve Logistics
 Customers are more knowledgeable, and demand higher
quality, lower costs and better service.
 Competition is getting fiercer, and organizations must
look at every opportunity to remain competitive.
 There is changing power in the supply chain. Very large
retail chains demand customized logistics from their
suppliers.
 Other changes in retail markets include the growth of 24hour opening, home deliveries, out-of-town malls, retail
parks, telephone and on-line shopping.
 International trade continues to grow
 Organizations are introducing new types of operation,
such as JIT, flexible manufacturing, etc.
Pressures to Improve Logistics
(cont’d)
 Some organizations are turning from a product focus to a
process focus. This encourages improvement to
operations, including logistics.
 There have been considerable improvements in
communication.
 Organizations are increasing cooperation through
alliances, partnerships, and other arrangements.
 Managers are recognizing the strategic importance of the
supply chain.
 Attitudes towards transport are changing, because of
increased congestion on roads, concerns about air quality
and pollution, broader environmental issues, etc.
Current Trends in Logistics
 Improving Communications
 Improving Customer Service
 Other significant trends:
– Globalization
– Reduced number of suppliers
– Concentration of ownership
– Outsourcing
– Postponement
– Cross-docking
Current Trends in Logistics
– Direct delivery
– Other stock reduction methods
– Increasing environmental concerns
– More collaboration along the supply chain
Three Important Themes
for Logistics to Consider
Lean Logistics
Agile Logistics
Integration
Integrating Logistics within an
Organization
 Integrating logistics within an organization has all the
related activities working together as a single function.
 This is responsible for all storage and movement of
materials throughout the organization. It tackles
problems from the viewpoint of the whole organization,
and looks for the greatest overall benefit.
 In practice, it is difficult to integrate all the logistics
within an organization.
 The supply chain consists of many different activities,
with different types of operation, using different
systems and geographically dispersed
Stages in Integration
1. Separate logistics activities are not given much
attention or considered important
2. Recognizing that the separate activities of logistics
are important for the success of the organization
3. Making improvements in the separate functions,
making sure that each is as efficient as possible.
4. Internal Integration – recognizing the benefits of
internal cooperation and combining the separate
functions into one.
5. Developing a logistics strategy, to set the long-term
direction of logistics.
.
Stages in Integration
6. Benchmarking - comparing logistics’ performance
with other organizations, learning from their
experiences, identifying areas that need improvement
and finding ways of achieving this.
7. Continuous Improvement – accepting that further
changes are inevitable and always searching for
better ways of organizing logistics.
Benefits of Integration
 Genuine cooperation between all parts of the supply
chain, with shared information and resources
 Lower costs – due to balanced operations, lower
stocks, less expediting, economies of scale, elimination
of activities that waste time or do not add value
 Improved performance – due to more accurate
forecasts, better planning, higher productivity of
resources, rational priorities, and so on
 Improved material flow, with coordination giving faster
and more reliable movements
Benefits of Integration
 Better customer service, with shorter lead times, faster
deliveries and more customization
 More flexibility, with organizations reacting faster to
changing conditions
 Standardized procedures, becoming routine and wellpracticed with less duplication of effort, information,
planning, and so on
 Reliable quality and fewer inspections, with integrated
quality management programs.
 Integration can be difficult and involve major
changes. There are, however, many benefits,
and most companies have moved in the direction
of internal integration.
 There are also the benefits of extending
integration to more organizations in the supply
chain. There are several ways of organizing this
external integration, ranging from informal
agreements to vertical integration. The most
popular has some form of strategic alliance or
partnership.
Logistics Management
Logistics and Supply Chain
Case study
 Seven-eleven convenience store
– Describe the key logistics processes at 7-11.
– What differences between the early reform
and the regional distribution center at 7-11.
– What do you think are the main logistics
challenges in running the 7-11 operation.
Case study
First stage
No
distribution
center
Second stage
Centralized
distribution
Third stage
Built its own
distribution
center---joint
distribution
Key issues
1
What is supply chain, and
how is it structured?
2
What is the purpose of a
supply chain?
The Supply Chain Concept
 Development of the Concept
– Total systems cost - remains an important element
of logistics analysis.
– Outbound logistics – the warehousing and
distribution of finished goods.
– Inbound logistics – the receiving and warehousing
of raw materials, and their distribution to
manufacturing as they are required.
– Value chain analysis integrated logistics activities.
Business Logistics in a Firm
The Supply Chain management Concept
 A supply chain is a group of partners who
collectively convert a basic commodity (upstream)
into a finished product (downstream) that is
valued by end-customers, and who manage
returns at each stage.
Definition
Planning and controlling all of the processes
that link partners in a supply chain together in
order to serve needs of the end-customer.
Supply chain:
structure and tiering
The process starts with
several external suppliers
that move milk, cardboard,
and plastic to the processing
plant.
After the milk is processed
and packaged, it is delivered
to retailers, who sell it to
customers. The alternative
delivery system is delivery
from a warehouse directly to
customers’ homes.
Supply chain:
structure and tiering
Supply chain can be fairly
complex. The supply
chain for a car
manufacturer includes
hundreds of suppliers,
dozens of manufacturing
plants (for parts) and
assembly plants (for cars),
dealers, direct business
customers, wholesalers,
customers, and support
functions such as product
engineering and
purchasing.
Logistics concept
Definition
The task of coordinating material flow
and information flow across the supply
chain.
Activity 1
Wheat
Flour
Praline
Printed
materials
Confectionery
manufacturer
Fiberboard
Multiple
retailers
Wafers
Chocolate
Aluminium
Packing
Wholesalers
End
customers
Others
(hospital etc.)
Creamery
(milk)
Cocoa
beans
Sugar
Vegetable
oil
Cocoa
butter
Lecithin
Emulsifiers,
Salt, etc.
Key issue
1
What is the relationship between
material flow and information
flow?
Case study: Seven-eleven
Case study: Seven-eleven’s distribution
strategy
 Delivery arrives from over 200 plants
 Delivery is cross docked at DC (over 80 DCs for
food)
 Food DCs store no inventory
 Combined delivery system: frozen foods, chilled
foods, room temperature and hot foods
 11 truck visits per store per day (compared to 70
in 1974)
 No supplier (not even coke!) delivers direct
Case study: Seven-eleven’s
Information Strategy
 Quick access to up to date information (as
contrasts with data)
– High speed data network linking stores, headquarters,
DCs and suppliers
– Store hardware
–
–
–
–
Store computer
POS registers linked to store computer
Graphic Order Terminals
Scanner terminals for receiving
Integrated Logistics Management
Material and information flow
Material and information flow
Material flow
Information flow
Key issues
1
How do products win orders in
the marketplace?
2
How does logistics contribute
to competitive advantage?
Creating logistics advantage: three
basic ways
time
quality
Logistics advantage
cost
Creating logistics advantage:
controlling variability
 Variability undermines the dependability with which a product or
service meets target.
Order winners and order qualifiers
Different logistics
performance
objectives
Order winners
are factors that directly and
significantly help products to
win orders in the
marketplace.
Customers regard such
factors as key reasons for
buying that product or
services.
Order qualifiers
are factors that are regarded
by the market as an ‘entry
ticket’.
Unless the product or service
meets basic performance
standards, it will not be taken
seriously.
The value chain: Linking supply chain
and business strategy
Business Strategy
Supply Chain Strategy
New Product
Strategy
New
NewProduct
product
Development
Development
Marketing
Strategy
Marketing
Mark
Ope
eting
and
Operations
ratio
and
Sales
ns
Sales
Distri
butio
n
Se
rvi
ce
Finance, Accounting, Information Technology, Human Resources
How to Achieve Strategic Fit
 Understanding the Customer
– Lot size
– Response time
– Service level
– Product variety
– Price
– Innovation
How to measure?
Implied Demand
Uncertainty
Levels of Implied Demand Uncertainty
High Fashion
Detergent
Customer Need
Price
Responsiveness
Low
High
Implied Demand Uncertainty
Understanding the Supply Chain: CostResponsiveness Efficient Frontier
Responsiveness
High
Low
Cost
High
Low
Achieving Strategic Fit
Responsive
supply chain
Responsiveness
spectrum
Efficient supply
chain
Certain
demand
Implied
uncertainty
spectrum
Uncertain
demand
Strategic Scope
Suppliers Manufacturer Distributor
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Retailer
Customer
Drivers of Supply Chain Performance
Competitive strategy
Efficiency
Responsiveness
Supply chain strategy and structure
Inventory
Transportation
Drivers
Facilities
Information
Considerations for Supply Chain Drivers
Driver
Efficiency
Responsiveness
Inventory
Cost of holding
Availability
Transportation
Consolidation
Speed
Facilities
Consolidation /
Proximity /
Dedicated
Flexibility
What information is best suited for
each objective
Information